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Lessons From Toys R Us

By now you have all heard about Toys R Us (TRU) filing bankruptcy. I have been personally tagged several times on Facebook linking to articles about the bankruptcy (a couple former staff members have even hinted I should reopen Toy House now.)

Here are some things you need to know.

Image result for sad face giraffeFirst, this is a Chapter 11 Bankruptcy which is a reorganization type of bankruptcy. The giraffe isn’t going away. They aren’t closing all their stores and liquidating. That’s a Chapter 7 Bankruptcy. Toys R Us is banking on being able to restructure (and relieve themselves from) their debt so that they have the operating funds to continue competing in the toy and baby retail industries.

Second, David Brandon, the former Athletic Director at my beloved University of Michigan, is not the cause of their demise. (Many UM fans who hated Brandon for his poor job hiring football coaches want to scapegoat him for this, too. It’s easy, but wrong.) They were in trouble long before he got there.

Third, this is not a happy day for the toy industry. Even though Walmart surpassed Toys R Us in toy sales in 1998, TRU still does a tremendous amount of business and sells a tremendous amount of toys. There are many vendors in position to take huge losses in this ordeal. While the big guys like Mattel and Hasbro can likely afford it, many mid-tier and smaller vendors would be gone without TRU. That doesn’t help the rest of the industry.

Toys R Us is also important for new toy launches. The big-box discounters want tried and true. Without a large store willing to take chances on new products, there won’t be as many new and innovative products from existing companies.

A lot of people have opinions why Toys R Us is where they are today. Many want to blame Amazon. Still others want to blame the economy. I’ve read articles bashing their expensive new headquarters building, their lack of leadership, and the leveraged buyout by Bain, KKR, and Vornado.

One article wanted to blame TRU for spending too much on their stores and not enough on their website. Considering that TRU reported $912 million in e-commerce and $11.54 billion in total sales, that puts their online sales at almost 8%. (For comparison, Walmart only does about 3% of their total sales online, but that is skewed by grocery.) While 8% is impressive, it doesn’t justify taking money from the part of your business that generates 92% of your revenue and giving it to the part that only generates 8%. 

My opinion is that they didn’t spend the money on their stores the right way.

The real demise for Toys R Us started in 1998. That is the year Walmart surpassed them in total toy sales by dollar (McDonald’s Happy Meal beats them both in units sold.) 

Toys R Us chose at that time to take on the beast to reclaim their crown as king. They didn’t stand a chance. Walmart had more stores, deeper pockets, a larger advertising budget, better operational efficiency, and no need to make money on a category they saw as a commodity traffic-driver.

Seth Godin said it best. “The problem with racing to the bottom is that you might win. Worse, you might finish second.” Toys R Us finished second and we all lost because of it.

Toys R Us allowed Walmart to dictate to the world that toys are commodities, not the valuable educational tools every specialty toy store owner and every educator in America knows them to be. Toys R Us allowed Walmart to dictate that price was the only reason to buy toys. Once Toys R Us decided to compete on Walmart’s terms, they were done.

Hindsight being 20/20, the best move TRU could have taken back in 1998 was to reestablish their position as the “toy leader” and put their emphasis on the value of toys as educational tools, on the value of toys for promoting growth and development, and on the importance of choosing quality toys for your children.

If toys were thought of that way today, Toys R Us would have diminished the commodity role of the big box discounters and strengthened the toy industry as a whole, while firmly establishing themselves as the clear “toy experts” instead of a warehouse full of only toys competing with warehouses full of toys, hardware, clothing, housewares, and grocery. It would have been a win-win for them and the industry as a whole. They weren’t going to beat Walmart at Walmart’s game and likely never would catch Walmart in total sales (Walmart now has over five times as many stores.) But had they played to their own competitive advantage they would still be the king perceptually and the industry would be better off for it.

That is the lesson. Play to your competitive advantage. Play on your terms, not someone else’s. 

Right now the conventional wisdom is that Toys R Us owns too much real estate. Their stores are too big and costly. They need to close them down and sell off the real estate and focus online. I wonder how different the tune would be if back in 1998 they decided to make their stores more friendly and welcoming, filled with toy demos and play areas. What if they turned their stores into educational meccas offering classes on parenting, programs for preschoolers, and events that drew traffic? (According to this article, that is a little of what they are trying to do.) Instead they turned their stores into brightly lit warehouses with minimal staff and an entrance that makes you feel like a common thief just walking through the door.

