The company filed for bankruptcy in September 2017 after almost 70 years in operation, with stores closing in the United States, United Kingdom, and Australia the following year. Stores in Canada, Europe, and Asia were also sold to third parties. While many casual observers may attribute the failure of Toys “R” Us to competitors such as Amazon, several causes contributed to its failure.
| Aspect | Explanation |
|---|---|
| Background | Toys “R” Us was a well-known American toy and juvenile-products retailer. Founded in 1948, it grew to become one of the world’s largest toy retailers, operating both toy stores and Babies “R” Us stores. For decades, it was a go-to destination for toy shopping, offering a wide range of toys and games for children. However, the company faced significant challenges that ultimately led to its decline and bankruptcy. |
| Key Events | Several key events contributed to the downfall of Toys “R” Us: – Rising Debt: The company took on a substantial amount of debt in the early 2000s as part of a leveraged buyout. This debt burden limited its financial flexibility. – Competition: Intense competition from online retailers like Amazon and big-box stores like Walmart eroded its market share. – Changing Consumer Behavior: A shift towards online shopping and digital entertainment impacted traditional toy retailers. – Bankruptcy Filing: In September 2017, Toys “R” Us filed for Chapter 11 bankruptcy, citing its debt and competitive challenges. – Liquidation: In 2018, the company announced plans to close its U.S. stores and liquidate its assets. This marked the end of the iconic toy store chain in the United States. |
| Impact | The bankruptcy and liquidation of Toys “R” Us had several significant impacts: – Job Losses: Thousands of employees lost their jobs as a result of store closures. – Retail Landscape: The demise of a once-dominant toy retailer highlighted the changing retail landscape and the challenges traditional brick-and-mortar stores face in the digital age. – Toy Industry: The bankruptcy had ripple effects on the toy industry, impacting toy manufacturers and suppliers. – Real Estate: The closure of numerous stores affected commercial real estate markets in various locations. |
| Legacy | Despite its decline, Toys “R” Us left a lasting legacy: – Nostalgia: Many adults have fond memories of visiting Toys “R” Us as children, and the brand holds a special place in their hearts. – Geoffrey the Giraffe: The company’s mascot, Geoffrey the Giraffe, remains an iconic symbol of childhood. – Brand Revival: In 2019, the brand was acquired by Tru Kids Brands, which announced plans to open new Toys “R” Us stores. While these new stores are smaller and more experiential, they aim to revive the brand’s presence. |
| Lessons Learned | The decline of Toys “R” Us offers valuable lessons for the retail industry: – Adaptation: Retailers must adapt to changing consumer behavior, including the shift to online shopping. – Debt Management: Prudent management of debt and financial resources is crucial for long-term stability. – Competition: Competition, especially from online giants, requires retailers to differentiate themselves and offer unique value. – Customer Experience: Creating memorable in-store experiences can set retailers apart in an increasingly digital world. |
Background
Toys “R” Us is an American toy, clothing, and baby product retailer founded in 1948 by Charles Lazarus.
At its peak, the company operated around 1600 stories worldwide and was a prime example of a category killer – or a retailer gaining massive competitive advantage through pricing, diverse product selection, and market penetration.
Serial mismanagement
Modern retailers need to be progressive, flexible, adaptable, and responsive to change in an industry dominated by intense competition and eCommerce.
For one reason or another, Toys “R” Us management failed to embody these characteristics. Critics suggest its bricks-and-mortar stores were too large and packed with too much inventory.
The shopping experience was also poor, with customer service non-existent. This caused consumers to shop at Target instead where they could buy toys in addition to homewares, school supplies, and other home essentials.
Instead of engaging with consumers, management held on to the belief that the company was at the center of the toy industry universe.
Debt
Toys “R” Us was saddled with billions of dollars in debt – even before the boom in online shopping.
This hindered the company’s ability to open new stores, with former CEO David Brandon admitting that debt had caused Toys “R” Us to fall behind competitors ”on many fronts, including with regard to general upkeep and the condition of our stores.”
