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If You’re an 80’s baby like myself, you can remember browsing the aisles of Toys R Us (TRU) and wishing for the toys Santa would deliver on Christmas. Better yet, you would beg your parents to take you to TRU post-Christmas day to spend all that Christmas cash you accumulated. As an adult with no kids, it was sort of surprising to found out TRU was shutting down all of its U.S. stores in the summer of 2018. What exactly happened? Find out that and all the mistakes made in this primer on TRU.
In April 1948, Charles P. Lazarus founded a baby furniture store in Washington, D.C., called Children’s Bargain Town. The problem with baby furniture stores is that once a couple has more than one child, they don’t buy new furniture, they just pass the furniture down to the new kids. The era was the baby boomer era, so not having repeat customers was a problem. Soon, Lazarus started receiving requests for baby toys from customers. After adding the toys, Lazarus got requests to sale toys for older children. It took a while, but Lazarus finally got the bright idea to open a store selling toys exclusively. This store opened in 1957, in Rockville, Md. Lazarus designed the logo for TRU, which featured a backward “R” to give the impression that a child wrote it.
TRU was mainly a supermarket-style store for toys. The world had never seen such an experience before. All the other toy stores in existence at the time were small, family and only carried a limited line of toys. TRU had rows of toys laid out next to each other, grocery store style. This idea hooked consumers.
In the 1950s and 60s, Japan started to rebuild its economy post World War II. Japan started to produce inexpensive toys like tin robots, tin cars, and stuffed animals. Lazarus was able to buy these products cheaply and in bulk. TRU bought and sold so many toys that it was able to negotiate to buy goods cheaper than its competitors. This advantage turned TRU into a “category killer.” A category killer is a company that so thoroughly dominates its retail category, that it drives all of its competition out of business. Think of Barnes and Nobles, Best Buy or Staples, all of these companies are considered category killers.
Mom and Pop toy stores soon started going out of business because they couldn’t match the pricing or deep inventory of TRU. Department stores that relied on the seasonal toy sale boost realized they couldn’t compete with the year around toy demand, TRU created and serviced. More and more families had a television in their homes, and toy manufacturers were making television commercials appealing to kids. The kids would ask their parents for the toy, and TRU benefitted from the whole experience.
TRU started running TV ads featuring Geoffrey the Giraffe in 1973. In the 1980s, TRU ads started featuring a catchy jingle. The jingle sounded something like this, “I don’t want to grow up, I’m a Toys R Us Kid!” Everybody who was a kid in the ’80s and ’90s can probably recite that jingle by heart.
TRU went public in 1978. The toy market was a 500 million toy industry in 1950, TRU helped turn it into a 12 billion industry in 1990. At the height of TRU’s powers, it controlled 25% of the world’s toy market. TRU sold 18,000 different toys at 1,450 different locations.
On September 18, 2017, TRU filed for Chapter 11 bankruptcy. The idea was that bankruptcy would help the company deal with its 5 billion in long term debt. TRU also hoped to pay suppliers for the upcoming holiday season and improve its badly dated operations. TRU hadn’t made an annual profit since 2013. TRU reported a net loss of $164 Million in the spring quarter of 2017. It lost $ 126 million in the spring quarter of 2016. Because of its debt, TRU was paying $ 400 million annually just to service the debt. The debt caused it not to improve its in-store experience and fall further behind Wal-Mart and Target. On June 29, 2018, TRU shut down all of its remaining U.S. operations after 70 years of Operations.
In January of this year, TRU emerged from bankruptcy as a new company called TRU Kids. On November 27, 2019, TRU Kids opened a retail store in Paramus, New Jersey. On December 7, 2019, TRU Kids opened another retail store in Houston, Texas. The new stores are 10,000 square feet, roughly 1/3 of the size of the old stores TRU closed last year.
Mistakes Were Made:
There were numerous reasons for the fall of TRU. They are as follows:
The Retail Apocalypse is the closing of numerous North American brick and mortar stores, especially large chains from 2010 onward. The reasons for these closings are multiple. Online shopping is a big reason for the Apocalypse. According to Adobe Digital Insights, online e-commerce increased by 11% in 2016 compared to 2015. Slice Intelligence reported an increase during that same period as 20%. Brick and Mortar stores saw an increase of only 1,6 % percent during this time. Department stores saw a decrease of 4.8% percent during this time.
Another factor for the apocalypse is the oversupply of malls. Between 1970 and 2015, the growth rate of malls was twice the growth rate of the U.S. population. Mall visits declined by 50% between 2010–2013, with further declines reported in each successive year.
A third factor is the “Restaurant Renaissance.” The Renaissance is a shift in consumer spending habits from material purchases to dining out and travel. Experiences last longer and are more meaningful than material purchases. I, for one, am excited about this way of thinking. Hopefully, more people can shift their thinking that way.
The Retail Apocalypse also had a domino effect. The loss of TRU was a significant cause in Hasbro (toy manufacturer) losing revenue and having to lay off staff in 2018.
Excessive Debt from Leveraged Buyout
In 2005, TRU was leveraged and bought out by a consortium of private equity firms. Because of the sale, TRU was now a privately owned company and no longer had its stock sold on the New York Stock Exchange. During this period, TRU rapidly increased its debt to a tune of 5 billion. The debt led to it paying 400 Million a year just to service the debt. The debt greatly hindered the profitable operation of TRU. Because of the large amount of debt being paid, TRU wasn’t able to improve and modernize its in-store experiences and thus fell further and further behind its competitors.
History Repeats itself
Ironically, TRU became a victim of the big box model it helped create and make fruitful. Amazon and Wal-Mart became more significant, more powerful versions of TRU. Worried about the competition from those two, TRU executives started to reduce significantly the number of toys each store carried and focus on slashing prices. These actions began the decline of TRU and led to the demise the Executives were trying to reverse.
Loss of Magic
TRU, at its peak, was such a magical place for kids. A store with an endless amount of toys and video games. Any toy that you saw advertised during cartoons, TRU carried it. TRU was an experience like Disney Land for kids. Once TRU started cutting back on the number of toys, and shifted its focus to “undercutting the competition,” the magic of the TRU experience disappeared. It became a lesser version of Target or Wal-Mart. The consumers didn’t care about a lean inventory. It was the magic of the TRU experience that bought consumers to the store. The kids who experienced that magic became adults and tried to give their kids the same experience they had. What they found was a poor man’s target instead.
TRU made other mistakes, like in the 2013 holiday season having its stores open for 87 hours straight. A marvelous concept for 1991, but it was 2013, and online shopping was alive and kicking. Why venture out in the cold at 2 am to buy a last-minute toy, when you can do the same thing from the comfort of your bed in your pajamas on Amazon? This move caused TRU to hire an additional 45,000 workers to man all of these new hours. If you recall from before this was also the last year TRU made an annual profit. It’s debt was increasing, and its stores were falling further and further behind the competition. It seems like those resources should have been more wisely used elsewhere.
With TRU reinventing itself as TRU Kids, hopefully, it can learn from all the mistakes its predecessor made. We need a new generation of kids who want to be “Toys R Us kids,” and experience the TRU magic.
Originally published at https://mwmblog.com on December 16, 2019.