Real estate is only an asset or liability depending how you use it.

There is still a chance for Toys R Us to turn the ship around. But they need to sail into different waters. I know a little about sailing. If you know David Brandon, tell him to look me up.

-Phil Wrzesinski
www.PhilsForum.com

PS It may sound like I’m suggesting Toys R Us be more like an independent specialty toy retailer. Umm … Yes! They have a far better chance being successful in that playground than in the big-box-treat-everything-like-a-commodity-warehouse playground they’ve been playing in. They had it right in their Time Square store and oh so wrong in the 865 other locations.

Case Study: Taking Care of the Customer Science Safari Style

My buddy, Sean, owns a toy store in Cary, North Carolina called Science Safari. I am sharing his story as he posted it on FB …

Image result for science safari north carolina“Weird occurrence… It’s happened twice in the last week. I certainly don’t mind, but I’ve never seen it in 30 years of retail nor ever thought of doing it as a parent…

“I had two people print up their own (unauthorized/counterfeit) Science Safari Gift Certificates and give them to their child. One for a class and one for $10 from the Tooth Fairy (side note, what kind of Tooth Fairy hands out $10 notes?!?). 

“The parents made good on them, giving me the money on the sly.

“Strange, but I’ll take your money.”

Yes, two different parents had the idea to print up unauthorized gift certificates to his store and give them to their kids. What would your first thought be if a customer handed you an unauthorized gift certificate?

Then the parents paid him on the sly for those “gift certificates” and the kids got to use them in the store.

Three thoughts come to mind.

First, Sean should be honored that parents, when trying to come up with a cool last-minute gift, thought of his store first. That’s when you know you’re already playing the customer service game right.

Second, here are a couple of parents who need to work on their planning ahead skills.

Third, and most importantly, as strange as this occurrence was, Sean and his team didn’t hesitate one second to allow it to happen. “Strange, but I’ll take your money.” Sean served those customers the way they wanted to be served. Sean made those last-second-forgot-to-plan-ahead customers look like heroes to their kids. Sean said, “Yeah, we’ll take care of you.”

As Teddy Roosevelt said, “Whenever you are asked if you can do a job, tell ’em, ‘Certainly I can!’ Then get busy and find out how to do it.”

That, my friends, is what winning the customer service game looks like.

-Phil Wrzesinski
www.PhilsForum.com

PS Making your customers feel like, look like, or be the hero is always the right thing to do. Always.

PPS If you live anywhere near Cary, NC, put Science Safari on your radar. It is definitely a store worth visiting.

Adjusting the Sails

I learned how to sail at YMCA Storer Camps. I knew how to canoe and kayak (I even did an eskimo roll in a kayak on the New River – bucket list!) I knew how to use a paddle to get just about anywhere, but I had never learned to harness the wind.

That’s me in 1986 on the UM Sailing Team at a regatta at Notre Dame

Sailing looked easy enough. You just let the wind do all the work.

Andy, my instructor, taught me otherwise.

The wind is a fickle thing, always changing speeds and directions. A smart sailor has to constantly scan the water looking for those gusts of wind that might change your tactics.

Sailing may not be as muscle-bound as paddling, but it is just as much work. You are always trimming the sails and adjusting your course. It may look like a leisurely way to get across the lake, but the good skipper is working the tiller and main sheet all the time, making course corrections as the wind changes.

This Sunday I am going to be teaching Retail Math to a bunch of toy store owners. For many, this will be their first real instruction on the accounting side of running a retail operation.

Most people dread math. But reading reports is a lot like reading the wind. Reports can tell you where the gusts are happening. Reports can tell you if you’ve adjusted your sails properly. Reports can tell you if you’re heading in the right direction.

Many retailers think a Profit & Loss Statement (also known as Income Statement) and Balance Sheet are simply for the accountant to figure your taxes at the end of the year. They are much more powerful tools than that. They can tell you when your inventory is too high (or low). They can tell you when your expenses are out of line. They can tell you when it is time to raise your prices. They can tell you when you can pay yourself more money.

