Toys R Us PDF

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MGT786: GLOBAL BUSINESS STRATEGY INDIVIDUAL ASSIGNMENT 1 AA700: MASTER IN BUSINESS ADMINISTRATION

PREPARED BY:

NAME:

NUR SYAHEERA BINTI MD ZIN

MATRIC NO:

2019836766

CLASS:

AA7003AF

LECTURER’S NAME:

DR. HERWINA ROSNAN

DATE OF SUBMISSION:

5TH JANUARY 2021

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Table of Content 1.0 Executive Summary.....................................................................................................1 2.0 Issues...........................................................................................................................2 2.1 Competitive pressure from industry incumbents, foreign and domestic..............................2 2.2 Poor store layout design........................................................................................................3 2.3 Lack of competitive advantage.............................................................................................4 2.4 Management myopia.............................................................................................................4

3.0 Impact and Challenges.................................................................................................5 3.1 Bankruptcy............................................................................................................................5

4.0 Conclusion...................................................................................................................6

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1.0 Executive Summary Toys “R” Us traces its roots back to April 1948 and Charles P. Lazarus’s foundation of Children’s Supermart, a baby furniture retailer and the Company’s earliest predecessor company. He started off with the idea of providing a store for parents’ to get all of their child’s wants and needs (Thomison, n.d.). With its first store in Washington DC, the Company sought to capitalise on the post-war baby boom. After receiving request for baby toys and other items, the Company diversified its product portfolio to include a greater range of toys, ultimately leading the Company to rebrand as Toys “R” Us in 1957 (Toys “R” Us, 2016).

In 1960, Lazarus added the well-known giraffe mascot, Geoffrey, to the store’s image. Toys “R” Us was acquired in 1966 by Interstate Department Stores, which owned several other retail chains, including Children’s Bargain Town USA, a sister company to Toys “R” Us in the American Midwest. The store name “Children’s Bargain Town” does not have the same ring that Toys “R” Us does. However, this bland brand name is how the popular children’s toy store started off. By 1978, the store had expanded to many different locations and was considered to be well established and a huge success amongst children’s stores (Thomison, n.d.). Toys “R” Us remains a leading specialist toy retailer, with operations across North America, Asia Pacific, Europe, the Middle East and Africa. The Company is ranked 240th on the Fortune 500 list (Toys “R” Us, 2016). Vision is the impossible dream of an organization. Toys “R” Us defines its vision statement as “Put joy in kids’ hearts and a smile on parents’ faces”. It can be established from this vision statement that Toys “R” Us aspires to win over every child and parent in its operating markets. Toys “R” Us set its standards high by setting such an impossible dream as its vision statement as it is hard to satisfy every single customer in the market place (Joanna, 2017). A mission statement sets the overall direction or broad strategic objectives of an organization and is shared with employees, stake holders and customers. The mission statement of Toys “R” Us is as “We believe our business is built one customer at a time, and we are committed to making each and every customer happy”. Our goal is to be the “Worldwide Authority on Kids, Families and Fun”. It shows the corporation’s commitment 1

towards valuing its customer-base and its efforts to become an authority on fun filled experiences for children and parents through its product offerings (Joanna, 2017).

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2.0 Issues 2.1 Competitive pressure from industry incumbents, foreign and domestic At its peak, Toys ‘R’ Us was the leading toy retailer in the USA. However, Toys ‘R’ Us faced competitive pressure from the industry. Its main competition are other retailers such as Walmart and Target. However, the continued presence of online shopping such as Amazon.com have significantly hurt Toys ‘R’ Us too. Other competitors, but less significant, are national and regional chains stores, local retailers, national and local discount stores, consumer electronics retailers and supermarkets. According to Thomison (n.d.), The first competitors are the Big-box stores, discount and mass merchandisers. They apply the strategy ”Everyday low prices”, instead of the punctual discount prices in Toys”R”Us. They’ve grown in number and in size. In these stores, a family can buy both a toy and the food in the same place, making it convenience to not move to another store. One of the main big-box stores is Walmart which has stepped into the lead in the race for toy sales in 1999. It follows an aggressive discounting strategy and volume sales. This firm is increasing inventory with an emphasis on environmentally-friendly stock. Moreover, Target is another important competitor, the second largest retail chain in the United States. It has been increasing its role in the battle for sales with an expanded holiday toy catalog, early holiday discounts and toy departments. Some of its discounts are addressed to younger customers through sponsored ads on social networks. Another sector of competitors is coming from the E-commerce. Moving forward to digital era, toys are an item suitable for online shopping because there’s no need in observing it directly (as opposed to fruit, for instance). Therefore, it’s understandable that the growing size of online companies is affecting negatively to the sales of Toys”R”Us. Amazon, for example, is the largest seller of toy and baby products online in the US. However, Toys“R”Us is the third behind Walmart and Target when considering all US sales (both online and not). Based on the figure below, Toys”R”Us is also the third, behind Amazon and Walmart when considering only online sales (Thomison, n.d.).

