The Death of Toys ‘R’ Us: What Other Retailers Need to Learn Now

News today of Toys ‘R’ Us’ impending shutdown of U.S. operations has placed consumers in what has become an all-too-familiar peril amid retail’s frantic evolution: confusion and sadness over the loss of a cherished retail brand but a sense of culpability in its demise.

Still, while American shoppers will continue to shoulder some fragment of the pain stemming from the shutdown of many of retail’s longtime darlings (RadioShack, Sports Authority, The Limited, etc.) as well as an awareness that their lack of patronage is often the final nail in the coffin, the onus of navigating the tumultuous climate and staying afloat falls squarely on the backs of companies.

In the case of Toys ‘R’ Us, experts widely agree that private equity ownership and an unworkable debt load were leading factors in its ultimate curtain call. Yet, strategically, according to Katherine Black, principal of retail and consumer strategy at KPMG, there are critical lessons to be gleaned for footwear and apparel brands and sellers seeking to remain in retail’s surviving class.

Here, four things Toys ‘R’ Us could have done differently to survive.

Move Quickly

Digital competition, a growing preference for experiential spending and a heightened consumer disinterest in “things” have all taken aim at retail at a frenetic pace.

While a frenzied response on the part of companies is hardly appropriate, ignoring critical market changes (think Blockbuster) or being too slow to act is an easy route to failure in the current climate.

“The big learning for other retailers is to act quickly in terms of [responding to] what’s happening in the market,” Black explained. “Get in front of these shifts and respond to them quickly in an appropriate way.”

Rethink Pricing & Raise Experiences

In recent years, according to Black, toys have become a highly commoditized category — a trend strongly bolstered by the digital boom. With two important factors working against Toys ‘R’ Us — competitive online prices and a general consumer migration to e-commerce — the retailer could have made several crucial changes to keep shoppers in its stores.

“When products move online, we see price playing a much bigger role,” Black said, suggesting the struggling chain may have needed to reassess its pricing strategy to ensure it made sense in the current climate. “Whereas a retailer wants to capitalize on and charge a premium for an in-store experience and for quality elements that can be communicated in person, a lot of that gets lost when it transfers online. So, [Toys ‘R’ Us] needed to get in front of that shift and devise ways to bring people into the store, [for example] creating services and [more experiences] — it’s got to be something more than the product.”

Ditch Seasonality, Lean Into Online Gaming,
Apps & YouTube

A huge factor cited in the demise of Toys ‘R’ Us is perhaps one long deemed unavoidable for some retailers: The bulk of its business was done during a six- to eight-week period of the year (the holiday season). While toys will naturally always carry some level of seasonality, Black believes the company could have done a better job of engaging consumers year-round.

“Where Toys ‘R’ Us missed a trick was with these online games, services and things that are engaging kids every single day and throughout the year,” Black said. “Kids are constantly on YouTube Kids — looking at new things, wanting to spend their allowance money on [products and services] and [seeking] to buy a new app or game. Toys ‘R’ Us missed the trick by not tapping into that. And [although such strategies] may [result in] a low-dollar sale and may not look very sexy, the idea of taking a consumer and figuring out how to engage them year-round — even if it isn’t a massive shift in the dollar volume — is [critical].”

Find the Un-Amazonable

In order for traditional brick-and-mortar players to keep their physical outposts thriving, it has become imperative that they offer consumers something that cannot be mimicked online. In the case of Toys ‘R’ Us, while Black does suggest that a re-evaluation of its pricing strategy could have been helpful, competing solely on price can easily lead retailers down a dark hole where profit margins are the inevitable sacrifice.

“[Toys ‘R’ Us should have] changed up their categories to be focused on the products that kids really want to go [into a store] and see and experience,” Black explained. “It could even be some high-end thing that’s not going to move as quickly but is going to bring some people in and drive some halo in the store.”

In short: “If toys, in general, are moving online, figure out some subcategories and relevant adjacencies that are going to stay in-store,” she said.

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