American retailer Toys R Us will close all 800 of its U.S. stores.
In September, the company filed for Chapter 11 bankruptcy, which came as no surprise to those in the know, after the toy store behemoth accumulated billions in debt due to failing to pay back a 2005 investment from Vornado Realty Trust.
At the time, 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”
Unfortunately, just six months on, the mega toy retailer has told employees that it plans to sell or close all of its U.S. stores, leaving 30,000 jobs in jeopardy after the company failed to find a buyer. The company confirmed a Wall Street Journal report that Chief Executive Dave Brandon had shared the news with employees in a conference call.
“This is a profoundly sad day for us as well as the millions of kids and families who we have served for the past 70 years", said Brandon.
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While toy-selling competitors Walmart and Amazon go from strength to strength online, Toys R Us was struggling with an outdated website and flailing customer loyalty.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
Neil Saunders, managing director of retail research firm GlobalData Retail told Reuters,
“Even during recent store closeouts, Toys R Us failed to create any sense of excitement...Its so-called heavy discounts remained well above the standard prices of many rivals"
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.