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Figure 1: Online sales of toys and baby products in US

2.2 Poor store layout design One of the challenges of Toys “R” Us in recent years was upkeep and condition of the stores. Customers recognized that store fixtures and layouts had not changed, despite significant changes in customer behaviours and expectations. Any customer who had ever shopped in a Toys ‘R’ Us before could report feeling overwhelmed when walking into one of their locations. With too many different products arranged in messy displays, most of the chain’s stores could be described as hectic. This not only led to customers feeling unwelcome but also made for poor customer service. When inventory is all over the place, not neatly or stylishly displayed, and frequently in a jumble, it is hard to help customers find what they are looking for. Limiting the variety of in-store inventory, and making sure it is displayed in organized and stylish ways, can be more inviting than having all inventory out in view. Additionally, giving employees access to inventory in a mobile POS system can ensure that they are better equipped to offer great customer service (Kris, 2018). On the other hand, the prosperous retailers regularly re-examine their stores' atmosphere, the functional store layout, and the elements that influence their customers’ decision making process. Based on Pat (2018), retailers that are always tinkering, such as Urban Outfitters, Target, and Ikea, provide perfect examples of adapting to changes in customer behaviours and expectations. Whether through small-format stores opening in urban areas catering to younger shoppers or reimaging the traditional store to emphasize certain product presentations and adding time-saving features. Retailers and brands that continually engage with its customers through retail design innovation are thriving.

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2.3 Lack of competitive advantage The toys sold at Toys “R” Us stores are not unique and can be found at other retailers and sometimes for a better price. Toys “R” Us also depends on its holiday season sales to make the most profit and that is not enough anymore to help the company thrive (Causes of Bankruptcy at Toys R Us, 2019). Due to this, it makes the industry vulnerable in case there is a reduction on consumption during this period due to external factors such as strikes, attacks and political changes. According to Pat (2018), while other stores looked for ways to incorporate personalization, Toys “R” Us maintained the feel of a warehouse environment with a vast inventory and lots of relatively uncurated choices. Particularly for a children’s retailer, the opportunity to create personalized experiences and products was lost amid the sea of products.

On the other hand, M&M World provides a great example of how a brand store can incorporate personalization (Pat, 2018). By offering customers the chance to create candy with their own personalized colours, lettering, and even images, M&M World individualizes the experience. M&M World has hit upon way for a brand store to add value and meaning to a mass produced product.

2.4 Management myopia Management myopia is the managers’ tendency to obtain short-term gains rather than long-term profits. Most companies have strategic goals in maximizing profit, and managers tend to consider that a higher efficiency consists in offering short-term returns to investors. However, in the case of Toys “R” Us, the management was suffering from management myopia. They were still believing Toys “R” Us was the centre of the toy industry and nothing bad could happen to the company. It’s the same mindset that contributed to the downfall of other giants like Nokia and Kodak. Management myopia sets in when employees hide the facts and figures from the upper management in an attempt to protect themselves from being laid off. Trust goes both ways and when it is lost, it has the power to shut businesses down. In the case of Toys “R” Us store employees manipulated customer surveys which served as an 5

important performance metric to the retailer’s home office (Minds, 2019). When employees begin lying, it’s a sign things are not going in the right direction.

