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Toys R’ Us: Lessons From the Failed Retail Giant

Shawn Davis Franchise News

Was Toys R’ Us Killed by Amazon?

The changing nature of retail in an online economy.

After years of slipping sales and mounting debts, Toys R’ Us announced the company was filing for bankruptcy in September of 2017. In June of 2017, over 800 stores were closed and more than 30,000 people lost their jobs. While there were clearly challenges present from competitive retailers like Amazon and Walmart, many industry experts placed the blame on its own management. Failure to innovate its business model, adapt to changing consumer behaviors and a seeming unwillingness to implement new technology certainly factored into the demise of the once popular toy retailer. As a retailer simply having a large variety of products to sell doesn’t necessarily translate into higher sales. In a sense, it is not a company or brand name who sales, it is essentially people who sell products. Many stores were understaffed and simply put, didn’t offer a fun experience for consumers.

If you look at failed mega retailers like Kmart, Radio Shack, Blockbuster or Toys R’ Us, what you can see is a trend of businesses who didn’t adapt to diverse market trends. As millennials grew to become parents, companies like Amazon played perfectly into directing the expectation of convenience for those who ordered online.

It was Toys R’ Us that entered into a ten year joint partnership with Amazon in 2000 to become the exclusive retailer of baby products and toys on the online platform. This action was initially a success, but helped cement the brick and mortar store’s eventual demise. Part of the deal was that Toys R’ Us would have no online presence. If someone went to the ToysRUs.com website, they would be redirected to Amazon.com. Eventually, Amazon began opening up it’s site to other retailers, many of whom were direct competitors of Toys R’ Us. All of this led to a lawsuit which Amazon lost, but ultimately it was Toys R’ Us who had lost nearly a decade of momentum in establishing it’s own online presence.

Some brick and mortar retailers have remained successful in today’s economy however by offering something that cannot be done by a website.

Many act as showrooms, which offer physical displays and demos of popular products consumers want to buy and are still frequented by the American public. Some chains even offer to price match with their online competitors. Many consumers still prefer to physically see and touch products before they make a purchase. Corporations like Best Buy have this functionality, coupled with a knowledgeable sales staff that can answer people’s questions and help sell the products better than an image on a website often can.

Toys R’ Us however didn’t adopt any of these strategies and suffered as a result. The stores themselves were often, poorly-staffed and had no opportunity to play with toys, which usually just sat on a shelf in the box. When retailers are trying to win on price and convenience, the ones who fail often lack in both areas.

In 2005 a leveraged buyout (LBO) was instituted by a group capital investors led by Bain Capital and others which likely signaled the end of the retail giant. This LBO was good for investors: it cut costs through ensuring efficiency in operations but this strategy left out room for innovation which ultimately became the death nail of the company. The debt alone did not help destroy the company, but it definitely multiplied the pressure felt from declining sales.

While the giant toy retail store has closed its doors (for now) many other large box stores like Target and Walmart have succeeded in filling the void. As we approach the 2018 holiday shopping season, the company is now exploring options for a possible relaunch as Geoffrey the Giraffe was seen at a recent trade show, perhaps drumming up some hype for a potential return.