At the very least, you should be studying these documents once a month and making course corrections. If you aren’t already reading and understanding these reports, start running these two reports monthly. Learn how to read them. Then as the years go by, start comparing the current month to that month in the previous year. The more I read the wind, the better I get at predicting its next move. The more you read and know your reports, the better you will be at adjusting your business profitably.

Wind speeds (traffic in your store) change. Wind directions (fads, hot products) shift constantly. When your boat is on an even keel (inventory well-balanced) and your sails are trimmed properly (expenses in line), you will be sailing at your fastest (most profitable).

Scan the water (reports) and your business will sail much more smoothly.

-Phil Wrzesinski
www.PhilsForum.com

PS There are many metaphors for sailing. One of my favorites is … The pessimist curses the wind. The optimist hopes it will change. The realist adjusts the sails. You can’t adjust your sails, however, if you don’t know what the wind is doing. Check out the link above to learn how to read those reports and use them to your advantage. The math happens whether you know how to do it or not.

Stories From Toy Fair

The big show for the toy industry starts this weekend. It feels weird not gearing up for the trip to NYC. So instead of a trip to New York, I’m going to take a trip down memory lane. Here are some of my favorite stories…

Toy Fair LEGO Booth 2010

This first story goes back to my grandfather, Mayor Phil Conley’s first trip back in 1950. Munn Furman (Furman’s Clothing) pulled him aside and told him the vendors there did their “credit check” by the thread count of his jacket. Munn gave my grandfather a new suit to wear and told Phil to pay him for it after the trip. Sure enough, the first showroom my grandfather entered, the guy vigorously shook his right hand saying hello and welcome, all the while rubbing the shoulders and back of the suit coat with his left hand. My grandfather knew immediately he would be paying Munn for that suit (and that suit was already paying for itself!)

Lesson? Appearances do matter. They did back then and they do today. Make a good first impression if you want to be taken seriously.

My dad had an interesting story of being in a showroom once back in the early 80’s when the Toys R Us buyer entered the room. The man talking to my dad left him in mid-sentence – yes, with half a word still dangling in the air – to go meet the TRU guy. Another gentleman came and escorted my parents from the showroom as they closed shutters and locked doors behind them. I had a similar experience in a booth two decades later when a salesperson actually said, “You’re not as important to me as the Toys R Us buyer. You can find your way out.” In both cases, those companies lost our business. In both cases those companies were out of business long before we were. In both cases, politeness would have gone a long way.

Lesson? Sure, your best customers deserve top-level attention. But then again, so do all your other customers. If either company had been polite and apologetic toward my dad or me, they wouldn’t have lost any customers that day.

One of my favorite booths was Education Outdoors. They had a hunting lodge feel to their booth. Tim and Jesse were always welcoming and friendly. They had two camp chairs in the booth. Usually I would see them late in the day. After two days walking the concrete floors lugging a few hundred pounds of catalogs, those camp chairs felt like Lazy Boy recliners. One year I got to their booth and my phone battery was dead. They had paid extra to have electricity in their booth and let me plug in my phone and pick it up an hour later. I can count on one hand the number of booths I trusted enough to even ask such a request, let alone trust them to leave my phone behind. Yes, they were always one of my favorite vendors. Probably one of yours, too, if you ever played the game “Camp”.

Lesson? Relationships matter. Trust matters. Helping each other out matters. Little acts of kindness matter. Get those things right and the rest will follow.

My favorite part of attending Toy Fair had to be the basement booths. The basement was filled with a lot of smaller companies. A lot of game inventors were downstairs. Education Outdoors was always downstairs. A lot of single-item toy inventors were downstairs. A lot of treasures to be discovered were downstairs. You had to walk some of the aisles with blinders on. This is where the real salesmanship was happening. Everyone was trying to catch your eye. Everyone had their pitch ready. If you so much as slowed down or glanced in their direction, they pounced.

“This will be bigger than Tickle Me Elmo!”
“Come on, give a small guy a chance…”
“Boo! Made you look. Now you have to stop in the booth!”

