When Toys R Us announced plans to shutter its U.K. and U.S. locations, the retail industry was buzzing with speculation over why the one-time toy heavyweight had failed after nearly seven decades in operation. While years of declining sales and mounting debt tell much of the story, a series of retail follies and missteps paint a clearer picture of what happened to the former retail giant. Here we outline how Toys R Us’ failure to adapt to changing consumer behavior, innovate its business model, and incorporate technology into the user experience ultimately led to its demise.
Toys R Us ceased to be the “experience” it was once known for. At eTail West and ShopTalk, two of retail’s recent industry gatherings, experts highlighted how consumers seek shopping trips that are experiential. For example, when you enter a car dealership, you want to test drive a car – it’s part of the car buying experience. Similarly, Toys R Us was known for providing that special you-had-to-be-there shopping experience. “It was ceiling-to-floor toys. It was a destination,” retail analyst Kate Hardcastle said in a February interview with BBC. Recent years, however, have been defined by a surplus of inventory, sloppy shelves, fewer special events, and near-nonexistent customer service. “Today, a trip to Toys R Us has been characterized as lacking in inspiration,” Hardcastle said. Basically, Toys R Us became old and nostalgic rather than the cool place to go. Greg Portell of retail consultancy A.T. Kearney added that a breadth of inventory means nothing if you don’t have someone to help you experience it. “It’s hard to sell toys in a cold, warehouse environment,” he said.
Failure to innovate allowed competitors to step up. Now that its stores no longer put the customer experience front and center, Toys R Us was left to compete on price alone. This didn’t mesh well with the business model that had made the company a “category killer,” meaning it specialized in one type of merchandise, making it the dominant retailer in that category. The fact is, relying exclusively on toys for profit allowed large competitors like WalMart and Target to offer the same products at a better price. In the toy business, brand loyalty is to the manufacturer, not the supplier, so when competitors priced toys at low-margins or as loss-leaders during the Holiday shopping season and offered aggressive online shipping options, Toys R Us was left unable to compete. The inability to adjust to a big market shift to ecommerce also left Toys R Us vulnerable to Amazon’s growth. While all retailers felt the impact of Amazon’s presence, Toys R Us took the brunt of it, lacking the resources to fight the traditional discount and dollar brick-and-mortar retailers. Without a major online presence, they were squeezed out of the market.
Too little, too late to introduce new technologies. Toys R Us’ inability to innovate also spilled over to new technologies. In a world where kids can use a mobile app to distort their face or make them a superhero, Toys R Us’ response was to create one new aisle. Basically, it didn’t adapt to new technologies, it just included them as part of the regular store. Denise Dahlhoff, research director at Wharton’s Jay H. Baker Retailing Center, went further to point out competitors like Build-A-Bear that were able to adapt to the changing times. The company offered the ability to take a bear that you built online and bathe it in a virtual tub, Dahlhoff said. “It was just more interactive. You could pick your own customized sound for the bear.” In the end, a series of organizational gaffes and failures led to the collapse of a company once synonymous with the concept of “play.” It’s important to note that no one factor is to blame, but rather a cascade of causes from not adjusting to the constantly changing retail market to not incorporating key technological advancements into the user experience. In a recent piece for Forbes, retail guru Steven Dennis countered the commonly held notion that “physical retail is dead” by stating that no, in fact “boring retail is dead.” So was the fate of Toys R Us.