TWO LITTLE BOYS HAD TWO LITTLE TOYS

One of the most successful “Big Box” retailers in the world: Toys R Us, filed for bankruptcy in the USA in the summer of 2017. It has been in existence for over sixty-five years. This represented the nadir of this type of retailer. Similar retailers such as Blockbuster, Circuit City and Sports Authority also ran into difficulties and faced a similar exit from the retail scene.

I suppose we should not be surprised by such a development. I have always argued that the retail sector is a fickle one. In some cases the retail life cycle can be very short.  Some commentators argue that every fifty years or so retailing goes into a major shift in disruption and revolution. Perhaps the developments over the past few years in technology and changes in shopping behaviour have caught up with retailers such as Toys R Us.

“Big Box” retailers or “category killers” as they are sometimes referred to became very successful in the 1980’s.  Very large physical retail spaces allied to a focus on one category of product has worked well for category killers. Essentially they set out to be the recognised place to go for the particular category of product that they sold: in this case toys. This focused approach allowed such retailers to offer lower prices, due to being in a strong bargaining position with suppliers. They also offered a far greater selection of items in that category; thereby making it a “one stop shop” for customers making their seasonal or holiday purchases for their kids. It positioned its value proposition as being the “authoritative toy retailer.

It focused on a combination of price and quality, linked to a very comprehensive selection of items across all categories of toys. In essence: “the place to shop for toys”. Such a strategy was designed to put the small independent toy retailers out of business. In many ways this worked very well and we saw the demise of many favourite, traditional toyshops in the United Kingdom.

Category killers operated successfully for over three decades or so. However in the last ten years we have witnessed major changes in the value proposition being offered by new entrants to different retail sub-sectors. This combined with the growth in online retailing and the adoption of apps, smart phones and social media platforms, has fundamentally altered the way in which shoppers engage with retailers.

Some commentators argue that Toys R Us committed the classic mistake of well-established and successful businesses: they were too slow to adapt and the brand lost its relevance. Certainly they cannot blame economic variables such as recession for their decline. In the USA for instance holiday sales have grown by over six per cent in 2015.

It attempted to respond to these developments in 2014 when it launched what it called the TRU strategy. This was supposed to take it back to the customer in terms of relevance. It focused on clearer pricing strategies in the store, improvements in simpler promotional offers and a better and more relevant in-store experience.

Significantly it was very slow in developing its online retail business and more critically also slow to integrate both physical and virtual platforms. This has led to the criticism that it failed to recognise in time the fact that consumers have largely become hybrid shoppers. In other words they use a number of platforms to engage with a retailer throughout the purchasing process (problem recognition, search, evaluation, purchase and post-purchase).

Our old friend Amazon since its pioneering inception has conditioned and educated shoppers world-wide to engage in this hybrid shopping behaviour. Contrast Amazon’s approach with Toys R Us. In the case of the former it provides flexibility, speed in ordering and delivery of the item(s) and above all adaptability across its management of all aspects of its supply chain.

Category killers such as Toys R Us on the other hand are still frozen in the mind-set of cluttered stores and queues at check-outs.

More critically retailers such as Amazon, Target and WalMart have crossed over and across to many categories of product: including toys. As a consequence the “big box” concept has come under serious threat – perhaps a fatal one.

To be fair to Toys R Us it has plans to radically change the in-store experience. This has concentrated on focused interactive and engaged initiatives for parents and kids when they visit the store. For instance Geoffrey, the iconic Toys R Us mascot will greet shoppers as they enter the store. Shoppers can also point their smart phones at selected items on the shelves. By doing so this will activate a personalised experience. Barbie will tell her story to the shopper.

Augmented reality features are also being introduced to heighten the engagement and interaction. Live toy demonstrations will be provided by trained staff. They will also be given more freedom to take toys out of their wrapping and packaging to encourage kids to interact with them.

Critics might say that these initiatives, while welcome in terms of making the retailer more relevant and responsive to shoppers is too late. Large toy retailers such as Hamleys in the UK have been doing these things for a number of years.

Critical challenges involve slashing the levels of debt that it has sustained in recent years. It will also have to face the harsh reality of having to improve pay conditions for its staff.

Integrating its digital content into its stores is also at an early stage in its development: competitors have addressed this already.

The pessimist would say that it has “missed the boat”. For instance do we really need such a large physical space any more to sell items? Other retailers have redefined the purpose of physical space. Now such areas are used to build relationships with shoppers, provide solutions to their perceived problems and offer services to them. It does not matter whether they buy items within the store. Effective loyalty programmes allied to a solid reputation for customer service can direct shoppers to buy from their other retail channel platforms.

Arguably Toys R Us should go the way of other retailers such as IKEA.

In this case IKEA has begun to introduce smaller “showroom and display” physical spaces. Maybe Toys R Us should open up small playrooms and allow kids (and parents) to play in there.

Currently Toys R Us is undergoing a major rationalisation of its physical stores. It is closing around a dozen such outlets in the UK.

To its credit we should acknowledge that it has recognised (eventually) what the problems are and has plans to address them (as discussed in earlier paragraphs in this blog). The major concern is the levels of debt which it has incurred and the high volume of depreciating real estate which lies at the centre of its operations. It is a huge millstone that is tied around its neck and is likely to push it down and into oblivion. It faced a looming deadline of having to pay back $400 million of its overall $5 billion long-term debt.

Let’s see what happens in the coming months.

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