Toys “R” Us bankruptcy: lessons for retailers

Broken Toy

Hard to believe but Toys “R” Us has sought bankruptcy protection. It’s interesting to hear the Australian operations remain unaffected, it’s hard to believe as we’ve heard and seen for so many years the success of Toys “R” Us. As the old adage goes…learn from failure.

Here are five things every retailer needs to learn from Toys “R” Us…aside from too much debt, we think you know that one!

Learning One – Growth is king

Sure, Toys “R” Us had a load of debt, according to reports around $5 billion. But if you look beyond the debt mountain, Toys “R” Us had not grown their business, in fact, Toys “R” Us sales have fallen each year since 2012.

Retailers have to continuously grow their sales. Aside from the fact that retail costs go up remorselessly every year, real sales growth also flags that your customers are satisfied with your business. Toys “R” Us shoppers flagged 5 years ago that they were not happy, surely enough time between then and now to do something.

Learning Two – Be nimble to stay on trend

Toys “R” Us has a model that is simply not nimble, they couldn’t re-orient their stores quickly or cost effectively enough to stay with retail trends. And the big retail trend is to drive the shopping experience.

Been into an Australian Toys “R” Us recently? Simply a big box retail offer with high shelves and lots of stock. But as a shopping experience…dull! It’s a toy store for goodness sake, where is the theatre, where is the excitement, where is the experience? It’s just not there.

Being nimble means having a meaningful shopping experience but also being able to constantly and continuously adjust the experience of your outlets as shopper behaviours change. And shopping behaviours are always changing.

Learning Three – Online is changing the rules of retail

As at 12 months to June, online is now 7.4% of the retail sector and growing at an annual rate of 7.6%. Overall retail sales are flat (July results). Online has always had the potential to be a big threat, now it’s a reality and the rules of retail are changing.

Online big competitive benefits for shoppers are simple; price and sheer variety and choice available to shoppers that are simply not in ‘Bricks & Mortar’ stores. For store based retail, going ‘head-to-head’ on these is fatally flawed. Recognise the competitive benefits of store-based retail being “I get my stuff now” and the ‘excitement and experience’ and make sure you’re delivering these brilliantly.

Learning Four – If you only talk about price…then you’ll only talk about price

Toys “R” Us pushed price hard as a key platform in their marketing programmes. Being single minded on price is a great strategy…for a discounter. But Toys “R” Us is not a discounter.

Learn from this Toys “R” Us experience, if you only have price to talk about in your marketing, then your conversation is price and you’d better be the lowest…otherwise you have no credibility in the eyes of the shopper.

Better to talk about price and…What is new, what is hot, what is coming, revisit a best seller, new brand, big brand – always talking about the benefits to the shopper beyond price of what you’re trying to sell. Then you’re not positioned only on price.

Learning Five – You must be on trend (product)

Toys “R” Us used to be great at identifying the next big thing but that appears to have fallen away in recent times. Walking through their Australian stores, it is difficult to see the new ‘hot’ trends being displayed. We think the trends are;

  • Trend towards “go out and play” toys
  • Trend towards nostalgia
  • Trend towards experiences
  • Trend towards values based and educational focus
  • Trend towards “up-ageing”

It’s vital to be on trend for two reasons, firstly to position your retail outlet(s) in the mind of the shopper as ‘up to date’ and, secondly, this is where new growth is going to come from.

So, look at your data, look at what overseas retailers similar to you are doing, be curious about your shoppers and their behaviour and build knowledge of what the trends are in your business and execute against them.

We’re really sad to see Toys “R” Us seeking bankruptcy protection, we hope the Australian operations are not impacted majorly. But this is marvellous opportunity to learn from failure, hopefully it will spur you on to take a good hard look at your own business and not repeat these learnings.

Wise men learn from others mistakes… fools from their own.


About the author

Michael Stafford has 20 years experience in retail domestically and overseas. He Founded www.6seed.com.au to help small and medium sized businesses to grow.