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Toys 'R' Us Rises From The Dead

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Toys 'R' Us Rises From The Dead

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Toys ‘R’ Us is making a comeback just months after a dramatic fall from grace, and a bankruptcy that sent shock waves through the global toys sales industry. 
This article will look at the reasons for the failure of the Toys ‘R’ Us brand and the basis and rationale for the creation of the new TRU Kids brand that is set to replace it.
Analysts have struggled to completely understand what will be different about the new brand’s strategy and how it will avoid the same fate as Toys ‘R’ Us. 
Toys ‘R’ Us
Toys ‘R’ Us began as a single store operating from Washington DC, selling cribs and baby strollers. Since the opening of that single store in 1948, Toys ‘R’ Us grew to a company with 1600 stores in operation worldwide, selling dolls, toys, bicycles and children’s electronics and acquiring one of its main competitors – Schwarz in 2009. 
The brand had a massive 10,000 square feet store in New York, replete with a giant Ferris wheel and a powerful image as one of the global leaders in toy sales. However, as the brand neared the end of its 70 year dominance in the market for toy sales, cracks were starting to show. Years of investment in expensive marketing through catalogue, radio and TV marketing caused profits to plunge and the brand failed to adapt to the surge in digital sales. 
Toys ‘R’ Us demise – what happened? 
Toys ‘R’ Us is seen as having failed for one main reason – the company failed to take digital sales seriously enough, at a time when their retail premises were already failing as a result of the “death of the high street”. Despite generating more than $3 billion in retail sales in all of their global outlets in 2018, Toys ‘R’ Us was declared bankrupt in late 2018, after filing for bankruptcy in the US in 2017. The summer of 2018 saw Toys ‘R’ Us close all of their 800 US stores. At the time of its bankruptcy, the brand owed $5 billion of debt, and its final year of operation resulted in over 160 USD million of losses. 
Lower priced retailers with smarter and more flexible price strategies like Walmart, Target and Amazon quickly started to offer cheaper product lines and undercut Toys ‘R’ Us base unit prices. As other retailers were changing their pricing strategies to incorporate price monitoring software which gave them valuable insights into competitor pricing strategy, Toys ‘R’ Us were overly focused on advertising through radio, catalogues and TV – so much so they failed to notice that digital sales were quickly overtaking all of these other methods of sales. With little focus on digital sales, Toys ‘R’ Us spiraled into another set of problems – they were not reacting fast enough to competitors who were selling the same products for cheaper. 
Price monitoring software allows a myriad of insights into nuances of competitor behaviour, so Toys ‘R’ Us competitors, with their expanding digital portfolios of products and product lines being analysed regularly by these sophisticated technologies, had access to information Toys ‘R’ Us failed to gather. 
Competitor monitoring software allows retailers to identify an array of opportunities and weaknesses in competitors pricing strategies, for example, this software gathers information about when a retailer is out of stock of a given product. This can then be treated as a window of opportunity, because, when something is out of stock, it doesn’t matter how it is priced by that out of stock retailer, since they can’t supply it at that price. Some retailers will see their profit margins soar on receipt of information like this, because it enables them to increase their prices strategically, and then drop them at the right time to ensure that sales are not lost, for example when the retailer gets their stock replenished. Another example of how price monitoring technologies work is the issue of free postage and packing. If a retailer offers free postage and packing for a limited time, this change actually changes the overall price of the product. However, this isn’t always obvious to the competitor, looking at the advertised base unit price for the item. As such this is a clever way to offer customers a discount on particular products, and competitors will only become aware of it if they delve deeply into the behaviour of their online competitors. Not only were Toys ‘R’ Us failing to pay attention to these, and other nuances of their competitor behaviour, they were not even working to expand their online digital presence, instead focusing on methods of advertising price (catalogues for example) that could only be changed periodically, as opposed to the digital method which can be changed on a minute to minute basis.  