It also forced the company to cut costs on employee wages, meaning its vast stores with similarly vast product ranges were devoid of appropriate customer service.
Changing consumer preferences and competition
Further to the above points around mismanagement and debt are changing consumer preferences.
As children spent more time playing video games and less with physical toys, parents no longer had a reason to visit a Toys “R” Us store.
The few physical toys that are purchased tend to be sourced online. But this was also problematic for the company because of fierce and established competition from Amazon, Walmart, and Target.
Amazon in particular influenced consumer expectations for the next generation of parents, who quickly became used to the convenience of ordering toys online.
Partnership with Amazon
In 2000, Toys “R” Us partnered with Amazon in a 10-year deal to become the eCommerce giant’s exclusive seller of toys and products. For this privilege, the company paid Amazon $50 million annually plus a percentage of all sales.
The partnership was a success from a financial point of view, but it would prove to have serious long-term ramifications for the company.
The first side effect of the deal was that Toys “R” Us had no online presence – customers trying to access its website were redirected to Amazon.
What’s more, Amazon began entering into partnerships with other brands after witnessing the success of the deal with Toys “R” Us.
Everything Amazon learned about selling toys came from the toy retailer and importantly, it kept toy sales limited to its own platform.
The company would ultimately sue Amazon for its troubles, allowing it to terminate the deal. While Toys “R” Us had won the battle, they were already losing the war. The deal with Amazon set the company back years in developing its own online presence and eCommerce strategy.
Key takeaways:
- Toys “R” Us is an American toy retailer founded in 1948 by Charles Lazarus. The company filed for bankruptcy in 2017 after more than seven decades in operation.
- Toys “R” Us suffered from mismanagement, choosing not to invest in eCommerce and believing its physical stores would always attract patrons. High debt levels caused the maintenance and customer service levels in these stores to be sub-standard at best.
- Toys “R” Us entered into a financially successful partnership with Amazon as the exclusive seller of toys. However, this partnership caused Toys “R” us to neglect its own eCommerce platform. It also surrendered important insights regarding toy retailing to its biggest competitor.
Key Highlights
- Toys “R” Us, an American toy, clothing, and baby product retailer founded in 1948 by Charles Lazarus, filed for bankruptcy in September 2017 after almost 70 years in operation. The company faced significant challenges that contributed to its failure.
- Serial mismanagement was a key factor in the downfall of Toys “R” Us. The company’s management failed to adapt to the changing retail landscape, with large, inventory-packed stores and poor customer service. Instead of embracing progress and flexibility, management held onto the belief that the company was at the center of the toy industry.
- Debt was a major burden for Toys “R” Us, hindering its ability to invest in new stores and maintain the condition of existing ones. The company’s struggle with debt led to cost-cutting measures on employee wages, resulting in inadequate customer service.
- Changing consumer preferences also played a significant role in the company’s failure. As children increasingly turned to video games and online activities, physical toy purchases declined. Toys “R” Us failed to adapt to these changing preferences and the growing trend of online toy shopping.
- Competition from giants like Amazon, Walmart, and Target further exacerbated the company’s challenges. These established retailers provided fierce competition in the toy market, and Amazon’s dominance in online shopping influenced consumer expectations, making them accustomed to the convenience of online toy purchases.
- The partnership with Amazon, which started in 2000, initially brought financial success to Toys “R” Us. However, the deal had serious long-term ramifications. Toys “R” Us paid Amazon $50 million annually plus a percentage of sales to become the exclusive seller of toys on Amazon’s platform. This meant Toys “R” Us had no online presence of its own, and Amazon learned valuable insights about toy retailing from the partnership.
- Amazon eventually started forming partnerships with other toy brands, keeping toy sales limited to its platform. Toys “R” Us sued Amazon to terminate the deal, but the damage was done. The company had lost valuable time and resources and failed to develop its own online presence and eCommerce strategy.
Other Failure Stories
