Toys "r" Us: From Yesterday to Tomorrow

Toys "R" Us: From Yesterday to Tomorrow

MKT 5344

Professor: Dr. Nicholas Gerlich

West Texas A&M University

2004

Introduction

This paper discusses company's multichannel strategy, its marketing issues and overall approaches to maintain sustainable competitive advantage.

Toys "R" Us Inc. emerged as a public company in 1978. It is an $11 billion dollar company with approximately 1,500 stores worldwide. The company is a market share leader in both the U.S. and Japan. In the U.S., its largest market, it operates the largest free-standing destination toy and baby specialty stores.

Since its inception, Toys "R" Us, Inc., has grown to include the following divisions:

* Toys "R" Us, U.S., including Geoffrey's Toys "R" Us

* Toys"R" Us, International

* Babies"R" Us

* Toysrus.com

The "R" Us family of brands offers a broad assortment of toys, games, sporting goods, electronics, software, baby products, children's apparel and juvenile furniture.

Chapter I

In this chapter I am going to review multichannel strategy of Toys "R" Us with focusing on how company tries to reach its customers and build customer retention.

In today's changing global economy, it is extremely hard for companies to build competitive advantage and even more difficult to sustain it. Products of competitors catch up with cutting-edge technologies. Brand advantage requires enormous amount of financial and human resources. Pricing is highly competitive, so buyers always look for best offers and deals.

This tough environment requires companies to maintain true executive-level strategic value to customers and assist them maximize profitability. Nowadays, big retailers realize that only one channel for distribution of their products is barely enough to achieve their goals and it would be better both for retailers and customers to elaborate multichannel strategy and, thus, sustain competitive advantage.

Toys "R" Us as one of the biggest toy retailers in the world is actively using given multichannel approach to reach and satisfy its customers. Let's analyze this strategy more carefully.

As we know multichannel strategy is when a retailer sells merchandize or services through more than one channel. In the following paragraphs we will consider all parts of multichannel strategy implemented by Toys "R" Us.

Brick-and-mortar stores

Toys "R" Us has approximately 680 U.S. locations and operates, licenses or franchises approximately 570 toy stores in 29 countries outside the United States.

The 1990s were tough for Toys "R" Us. Forty years after a young Charles Lazarus founded the company in 1948 (thereby inventing the category-killer retail concept) and built it into a retail powerhouse, Toys "R" Us watched as the industry it commanded got sliced up and served to other retailers like cake at a birthday party. Sam Walton expanded toy departments in his Wal-Mart Supercenters at light speed. Dayton Hudson began moving its Target concept out of the Midwest. Kmart emerged from corporate turmoil with a new Big K format that shelved piles of toys. And K-B Toys used an army of tiny shops to divert billions of dollars in revenues into American malls.

A shell-shocked Toys "R" Us reacted to the new competition with merchandise tweaks and modified store layouts, but to no avail. Between 1990 and 1997, the chain's market share fell from 25 percent to 18 percent, according to Port Washington, NY-based NPD Group. One year later, share shrank to 16.8 percent and Wal-Mart officially became the nation's No. 1 toy retailer.

This, of course, significantly hurts Toys "R" Us' business and triggered its evolution. Marketing specialists of the company decided to elaborate more complicated and more effective channeling approaches by adding e-commerce and catalog channels.

www.toysrus.com

Between 1999 and 2002 the share of the toy market held by Internet retailers was expected to grow ten times according to Deutsche Bank's Alex Brown , which would amount to 2.2% of the market. However, even that small percentage of the market was likely to influence the industry profoundly. One major way Internet retailers competed in the toy market was based upon price since profit margins were quite slim. Participants in the toy war on the web besides Toys-R-Us included Etoys, Amazon.com, Smarterkids.com, Target.com, and Toysmart.com. The year 2000 brought approximately 28+ million shoppers online and $793 million in total online toys sales, compared to $650 million in online sales in 1999 . In 1998 Etoys.com was the number one online toy merchant, stunning industry watchers-and complacent offline retailers-by selling $23 million in toys and related products during the holiday season. In 1999 Etoys.com topped the market again with $151 million in sales. Analysts attributed Etoys.com win to the company's superior web store user-interface that enabled shoppers find items easily and quickly. Exhibit 1 shows the selected sales and percentages of toy revenues derived from online sales by the top players in 1999.

Exhibit 1

1999 Online Toy Sales

Company Online Toy Sales Percentage of Total Toy Revenue

Etoys $151million 100%

Amazon.com $95 million 100%

Toys-R-Us $50 million 0.4%

KB Toys $26 million 1.5%

Source: USA TODAY research

But since then situation changed dramatically. Toys-R-Us arrived late