American retailer Toys R Us has filed for Chapter 11 bankruptcy, the company announced earlier this week.
It comes as no surprise to those in the know, after the toy store behemoth accumulated billions in debt after failing to pay back a 2005 investment from Vornado Realty Trust.
Dave Brandon, Toys R Us’ chairman and CEO said in the company’s official press release:
"Today marks the dawn of a new era at Toys R Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way”
However, it appears it was not just crippling debt that spelt the end of Toys R Us as we know it, but a refusal to embrace the changing retail marketplace. While toy-selling competitors Walmart and Amazon go from strength to strength online, Toys R Us was struggling with an outdated website and flailing customer loyalty.
According to data from Ecommercedb.com, Amazon sold $2.16 billion USD of toys and baby items in 2016. Walmart, the largest toy store in the country, claimed the second spot online with nearly $1.3 billion. Toys R Us sold just $912 million online in the same period.
US toy sales account for 21.6% of total eCommerce sales, so why didn’t Toys R Us embrace this demand? According to the company, they simply couldn’t compete on price with other big box retailers. In their official filing for Chapter 11 bankruptcy, Toys R Us took a jab at Amazon:
“Online retailers such as Amazon are not concerned with making a profit at this juncture, rendering their pricing model impossible to compete with.... To compete, Toys ‘R’ Us would have needed to slash prices on the same toys to keep traffic coming into its stores, decreasing its revenue and cash flows in an unrelenting race to the bottom. But Toys did not engage in this race to the bottom. The Company does not have supplemental departments and revenue streams from which to make up for the lost margin on selling, as do Walmart, Target, and Amazon, among others”
Toys R Us shows what late adoption of an enhanced online shopping experience can do – by May 2016, at a time when their competitors were selling toys hand over fist – albeit at heavily discounted prices – the company was still stuck trying to revamp its website. The plan was to shrink the checkout from 5+ clicks to 2 however a quick check of the existing US website shows it not only is still clunky, but there are a number of other issues that are not in line with 2017 online shopper expectations:
- Lack of free shipping (only available when shoppers spend $29USD or more)
- Sales tax not included until entering payment details
- Same items available on Amazon for $3 cheaper or more
Lance Wills, Toys R Us’ first global chief technology officer, put it best when he admitted, “In a year to two years, we have to catch up on 10 years of innovation”.
Toys R Us has promised to focus on improving the customer experience in their “physical stores and online, and strengthen [their] competitive position in an increasingly challenging and rapidly changing retail marketplace”.
Is it too little, too late for Toys R Us? Or can the toy seller recover?
Every aspect of the end-to-end shopping journey needs to be enhanced in order to remove each and every roadblock standing between you and your customer. To build a brand in international markets, retailers need to place a relentless focus on improving the shopper experience. Failure to do so could be catastrophic for a brand, regardless of size and years in business.