For decades, Toys R Us’ bright neon storefronts were a haven for excited kids and beleaguered parents looking to spoil their children with presents. However, the time for childish things like Toys R Us is now at an end, since the company recently filed for bankruptcy and announced it will soon be closing its US-based stores.
Yet the writing was on the wall for the once great toy giant for several years due to the advent of competing retailers such as Target, Wal-Mart and Amazon.com. Toys R Us’ failure is based on three main factors: their business model became outdated, their e-commerce efforts were delayed and unsatisfactory, and they could not match the low prices of their competition.
Once known as a “category killer” – meaning a retail store that carries a deep product assortment and competitive prices within a specific category to drive other retailers out of business – Toys R Us relied on the assumption that their customers would remain loyal in the face of better shopping options.
Similar category killers, such as Borders, Circuit City and Sports Authority, all reached the same fate in recent years because the modern consumer largely has no need for a store that only sells one type of product. Customers can no longer be bothered with day-long trips to half a dozen stores, when shopping at Target or Wal-Mart is faster and more convenient. Furthermore, shopping online is the ultimate convenience since Amazon can deliver items directly to a shopper’s door at an unfathomably fast pace.
One of Toys R Us’ biggest failures was its late adoption of online shopping. According to Forbes, Toys R Us and Amazon originally penned a 10-year agreement to make Toys R Us the exclusive toy vendor on Amazon. However, Amazon started allowing other toy vendors to sell through its site, complaining that Toys R Us wasn’t carrying enough stock to meet demand.
Toys R Us sued to get out of its contract in 2004 but was several years behind the competition in terms of having a strong online presence. In fact, Toys R Us was so far behind in the online shopping game that they were still making plans to revamp their website in May 2017.
Finally, price competition is a major factor in financial stability for a business, and sometimes higher prices can drive customers away in droves. This became a major problem with Toys R Us in recent years, since Amazon, Target and Wal-Mart could all afford to sell toys at low profit margins or even at a loss since they could recoup their losses through other products.
According to USA Today, Toys R Us “could not compete” with their competitors’ prices since it obviously relied “exclusively on toys for profit.” During the 2017 holiday season, its competitors turned up the heat even more on the toy retailer by lowering their prices even more to steal away customers. This effectively eliminated Toys R Us’ last hope to stave off bankruptcy.
Once again, being a category killer meant that Toys R Us was limited in its profits because it could no longer compete on pricing.
Toys R Us is feeling similar financial problems in some of its international franchises as well, with Canada’s Toys R Us stores also filing for bankruptcy and plans to sell the UK branch being met with failure.
In fact, the company’s last profitable arm is its Asian market, which has more than 480 stores. China’s Toys R Us locations are still seeing strong profits and are not being included in the company’s bankruptcy proceedings. China opened its 100th Toys R Us store in 2016 and according to Bloomberg in 2017, could be worth as much as $2 billion.
Looking back on the history of the once-great toy store, it would be prudent to remember the Toys R Us jingle’s opening line “I don’t want to grow up, I’m a Toys R Us kid” and the irony of the lyrics. While it would be nice to never grow up, future retailers cannot afford to cling to the past and refuse to modernize. If they do, they’ll go the way of Blockbuster, Borders, and now, Toys R Us.