Or my favorite line I heard once, “Hey Phil, my friend bet me I couldn’t get you to stop in my booth.”

There were people sitting on chairs in the back of their booths waiting to be discovered. (They never were.) There were people jumping out in front of you as you walked the aisle. It was dog-eat-dog selling. The line that worked best was simply, “Phil, can I show you something new?”

Lesson? Honest, sincere pitches always work best. Gimmicks might get my attention, but never got me to buy. (Same thing with your advertising.)

I don’t miss travel to NYC in mid-February (been there for several feet of snow over the years) but I do miss the trade show, especially the after-hour sessions talking shop with my peers over a few beers. A lot of lessons to be learned for anyone paying attention.

-Phil Wrzesinski
www.PhilsForum.com

PS Yes, I stopped. But only after he agreed to split his winnings with me. Funny thing is that I don’t remember the booth or the product, only the gimmick.

In Retail it is All About Location

Let’s get the elephant out of the room right away.

How can I write a blog about being a successful retailer when I closed my retail store? I can sum that up in three words…

Location. Location. Location.

Yes, we were having a tough time with cash flow. That’s the usual culprit behind any store closing. Much of that was due to our location.

Location Issue #1

The population of Jackson has been stagnant at best the last several years. The youth population, however, has shrunk considerably over the last several years as birth rates declined for all groups but teens, and school enrollment is down huge since 2007. On top of that, average household income in the city fell from around $35K per household to $27K per household (well below the national average of around $56K).

I have constantly talked about paying attention to your Market Share. To know your Market Share you first have to know your Market. Ours has shrunk over 40% since 2007. Fortunately, our share of that market only dipped a little. We still had our piece of the pie, but our pie had turned into a tart.

Location Issue #2

We own and occupy a large building on the north edge of downtown. We have been a large toy store for decades, carrying toys, hobbies, baby products, sporting goods, scouts, and more. When the market could bear it, we had a ton of inventory, but scaling back inventory to match the needs of the community meant less efficient use of space and less of the “impact” of being that large store that had everything.

We discussed converting to a smaller store, more in alignment with the population and income, but that would have led to many long-time customers lamenting that we just weren’t the store we used to be or the store they remembered. Better to close while the memories were still positive.

Location Issue #3

I am a big believer in downtowns. Call me naive but I still believe downtown shopping districts can be successful. It takes dedication from the shop keepers, the landlords, and the city leaders to make it work. It takes smart policies, united fronts, and strong relationships to make it work. We have some of that in Jackson, especially among the retail owners. We also have a city council dedicated to improving the streets and sidewalks and green spaces in our downtown. Unfortunately, that also means a ton of disruptive construction. Two years of it! (and counting.)

Our city leaders are not retailers and don’t understand how construction affects retail. They saw an opportunity to get roads fixed and attract new development (all good things), but didn’t see the consequences to the existing retailers and restaurants. When you are trying to dig out of a cash flow hole, having the busiest street in town – the one that goes right by your building – be restricted from three lanes to one with backups that stretch for blocks for an entire spring and summer is not a good recipe for success. At one point we had so much construction downtown that one detour actually led you to another street closure dead-end, and only if you had local knowledge would you know which alley would get you back to open road.

In a couple years, our downtown is going to be new and fresh and repaved and ready for business. But the last two years were pretty tough on the businesses already here, especially for us as our market declined.

Yeah, Amazon is a deal-changer for many retail categories. Yeah, our own vendors are making decisions that hurt the indie retail channel. Yeah, customers are as fickle as ever and have power like never before. None of those are insurmountable. You can still compete. Even as we closed, we were holding our own for our market. We just didn’t like the direction our market was heading.

If your market is your problem, you can do one of four things, Move, Close, Change or Wait. We chose to close.

Now you know.

-Phil Wrzesinski
www.PhilsForum.com

PS I’ll discuss the other three options and what would make them attractive in future posts. Right now I have to go let the big elephant in the room out to roam the savanna.

What I Learned in 2016

2016 was a learning experience for me. I went through two life-changing events that taught me a lot about myself and about business. I got a divorce and I closed my toy store. Although they weren’t the kind of things one typically wishes for, they were incredible experiences filled with lessons I will share in 2017.

