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Toys R Amazon, Walmart, and Others, but Not Us TOY SHUS Toys-R-Us has long been known as a marquee toy retailer with giant 40,000-square-foot stores and nearly every item desired or imaginable for children (and some adults). A large percentage of Americans, as well as customers in international markets, can recall visiting a Toys-R-Us store. Sadly however, even icons fail, especially when confronted with nearly $5 billion of debt, fierce online competition from Amazon and Walmart, changing cus- tomer preferences (video games instead of conven- tional toys), and technology (e-commerce). Not even 3 billion dollars in annual sales could surmount these challenges. GOING OUT OF ENTIRE STORE EVERYTHING MUST GO! BUSINESS Toys R Us is yet another iconic retailer to suffer due to changes in technology, customer preferences, and new competitors. Daysi Calavia-Robertson/Newsday/Getty Images large percentage of annual revenue) hurt more than helped. Company leadership and other employees were in survival mode instead of executing and boost- ing sales when it needed them most. The poor timing was made even worse as it scared customers away, as they were concerned that toys couldn't be returned, and gift cards redeemed. 88 SEALED FATE Some argue the company's fate was sealed back in 2005 when Bain Capital took the company private and buried it in debt to do so. Toys R Us never shed this burden.85 The Toys R Us scenario is a familiar one. In the years prior to the great recession (2006-2008), private equity firms (PE), like Bain and KKR, went shopping for retailers. They took the companies private by borrowing money for the purchase and planned to achieve high returns by making them more efficient, selling off parts, or both, and in a period of a few years take them public again. (Note: PE firms generally collect large fees associated with taking the companies public.) However, the recession eroded the value of the retailer's real estate and at the same time e-commerce exploded onto the market. Online sales have more than quadrupled since 2007. For perspective, Neiman Marcus, another PE-, debt-plagued retailer reaped 34 percent of total sales online in 2017. These same factors also spurred the demise of other well-known brands, like Gymboree, Payless Shoes, and Sports Authority. 86 To compete online requires massive investments in technology and support, people, all while selling prod- ucts at lower margins. In summary, competition is up, debt is up, expenses for creating an online channel go up, and profits go down a tough scenario for any retailer:87 Many have responded by only investing in safe bets and cutting products and people, which in turn has limited merchandise and degraded service. For its part, Toys R Us tried bankruptcy in Septem- ber 2017 to salvage the company but doing this before the holiday shopping season (when it collects a COMPETITORS POUNCED Knowing Toys R Us was on the ropes, Walmart, Target, and Amazon cut prices during the holiday season and took an ever greater share of sales. For instance, com- petitors sold some toys at a loss in order to get the business. This practice isn't sustainable, normally, but each of these large competitors sells many, many other products besides toys. As such, they could com- pensate with sales from other products while Toys R Us couldn't. It sells only toys.89 Concerns spread and a domino effect ensued. Many toy suppliers delayed shipments fearing they might not be paid if the company went bankrupt, and creditors also tightened terms making things even worse. WHERE NOW? All is not lost. Yes, the company did technically go away-over 700 U.S. stores closed and nearly 33,000 employees lost their jobs, but a new company, Tru Kids Brands, has emerged in 2019. Investors bought Toys R Us trademarks, private toy and baby brands, its famous mascot (Geoffrey the Giraffe), Babies R Us, and other assets. The new CEO, Richard Barry, formerly the chief marketing officer of Toys R Us, hired many of the for- mer company's leaders but none of its stores and associated employees.90 Many industry experts note that although the major competitors are indeed formidable, the demise of Toys R Us leaves a notable gap in the market. Many people still need or at least desire to shop in an actual toy store, and this is especially true during the holidays. It's nostalgic. 91 6 NEW TEAM... NEW APPROACH Time will tell, but at the time this case was written it is clear it will involve new employees, new stores, and a new strategy to go along with the new name. Assume you are the new CEO Richard Barry and apply the 3-Step Problem-Solving Approach to chart a path forward for Tru Kids Brands