November 2, 2007
Toys and Babies ‘R’ Us
Over the past year, Toys ‘R’ Us has experimented with a store that combines its successful Babies ‘R’ Us formula with elements of its struggling toy store business under a single roof. The pilot project, which began with conversions of smaller Toys ‘R’ Us locations, is now being expanded.
“Mom is time-starved and this gives her the ability to buy everything she needs for her children at one stop,” said Jerry Storch, chairman and chief executive of Toys ‘R’ Us, told The Associated Press.
Mr. Storch said the decision to expand the combination format was made after pilot locations generated double-digit sales increases.
“We have plenty of evidence that this is successful,” Mr.Storch said.
Toys ‘R’ Us plans to open its first two combination superstores in Elizabeth, New Jersey and Redlands, California today with more to open next fall in Arizona and Florida. Three of the locations are being built from the ground up while the store in NJ is converted from an existing Toys ‘R’ Us.
“This is a major, major shift in this company’s direction from a position of relative retreat…into a position of growth, into an aggressive mode,” Mr. Storch said.
Chris Byrne, an independent toy consultant, said the new format is reminiscent of Toys ‘R’ Us’ past. “You had to pass all the toys with your child in the cart to get to the cheapest diapers in town,” he told The Record. Mr. Byrne sees opportunity with the new format. “You’ve got to get people to the store,’ he said. “Driving traffic is really key for retail right now.”
Another toy consultant, Richard Gottlieb, also sees the logic in the combo format. “Babies are born every day, so there is not the seasonality in the baby business that there is in the toy business,” he told The Record. “And most of these parents who have babies, and many of the grandparents, have older children or grandchildren as well. So while they’re at Babies “R” Us they continue on to Toys “R” Us and shop there.”
Discussion Question: What do you see as the opportunities and challenges associated with the Toys ‘R’ Us new combo format?
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Toys ‘R’ Us has brought in a number of people, especially from Target, that understand the need to create a point of differentiation and to create a shopping experience that is personal. The identification of a time starved consumer like a parent or a grandparent, looking for the child solution is a significant audience. The challenge for their team will be in communicating new versus old formats and expectations and the onslaught from alternate channel competitors like Wal-Mart, Target, Costco and others that also have this audience in their sights.
They will get very little time from the consumer to make that stick as well as from their investment group to make it fall to the bottom line.
Let’s see, let’s scale back on the lower margin segment of the business, add in a higher margin, less seasonal business with basically the same target customer, make it more convenient and lower your overhead by putting it all under one roof.
Seems like a no brainer to me.
The combined format makes a lot of sense to me. Young parents are all about saving time and money. This format makes it easer to do both. Their big challenge will be getting the word out. They have to convince consumers that their prices and greater variety of products are worth driving past a Target or Wal-Mart.
Clothing for babies has much greater margin opportunities than branded toys. If Toys ‘R’ Us had a viable major private label toy assortment, their profitability would be much better. Because that strategy seems to be impractical, the second best strategy is to use Babies ‘R’ Us clothing as the margin-raising tool.
The original Toys ‘R’ Us business model (broad assortments in a “big box”) matured a long time ago, and the toy-only format has been losing market share to Wal-Mart and Target for years. Both discounters are dealing with much narrower assortments of best-sellers, competitively priced. It makes a lot of sense for Babies ‘R’ Us to carry “the best of” an infant/toddler toy assortment, especially with key brands like Fisher Price aimed at the same age group. Since the company already operates “combo” Kids ‘R’ Us/Toys ‘R’ Us stores, the Babies format should be a winner and the numbers so far seem to prove it.
It is an old cliché but sadly it applies: They are rearranging the deck chairs on a sinking ship. The seasonal toy category has been captured by the discounters, the hobby category is on life support and baby clothing comes from grandma. Management might be able to keep this boat afloat but it will not see many ports of call.
Déjà vu–didn’t the Babies ‘R’ Us banner start as a department within a full Toys ‘R’ Us store before being launched as its own banner?
I think this makes sense for TRU/BRU, and the combined business will make good use of some store footprints had become too big. Wal-Mart and Target have taken a good chunk of the toy business and it makes sense to add in more higher-margin items.
If, indeed, the desired result is “Mom is time-starved and this gives her the ability to buy everything she needs for her children at one stop,” why separate entrances? Thinking like a customer, go the next step and make it as easy as possible for mom to shop at one place.
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Toys ‘R’ Us has brought in a number of people, especially from Target, that understand the need to create a point of differentiation and to create a shopping experience that is personal. The identification of a time starved consumer like a parent or a grandparent, looking for the child solution is a significant audience. The challenge for their team will be in communicating new versus old formats and expectations and the onslaught from alternate channel competitors like Wal-Mart, Target, Costco and others that also have this audience in their sights.
They will get very little time from the consumer to make that stick as well as from their investment group to make it fall to the bottom line.
Let’s see, let’s scale back on the lower margin segment of the business, add in a higher margin, less seasonal business with basically the same target customer, make it more convenient and lower your overhead by putting it all under one roof.
Seems like a no brainer to me.
The combined format makes a lot of sense to me. Young parents are all about saving time and money. This format makes it easer to do both. Their big challenge will be getting the word out. They have to convince consumers that their prices and greater variety of products are worth driving past a Target or Wal-Mart.
Clothing for babies has much greater margin opportunities than branded toys. If Toys ‘R’ Us had a viable major private label toy assortment, their profitability would be much better. Because that strategy seems to be impractical, the second best strategy is to use Babies ‘R’ Us clothing as the margin-raising tool.
The original Toys ‘R’ Us business model (broad assortments in a “big box”) matured a long time ago, and the toy-only format has been losing market share to Wal-Mart and Target for years. Both discounters are dealing with much narrower assortments of best-sellers, competitively priced. It makes a lot of sense for Babies ‘R’ Us to carry “the best of” an infant/toddler toy assortment, especially with key brands like Fisher Price aimed at the same age group. Since the company already operates “combo” Kids ‘R’ Us/Toys ‘R’ Us stores, the Babies format should be a winner and the numbers so far seem to prove it.
It is an old cliché but sadly it applies: They are rearranging the deck chairs on a sinking ship. The seasonal toy category has been captured by the discounters, the hobby category is on life support and baby clothing comes from grandma. Management might be able to keep this boat afloat but it will not see many ports of call.
Déjà vu–didn’t the Babies ‘R’ Us banner start as a department within a full Toys ‘R’ Us store before being launched as its own banner?
I think this makes sense for TRU/BRU, and the combined business will make good use of some store footprints had become too big. Wal-Mart and Target have taken a good chunk of the toy business and it makes sense to add in more higher-margin items.
If, indeed, the desired result is “Mom is time-starved and this gives her the ability to buy everything she needs for her children at one stop,” why separate entrances? Thinking like a customer, go the next step and make it as easy as possible for mom to shop at one place.