This blog is back. You will be getting posts on a regular basis filled with thought-provoking ideas and simple things you can do to make your business better.

 

Although I cannot put all the lessons from 2016 into one blog, I can sum them up for you in one sentence.

“Life and business is all about the relationships.”

We’ll explore how to build better relationships for 2017.

-Phil Wrzesinski
www.PhilsForum.com

PS My first goal will be to rebuild my relationship with you. Sorry for not blogging in 2016. With the store closed you are my main focus for 2017. Let me know your fears and obstacles and challenges. We’ll find ways to overcome them.

My Big Fat Email Subject Line Mistake

Your subject line is the most important part of your email. Period.

Get it right and your email is a success. Get it wrong and nothing else matters. I learned that the hard way yesterday.

We’re doing a big promotion on Election Day. Something new. The subject line in my email read…

“Election Day ONLY – 20% Off all Gift Certificate Sales! See inside for details…”

The first two people I talked to about the promotion asked the same question. “Do we get 20% off the purchase of a gift certificate or 20% off purchases made with a gift certificate?”

I went back and read the content of the email. It clearly states that you get 20% off the purchase of a gift certificate. How did they get so confused? Then I read the subject line again. I saw the error of my ways. It wasn’t as clear and concise as it should have been. I left room for interpretation.

TWO LESSONS

First, before you send an email, understand that many people will only ever read the subject line. They get so much email that they scan subject lines and hit the delete button. Therefore your subject line has to get your point across clearly and quickly with no room for doubt. Clever and cutesie subject lines leave too much room for interpretation. There should be no doubt about the purpose of your email. There should be only one interpretation of your subject line.

The best way to make sure your subject line is tight and to the point is to ask for help. Ask someone outside of your bottle to read your subject line and tell you what it means to them. Try to ferret out all the possible meanings. Then rewrite it to eliminate any confusion or misinterpretation.

Second, if you can’t make your point in the subject line, perhaps because it is too nuanced or complicated, then make sure your subject line has enough enticement to make people want to open the email. According to MailChimp, the average open rate for email from retailers is about 22%. In other words, 8 out of 10 people likely won’t open your email. You have to give them a reason.

Make it clear. Make it concise. Make it work for the 8 out of 10 that don’t open emails. Make it legitimate and not sounding too spammy. Make your subject line get people to want to open your email.

-Phil Wrzesinski
www.PhilsForum.com

PS In case you’re wondering why I am doing a promotion like this for the store, here are the reasons…

  1. I get a huge influx of cash right when I need it most to help stock up for Christmas.
  2. Customers who redeem gift certificates often spend much more that what the gift certificate was worth.
  3. I get my customers to commit to shopping with me now before some shiny bauble from someone else catches their eye later.
  4. I get to promote Election Day as an important day.
  5. My Transactional Customers get a great deal!
  6. About 10% of all gift certificates go un-redeemed, so I’m really only giving away a small bit of margin.

You Aren’t as Well Known as You Think

Back in 2005 we hired a Statistics Class at a local university to do a study for us. They determined how to get a random sample size that would accurately reflect Jackson County and then called people to ask them one simple task…

checklist-154274_1280

“Name all the places you can think of in Jackson County that sell toys.”

The students would write down every store mentioned. Then they would say, “You mentioned…” and repeat the list back to the person. They would then ask, “Can you think of any more?” and repeat this until the person had thought of everyone.

Here are the results of how often the top six stores were mentioned.

  1. Toys R Us 84.1%
  2. Meijer 82.3%
  3. Wal-Mart 69.5%
  4. Toy House 64.8%
  5. K-Mart 59.1%
  6. Target 45.2%

Interesting that 35% of the population of Jackson County could not think of us even though we had been here 56 years at the time of the survey.

More interesting was that Wal-Mart had only just opened a few months before this survey was done. Was that 69.5% too high or too low seeing that they had just received about four months of wall-to-wall news coverage prior to opening?

Even more interesting was that less than half of our population thought of Target as a place that sold toys even though Target, nationally, is only behind Wal-Mart and Toys R Us in overall toy sales.

Most interesting of all was that not one single store broke the 90% (even with the 4% margin of error).