Without a solid price monitoring strategy combined with a competitive digital presence Toys ‘R’ Us were unable to generate significant revenues from events like Black Friday, which is a sales strategy imported from the USA to boost sales for a short period of time, by selling loss leader products as a means of garnering interest in other products and boosting sales. More digital savvy counterparts like Walmart and Target planned events like this meticulously, reaping the rewards at the sales tills while further adding to the failing fortunes of Toys ‘R’ Us.  
Another major part of the brand’s dramatic fall from grace came in the form of a dispute with Amazon. Toys ‘R’ Us signed an exclusive deal with Amazon in 2000 to become its sole supplier of toys. As the 10 year period elapsed, Amazon reneged on its agreement and began to allow other toy retailers to sell their toys on the Amazon website. It was argued that Toys ‘R’ Us were not quick enough to supply certain product lines and as such millions of pounds of revenues were being lost as a result of poor logistics and planning. In 2009, years of expensive litigation resulted in a pyrrhic victory for Toys ‘R’ Us, when it won $51 million in compensation from Amazon whereas Amazon went on to claim a 4.5 billion USD market share in toy sales in 2018. 
Desperate to quell gargantuan financial losses, Toys ‘R’ Us further introduced a range of “omni-channel” shopping methods in an effort to cater for a greater range of preferences in terms of collection and shipping, with the aim of increasing revenues and stalling an impending bankruptcy. “Click and collect”, “ship to store”, “reserve online and pay in-store” as well as “ship from the store” options were introduced, and this did result in a boost for sales with omnichannel sales nearly doubling from 22% in 2012 to more than 40% in the months prior to the brand’s ill-fated demise. The changes were not enough to quell the mounting revenue losses that would eventually overwhelm the brand, forcing them out of operation, first in the USA and then worldwide.
Toys ‘R’ Us and the “death of the high street”
For Toys ‘R’ Us, these factors set them up for a sharp decline in retail sales, but this wasn’t what sealed their fate completely. Their demise was also attributable to a failure to adapt quickly enough to what has become known as the “death of the high street” – the rise of digital sales and the reluctance of customers to purchase goods from physical high street premises.
Research into retail sales from high street premises has suggested that over the period of Christmas 2017, retail sales were at their lowest point in a period of five consecutive years, where each year saw a year on year decline. Over the same period online sales have increased dramatically. Add into this the increased costs that accrue as a result of maintaining physical retail premises, like rent, staff and utilities and it is easy to see how unprofitable retail premises can swiftly become millstones around the necks of brands struggling to compete with savvy online competitors with fewer operational costs. 
Such was the scale of the “death of the high street” problem in the UK, that then Prime Minister David Cameron appointed Mary Portas as a “high street tsar” in 2011, and tasked her with turning around the fortunes of failing business premises in several towns across the UK. Despite her intervention, she could not change what was inevitable and almost 1000 high street units closed in the short duration of her initiative. The “death of the high street” continues to be illustrated in the worsening fortunes of UK high street retailers. As the UK careers towards an uncertain Brexit, and with a surge in inflation, UK based high street retailers are reeling from the rise of ecommerce sites like Amazon, who can sell their products much more cheaply, with fewer operational costs. UK high street chain New Look recently announced that 60 unprofitable stores were to be closed, with approximately 1000 job losses. Next is also experiencing similar problems, with a decline in profits leading some to describe 2017 as the worst year the retailer has seen in 25 years. 
The general consensus is that the high street is not dying, rather it is changing, and if retailers can stay abreast of the changes, their physical bricks and mortar stores can survive in the face of burgeoning digital sales that continue to eclipse sales from physical stores. A shift to create “experiences” for shoppers that make their visit to the high street memorable is something that is working to revive the fortunes of a lot of high street retailers. Waterstones for example, responded to the decline in revenues from their bricks and mortar stores by establishing coffee shops alongside their stores, so people could buy books and drink coffee and relax all at the same time. Such was the success of this initiative that Waterstone’s has invested in own brand coffee and continue to expand their “books and coffee” approach. Cosmetics company Lush has focused on offering customers experiences that can’t be offered through digital platforms, and this has helped to bolster their high street premises in the face of the decline of traditional high street sales methods. Such is the success of these “reinvention” strategies that some previously “online only” retailers are opening bricks and mortar stores. An example is the fashion brand Misguided, which started out as an online only fashion retailer. It has since opened two stores in the south of England.
