A Toys Story

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\"TheThere’s a certain irony in the fact that the world’s very first category killer was also the first of its big-box ilk to be severely challenged and nearly decimated by the even bigger-box mass merchants…and now may also be leading the way once again in learning how to co-exist and maybe even thrive in a world dominated by discounters and onliners.

What a long strange trip it’s been.

But Toys”R”Us should be very grateful it is not dead, and the tale of Toys is largely instructional for the entire channel of distribution known as ‘super specialty retailing.’ Toys was there for the channel’s glory days, nearly succumbed to the merchandising maladies that took down many of its box brethren, and has experienced a retail resurrection that—if not quite a miracle—worthy of store sainthood is nevertheless remarkable in its own right. None of this could have been even remotely predicted back in1948 on Washington DC’s 18th Street NW when a post-war entrepre-neur named Charlie Lazarus opened a baby furniture store called Children’s Supermart. As big stores go, it wasn’t much. But back then, it seemed to be the right store for the right time as newly formed post-War families started booming out babies and needed a place to buy all the paraphernalia—cribs, strollers, whatever—that came with the territory.

Lazarus—who would become one of the faces you’d find in a dictionary listing for the word “merchant”—soon began adding kids toys and eventually toys for older children as well. Several years later, he started using a mascot for the store; a cartoon giraffe curiously known as Dr. G. Raffe. Eventually he adapted the more informal name of Geoffrey and, increasingly focused on toys, he began touting the slogan, “Toys are us.” What it lacked in proper sentence structure, it caught on and…well, you can see where this is going.

In 1957, Lazarus opened the very first toy superstore, morphing the slogan into the typographically snappier (if elementary school teacher very-unfriendly) Toys”R”Us.

The formula was simple: cram as many skus as possible from one general merchandise classification—in this case toys—into a large, bordering-on-ugly warehouse out on the suburban highway; charge good but not great prices; and stand to the side when you open the doors on Saturday morning.

And boy did the formula work. Toys was a runaway success in a time when department stores were starting to eliminate high-maintenance, low-margin categories; specialty shops were getting left behind in the country’s mass migration to the suburbs; and discount stores were still pretty low-rent when it came to merchandising. Toys”R”Us created the category killer concept…well before the model even had a name.

\"TheThe retailer took an unfortunate detour when it was acquired by Interstate Department Stores in the mid-1960s, becoming one of the myriad regional discount operations that could never make the transition to the more sophisticated merchandising style that competitors like Kmart (yes Kmart), Target, Bradlees and Caldor were bringing to the playing field.

Interstate went bankrupt and emerged as Toys”R”Us, and during much of the 1980s and 1990s, Toys was unstoppable. It opened hundreds of stores and sold billions of dollars worth of toys and at one point owned a reported 25% market share in the category, a percentage unmatched by few if any other retailers in America…ever. Like most things, it didn’t last forever. There are lots of theories for the tumble Toys took, starting in the ‘90s and continuing into the start of the new century. You can pick and choose from the following:

  1. The big mass merchants finally realized the value of toy departments —especially in the fourth quarter—and moved aggressively into the category, particularly Walmart, which undercut Toys’ pricing while cherry picking their assortments for the hottest products.
  2. The rise of the Internet—even if the first wave of etailers like toys.com were pretty lame—gobbled up market share, using the same price and assortment gambit as Walmart. It took Toys—as it did most in-store retailers—a long time to catch on to the Internet.
  3. Toys let their stores go to hell. Never beauties in the first place, they became dark, dreary caverns inside with dark brown ersatz-mansard roofs outside that seemed to be from another plasticine era…because they were.
  4. Charlie Lazarus wasn’t around anymore.

By the time a bunch of private equity and real estate guys—including such well-known names as Bain, KKR and Vornado—took Toys private in 2005, it was barely breathing and many retailing pundits (including this particular pundit) figured they were a goner. But guess what? Nearly a decade later, Toys is still around, and if not quite in the top tier of the country’s best, most successful retailers, it is doing OK…better than OK in fact. Granted, Wamart still has a larger market share in toys and the fact the company remains private seven long years after the money guys moved in—an eternity in a business world where the flip is usually three to five years—would seem to indicate that the numbers (which are in fact public) don’t really quite add up yet.

But let’s face it, the past decade has not been kind to the entire category killer domain. Once powerhouse players like Linens’n Things, Borders, CompuServe and many others have gone to that great strip center in the sky and even many of the existing players in the space like Barnes & Noble and Office Max continue to struggle. The fact remains that Toys is doing a lot of things right these days. Among them:

  1. A massive remodeling of its store base. Most of the monkey-poop brown roofs are gone and the stores are more cheerful, upbeat places to shop now.
  2. A full embrace of the Internet. Toys has become one of the better examples of in-store operations integrating its online efforts into its overall model.
  3. Expanding its Babies’R’Us unit. Created in the 1990s, largely on the back of an acquisition of a regional player called Carolina Baby, Babies now has over 250 stores and with a demographic needing more hand-holding than toys; it’s a category more immune to mass retailers and online. (The irony that this takes Toys back to its juvenile furniture roots is hopefully not lost on anybody.)
  4. International expansion. Another initiative started decades earlier, Toys is perhaps the most aggressive US retailer in the overseas market with a mix of owned and licensed stores now totaling close to 750 locations in 35 countries.

\"TheAll of those factors are important but none of them would be worth much if the store’s merchandising strategy hadn’t been reframed. Mrs. Walton—not to mention Mmes. Target, Amazon and eBay—didn’t raise any dumb retailers. All you have to do is look at the retailer’s ‘The Great Big Toys”R”Us Book,’ which dropped the last week of October, to see that the company has gotten its merchandising mojo back.

It is a brilliant piece; 80 pages of retail voodoo working every trick in the
promotional book, all to great effect. Kohl’s and Macy’s should be embarrassed by how they stack up against this baby. It hits all the hot buttons:

  1. Selection. Starting on the cover and continuing relentlessly through the entire book are countless variations of the “All the toys, all the time” theme. Subtle it is not. Effective it most certainly is.
  2. Price. Again, it starts on the cover—“Now we price match everything”—and is repeated throughout. There are enough “sale,” “save” and “percent off” balloons to get the most jaded shopper all hot and bothered.
  3. Tricks. For the coupon junkies, there are two full pages to clip. For the gift-with-purchase fans, there are endless offers. On other pages, it’s a BOGO feeding frenzy. Add in layaway —a given these days—and a loyalty program and the buying buffet is complete.
  4. Exclusives. Every retailer is working this angle, but Toys plays it better than most with a wide assortment of “only-here” offerings.
  5. Out-and-out exuberance. Less quantifiable and certainly more of an intangible, the book practically reeks with happy, laughing kids obviously enjoying the products sold at the store. It’s such an obvious technique and one so often overlooked by retailers who think they are above that tug-to-the-heartstrings ploy.

Toys\”R\”Us is playing in a very tough world. Brand name products, like mass toys that can be shopped purely on price, are the bread-and-butter of Amazon and Walmart. Ultimately its customers—and Wall Street—will decide if Toys has gotten it right and will endure. But in the meantime, as a case study on what to do right—and wrong—Toys”R”Us has much to be admired. Just as long as spelling doesn’t count.



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