I was tagged seventeen times on Facebook last week about Toys R Us pending liquidation, wondering if I had seen the news.
Friends, I write a blog about retail. I do workshops for retailers. I am a presenter at the upcoming American Specialty Toy Retailing Association (ASTRA). I subscribe to three news digests specifically about retail. I subscribe to two national news digests. I belong to two retail groups on Facebook and one on LinkedIn.
I appreciate you checking with me to see if I have heard the new. Thanks. I have heard the news.
With that said, I do appreciate the links to articles. Most of the articles reiterate the same info. Barring a last-second deal, TRU is likely to go into Chapter 7 Bankruptcy, which means liquidation of all assets.
What I have found interesting has been the comments after each article. Most of the people commenting have no clue what happened to Toys R Us. Most of them get it dead wrong, blaming Amazon for their demise.
Here is what really happened …
The decline of Toys R Us started in 1992 when Walmart surpassed them in total toy sales. TRU took the wrong road and tried to beat Walmart at Walmart’s game—lower prices. TRU lost big time. So did the entire toy industry because “toys” were now considered a commodity instead of the tool they truly are.
While TRU was floundering, big money venture capitalists came in and bought the chain, primarily because of their real estate value. The second misstep happened here. In simplistic terms, the VC’s leveraged TRU and saddled them with so much debt that they didn’t have the capital to change with the tide as other big chains were going online, updating infrastructure, investing in better technology, etc.
At the same time, the toy industry went into decline. Parents were buying more electronics and spending less on traditional toys. While TRU was able to get into electronics, they also were getting into a lower profit margin item with more big competitors, which also didn’t help their bottom line.
Shortly after that the economy tanked. While the economy has recovered, not all segments have recovered the same.
Amazon was more the straw on the camel’s back than the cause. The decision to play Walmart’s game was the real cause. It gave away TRU’s one true advantage over Walmart, Target, Dollar General, and even Amazon—being the trusted resource for the quality toys that encourage imagination and creativity in children, true tools that required careful thought and selection. Once that was lost, TRU was in trouble.
Losing capital because of the debt was the second factor because the one playing card left for TRU was to be the destination store parents wanted to take their children. But without cash, they cut back on staffing,they cut back on updating their store and creating an experience. TRU was nothing more than a big-box discounter without the groceries, hardware, and home accessories.
One article asked the question where the TRU shoppers were going to go once TRU was gone. The comments on that one made me laugh out loud. Several said that the people had already chosen, since TRU was in bankruptcy and closing. Friends, TRU did $11 billion dollars in sales last year. That’s billion with a “B”! The average ticket in toys is around $40, in electronics it is much higher, but even at $100/transaction, that’s 110 million customers! That’s a lot of traffic. They weren’t doing everything wrong. They just didn’t have the cash to do everything right.
You can blame their demise on three things.
- Allowing their largest competitor to name the terms
- Not updating the infrastructure and staying on the cutting edge
- Not having the cash to transform the store into one that can compete in the new retail landscape
Your lesson in all of this is simple.
- Define the retail game not by what your competitors do, but by what you do.
- Stay current and up with the times.
- Keep some money in reserve.
More importantly, do the one thing you can do better than all the big guys out there. Take better care of your customers than they expect and make a visit to your store an exhilarating experience.
-Phil Wrzesinski
www.PhilsForum.com
PS Where do I think that $11 billion is going to go? Some of it will go to Amazon, Target, Walmart, etc. Some of it will go to Best Buy and Apple Stores. But there is a big part of TRU’s base that still believed in the shopping experience. Face it, a large in-store selection and the fun of being in that kind of store was the one card they had left. Amazon cannot duplicate that. Neither can the other big guys. Heck, even Barnes & Noble struggled with it. The independent toy stores in towns with closing TRU’s better be on the ball. If they can demonstrate their ability to give shoppers a great experience while touting their well-curated selection and convenient, friendly services, there is a lot of money left on the table.