3.0 Impact and Challenges 3.1 Bankruptcy On September 18, 2017, Toys”R”Us, Inc. filed for Chapter 11 bankruptcy protection. Brandon, the CEO of the company, stated the shops would carry on operating as usual and that this reorganization would be just the beginning of a new brilliant era. Based on Kohadkar (2019), at the time of writing, Toys “R” Us has filed a contract with the law firm “Kirkland & Ellis” in order to restructure its $400 million debt. Optimists claim that Christmas holidays will boost sales so that the situation might become more favourable. Thus, the 1,600 Toys”'R”Us and Babies”R”Us 12 stores, which are spread out all over the world, continue to operate.

Indeed, the company's operations outside of the U.S. and Canada are not a part of the protection proceedings. Nowadays, Toys “R” Us carries approximately $5 billion in debt and borrow $2 billion so it could pay suppliers for the upcoming holiday season and invest in improving current operations, much of which finds its roots in the leveraged buyout of 2005. The company has not had an annual profit since 2013. It reported a net loss of US$164 million in the quarter ending April 29, 2017. The firm faced no imminent debt maturities until now. The delay of dealing with the indebtedness has been exhausted, as more than $400 million in debt is due to mature in 2018, which prevented it from investing in improvements to in-store experiences to compete with Amazon and Walmart. Once the firm realized that it could not secure financing to get through the holiday Christmas season, it decided to file for Bankruptcy. Toys “R” Us owners are now finding ways to restructure its $5 billion debt by reaching terms with its debt holders and other creditors. In addition, filing for bankruptcy has allowed the company to secure financing to continue to operate its stores. However, on June 29, 2018, Toys "R" Us shut down all of its remaining U.S. locations, after 70 years of operations. In early July 2018, it was reported that unknown benefactors had bought out all of the remaining stock of two locations in North Carolina so they could be donated to charity (Kohadkar, 2019).

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4.0 Conclusion In a nutshell, understanding the dynamics in the demand of the customers is one of the critical approaches for achieving the goal of meeting the requirements of the customers and satisfying their wants. The companies dealing with toy and other products should first assess the changing needs of the clients before distributing the products to them. The toy company sometimes does better in the market but, however is affected by changing in the demand of children, the emergence of the digital technology and competition from other toy companies.

The best option will be to incorporate advanced technology in every aspect of the company’s operations from production to marketing. The company main cause of demise was failure to adapting to the current technological trends, the solution therefore improving its online presence and digitalize the all other aspects of the company. Technology needs to be applied in the different levels of production, most importantly, in the designing and developmental process of new products like video games and virtual reality products. After which the promotion of the products be done on online platforms and shops. This will ensure that the company has access to a broad untapped market base. To fully implement the use of technology in all products, the control procedure is crucial. The company will need to invest in advanced technology and set up an incubation center to allow for the developed of other innovative ideas that are relevant to the market, have them funded, and introduced to the market as new produces. Having a motivated workforce might have also helped to propel Toys “R” Us back to its former glory and regain its market share.

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References Brand M. (2019, March 19). The Downfall of Toys R Us — Don’t Blame Amazon! - Brand Minds - Medium. Medium; Medium. https://brand-minds.medium.com/the-downfallof-toys-r-us-dont-blame-amazon-c88856516383 Causes of Bankruptcy at Toys R Us. (2019). UKEssays.com. https://www.ukessays.com/essays/business/toys-r-us-failure-reasons.php Joanna. (2017). Executive Summary of Toys R. Graduateway; Graduateway. https://graduateway.com/toys-r-us/ Khushboo K. (2019). Case Study: Toys “R” Us. https://accid.org/wpcontent/uploads/2018/10/Toys-R-Us-Case.pdf Kris, H. (2018, February 5). 7 Retail Management Lessons You Can Learn from Toys “R” Us. Erply Retail Software. https://erply.com/7-retail-management-lessons-you-can-learnfrom-toys-r-us/ Pat, Flood. “What All Retailers Can Learn from Toys R Us.” Q20lab.com, Q20 Labs, 2018, www.q20lab.com/what-all-retailers-can-learn-from-toys-r-us. Accessed 4 Jan. 2021. Thomison, E. (n.d.). A strategic marketing and financial analysis of Toys R Us. https://uknowledge.uky.edu/cgi/viewcontent.cgi?article=1022&context=honprog Toys “R” Us. (2016). Cleverism. https://www.cleverism.com/company/toys-r-us/...