NOT EVERYONE KNOWS YOU’RE THERE

One takeaway from all this is the reminder that you have to keep marketing and advertising your business. You are not the Field of Dreams. People will not come. Mainly because they don’t even know you’re there.

35% of my hometown did not know that an award-winning store with one of the largest selection of toys in America was located right downtown in a brightly colored building for over 50 years.

YOU CAN’T REACH EVERYONE

Another takeaway is that no matter how hard you try, there will still be people who haven’t heard of you.

35% of my hometown could not name the toy store that runs radio ads every day, gets mentioned on TV every day, makes monthly appearances on radio and TV, is all over social media, and gets coverage in the local newspaper all the time.

35% of my hometown could not name the toy store whose logo is on the shirt of the guy who attends networking events, teaches classes at the local hospital and even wears his colors on his jacket all winter long.

Heck, even 15% couldn’t name Toys R Us despite them spending billions on advertising.

You could sum it up simply as…

  • Always be farming for more customers
  • Not every seed planted will sprout

-Phil Wrzesinski
www.PhilsForum.com

PS This post took a turn after I started it. It was supposed to be about the importance of Networking, especially as a low-cost marketing method. I’ll get to that soon enough. In the meantime, download my FREE eBook Main Street Marketing on a Shoestring Budget for six other ways you can get the word out about your business at little or no cost.

PPS The cool thing about the survey was that I quickly knew what the people of Jackson thought when they needed to buy toys. I knew where I stood and where everyone else in the market stood, too. That is some powerful information.

Newly Redesigned PhilsForum.com Website

I told you I was working on a new version of my PhilsForum.com website.

It just went live a few minutes ago.

Everything is up and running except this blog (which should be migrated over by late Thursday).

In an effort to make it more search engine friendly, some of the pages you’re used to seeing have new names.

  • Freebies is now Free Resources and still includes links to free pdf’s you can download on a variety of topics
  • Speaker for Hire is now Hire Me to Speak and focuses on the top programs I am most often hired to do
  • Products is now Phil’s Books and focuses on my two books, Hiring and the Potter’s Wheel and Welcome to the Club Daddy
  • Media is now About Phil and yes, it is about me

You’ll also find a few fun things hidden here and there on the site including a page of radio ads I have run for Toy House and Baby Too.

Check it out and let me know if there are any issues with the site (tell me what browser/platform/device you’re using, please).

Every time an independent retailer grows, we all grow.

-Phil Wrzesinski
www.PhilsForum.com

PS Supposedly all email subscribers will be migrated over, but I will be looking into it directly. You may get an email from me asking you to resubscribe to the new blog site. Just giving you a heads up.

Mrs. Hinkley Brought Me Doughnuts

I was unloading our delivery van when a car pulled up to side of the store. A window rolled down and a familiar face said, “Hey Phil, I brought you a little something.”

It wasn’t a “little something”. It was Hinkley Doughnuts!! The number one rated doughnut in Michigan!!! Mrs. Hinkley herself was hand-delivering a few leftovers as she called them (a box of my favorites as I called them).

Jackson isn’t a small town. We’re a city of over 30,000 people and a community of over 150,000 people. It is easy to be an anonymous business owner here. But it pays better to not be so anonymous.

Sure, I’m a regular customer at Hinkley’s Bakery. In fact, I never plan big morning events unless it is a day Hinkley’s is open (they are only open Wed-Sat). I regularly buy a box for the break room at work. But I’m just one of hundreds of their regulars.

So why a box filled with all my favorites for free?

It is the relationship we have built over the years. I am crazy about shopping local and building relationships with my fellow local business owners. We talk and laugh and share stories and ideas. We get to know each other and each other’s families. We help each other out. We send business each other’s ways.

If you want to market yourself, the best place to start is to build a network among your fellow local independents. Introduce yourself every time you visit (and visit them often). Get to know them and they will get to know it you. Be generous with your time and resources. Send them business and they will send some your way, too.

It pays. (Excuse me while I go finish my doughnut.)

-Phil Wrzesinski
www.PhilsForum.com

PS I am getting really chummy with the owner of the downtown brewery right now, too. Yeah, that’s how I roll (pun intended).