This very approach was mirrored in the Toys ‘R’ Us business model as it adapted to its worsening fortunes. For example, aware that its retail stores were no longer drawing the crowds they used to, Toys ‘R’ Us introduced changes to its in-store facilities to allow in-store customers to benefit from novel experiences, not available to customers buying online. NERF target practice areas were created and customers were invited to fly drones in special in-store play areas. In this way Toys ‘R’ Us was trying to incentivise buying from their stores, as opposed to buying digitally. Customers were being encouraged to bring their children into the store and see shopping as an experience, as opposed to just a means of buying toys. The rationale was that these “experiences” would create a buzz and be talked about among children and that parents would spend more time in the store, all the while being tempted by advertising within the store itself. The strategy itself was sound and many high street retailers are creating novel experiences for their customers as a way to draw them into the stores, however, for Toys ‘R’ Us it was too late to quell mounting debt problems. 
While Toys ‘R’ Us “experience-orientated” sales strategy in their retail outlets did not save it from administration, it is clear that this was a positive step forward in the right direction. If leveraged correctly by their new brand, it may pave the way for the success of the new Toys ‘R’ Us incarnation - TRU Kids Inc. 
The new brand – TRU Kids Inc
Toys ‘R’ Us is now known as TRU Kids Inc, which is the holding company for Tru Kids brands. With many of its previous staff and directors, occupying new roles in the newly formed brand. TRU Kids Inc promises to address the failings of its predecessor through a new online and in-store strategy. The new brand will continue to prioritise customers’ in-store experiences, in a bid to offer those who come in to the stores to make purchases “extras” they would not get if they confine their shopping to online providers. Additionally, the highly successfully omni-channel strategy will be continued, with shoppers being able to use “Click and collect”, “ship to store”, “reserve online and pay in-store” as well as “ship from the store” options for reservation and delivery. 
The new brand is expected to open 70 stores in Asia, India and Europe and new ecommerce platforms are set to be created. In doing this, they are taking advantage of infrastructure that was already in existence under the old Toys ‘R’ Us brand. Acquisition of this old infrastructure has already been confirmed, with a 760 USD deal involving Fung Retailing Ltd approved by a bankruptcy judge in 2018. Fung Retailing Ltd acquired most of the Toys ‘R’ Us Asia holdings and infrastructures under the deal, and these will be used to launch the new brand. 
TRU Kids Inc also has plans to leverage data acquired by its predecessor brand. The old Toys ‘R’ Us brand had an established social media following with 9.5 million followers on different social media channels. It is not clear what data Toys ‘R’ Us had been keeping or analysing prior to its demise, however what is clear is that this represents a very ripe opportunity for its new managers to leverage to gain competitive advantages into the markets they will reprise. Analysis of point of sale data, historical sales date and pricing data, done correctly will enable TRU Kids Inc to identify opportunities that had previously gone unexploited. 
TRU Kids Inc – how will it fare? 
TRU Kids Inc is focused on overcoming what caused its predecessor to fail – a poor digital presence and strategy, and slow adaption to factors like a decline in sales from retail premises. It aims to build on a better understanding of what caused the failure of Toys ‘R’ Us, while using its infrastructure and data reserves to good effect in establishing the new brand. 
The precise nature of the strategy that is planned for TRU Kids Inc has yet to be outlined in full, but aggressive price strategies from US competitors Walmart and Target will have to be overcome and in many cases bettered if the brand is to stand any chance at reasserting itself as a dominant player in global toy sales.
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