Toys R Us and its long-span shelves filled with toys of all shapes and sizes have become obsolete. But what exactly led to the demise of such a large company, and are there lessons to be learned from the fall of a giant?
Unbridled Expansion
At the time of its filing for bankruptcy, Toys R Us had close to 1,700 branches around the world. The brand focused on expansion to maximize its earning potential, but this also increased its risk of failure. Several non-performing branches were propped-up with income from other more successful departments, but the company still chose to expand rather than reduce the number of its subsidiaries. This massive number of branches created huge deficits, especially when competitors cut into their sales and online stores like Amazon entered the market.
Debt Servicing
Massive expansion, as well as other corporate costs, required vast amounts of money, and Toys R Us financed its needs through many loans. Its debt rose to $5 billion, and the company spent $400 million each year just to pay interest —money that could have been spent on improving their services or other means to stay competitive. Cutting their non-performing branches would have been a more prudent move, but the brand chose to wait it out and rely on expected windfalls during special occasions.
Cutting Personnel
Toys R Us stores are huge, and customers will typically need the help of personnel to find what they’re looking for. Store personnel will often push sales or suggest alternatives to certain products, raising purchases and building relationships with their clientele. However, the brand chose to cut store personnel in order to reduce spending. The lack of staff drastically reduced the quality of service and was a black mark on customers’ shopping experience. People opted to find alternative stores — such as Walmart and Target — which had more staff to help shoppers.
Competition
With the advent of Walmart and Target, consumers had more places to go to find toys and gifts. Toys R Us was still the leader at the onset, but as it cut costs and personnel, stores became a little bit unsightly and there wasn’t enough personnel to accommodate customers. Walmart and Target were very competitive in prices, and Toys R Us sales suffered significant losses. Toys R Us usually relied on its massive inventories, enabling it to wait out until their competitors stock run out and jacking up their margins. Online Retailers like Amazon also cut into the brand’s profits as more and more consumers are opting for online purchases and quick deliveries.
Changing Times
Toy sales have been declining through the years, and one reason for this is changing technology. The advent of tablets made games more available to more people of varying ages. Console game companies have also shifted their focus, making more games that are suitable for younger audiences.
Toys R Us is a cautionary tale of a company that grasped for more than it could hold, put too much confidence in windfalls, cut much-needed personnel, and failed to adjust to the changing times.
