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To Thrive in the New Global Ecommerce Marketplace, Toys ‘R’ Us may Need to Think Small

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Remember Toys ‘R’ Us? A toy shop that gave the world Barbie, Mr. Potato Head and other wonderful creations. The toy seller, which at its peak had more than 1,500 stores around the world, was part of the fabric of American childhood for more than half a century. In many countries, it was the go-to store for birthday gifts and special treats — a magical wonderland of toys where, as children, we happily spent hours exploring.

Toys ‘R’ Us once boasted a prime location in New York’s Time Square while also inhabiting many large out-of-town buildings in retail parks in key towns and cities in the U.S. and abroad. But it turned out that the emporium of toys, games and fun could not in the end withstand the relentless competition and margin hits from the internet and supermarket retailers. In 2017, the U.S. business collapsed, saddled with debt. Less than a year later, the UK arm filed for administration and all the stores were eventually shut.

Since then, there have been a few meager efforts to make a comeback but they fizzled out quickly. Now the rumors have started up again on the news that in March, U.S. brand management company WHP Global has bought a controlling interest in Tru Kids, which owns the Toys ‘R’ Us brand.

On the acquisition, WHP CEO and Chairman Yehuda Shmidman said: “Our investment in Toys ‘R’ Us reflects our belief and passion for the brand. We are thrilled to be taking the reins of the world’s leading toy brand at a time when the category is up 16% and consumer demand for toys is at an all-time high. This is a natural fit for WHP, as we can leverage our global network and digital platform to help Toys ‘R’ Us and Babies ‘R’ Us around the world.”

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The toy market certainly had a very good pandemic, with families at home and keen to keep themselves and their children busy. Games, puzzles, action figures and outdoor toys were especially popular. With stores closed for most of the year, ecommerce was the main driver of this growth. Profits at Barbie and Hot Wheels firm Mattel were $126.6 million for its FY 2020, compared to a loss of more than $200 million the previous year. LEGO also reported a strong year with net profit up almost 20% to DKK 9.9 billion. It credited strategic investments, such as those that went into developing an omnichannel retail ecosystem.

But how will Toys ‘R’ Us, a traditional retailer of a bygone age, fare in an era dominated by online channel growth and purchase journeys heavily influenced by digital touchpoints?

The Toy Store of the Future

Crucially, WHP Global has said it is planning to rebuild Toys ‘R’ Us as an omnichannel brand via its strong network in retail technology, transforming it into the ‘go-to destination and authority in toys’. So let’s focus first on the innovations in the brick-and-mortar channel, pandemic challenges aside, that could support a reboot of the once trusted name in toys. In Edge Retail Insight’s flagship 2020 Store of the Future Winning Strategy report, our analysts outline five main characteristics that will define success for the future store. These are:

  • The ability to offer frictionless pickup and collect services;
  • Emphasis on assortment and curated solutions;
  • Adoption of experiential elements;
  • Features that build trust and encourage collaboration; and
  • Operational excellence.

For Toys ‘R’ Us, this could manifest itself as a retail model that emphasizes high-end, experiential pop-up stores at key times of the year — say in the run-up to Christmas, which would go hand-in-glove with a category driven by holiday shoppers and their younger, more emotional end consumers. In this model, the physical sites would accommodate in-store fulfilment for goods purchased online and could feature location-specific deals and events that would re-engage customers and drive footfall. One of the reasons why Toys ‘R’ Us failed the first time round was because it wasn’t able to reinvent itself as an omnichannel retailer and use its store base to its advantage.

The ‘reset’ of 2020 and the innovations in the omnichannel experience have given Toys ‘R’ Us a blueprint for a unique, boutique experience that prizes the personal touch. After all, the days of winning on assortment in a brick-and-mortar store are long over given the ‘endless shelf’ of digital retail. This will be a far cry from the Toys ‘R’ Us we remember: stack-em-high warehouses with hard-to-find exclusives, but it could work as a niche play — a destination shop.

So now what about the ecommerce part of the omnichannel equation?

Toys ‘R’ Us can’t compete against the might of Amazon, Walmart and Target in the U.S., Tesco in the UK and Carrefour in Europe. These are digital giants and we anticipate that the world’s leading marketplaces will likely generate upwards of 80% of all consumer goods sales by 2025.

But could there be an opportunity for Toys ‘R’ Us to create a sector-specific marketplace to grow its customer base?

You Can’t Beat Marketplaces

Post-pandemic, we are now on the cusp of a new generation of retail. The first generation was made up of local, independent, fragmented stores with limited distribution. With gradual innovation in supply chains and mass market economics, this has evolved significantly over the past few years.

Most retailers in the U.S. are currently in the third generation, characterized by ecommerce growth and flexible fulfillment, and the fourth generation of retail is defined by the dynamics of digital marketplaces. What we are heading toward is the fifth generation, where we’ll see digital marketplaces master personalization at scale and become fast-paced and agile through the use of big data.

Toys ‘R’ Us must be careful in its comeback strategy not to tether itself to past models of success that belong to previous retail generations and aren’t relevant in the modern landscape. Without the strong distribution network of years past, Toys ‘R’ Us is also not positioned to compete on selection or even exclusivity. All it really has to differentiate itself is the strength of its name and the promise of a superior in-person toy experience. That should count for something, since the purchasers of toy products (parents and gift-givers) are not necessarily the product consumers (children). A child’s in-store experience can be optimized with the right investment in the brick-and-mortar channel, but how much of that magic can Toys ‘R’ Us transfer into the purchaser’s online experience?

A significant investment in its digital proposition is a basic requirement for that, ensuring that brands are attracted to the proposition and customers can search and shop easily on the platform. With backing from private equity firm Oaktree Capital Management, WHP may be in the right place at the right time to make this a reality. But I can’t help wondering what their point of difference will be in a retail landscape dominated by global marketplaces and where popular manufacturers have much more power to decide where and how they want to be sold.

The nature of retail is that new stores kill old stores because of what shoppers want. Can TRU bring back a once successful (pre-internet) toy retailer that shoppers will once again turn to for Christmas and birthdays? An interesting one to watch.


Deren Baker is CEO at Edge by Ascential, an ecommerce consultancy owned by UK-listed specialist information and data business Ascential.

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