Case Study of Toy “R” Us

I. Summary

It was 1948, and Charles Lazarus had a hunch. Newly returned from World War II, he knew he wanted to
go into business, and he knew—long before the term “baby boom” was a common phrase—that his
friends were about to start having lots of babies.

“Everyone I talked to said they were going to go home, get married, have children and live the American
dream,” he told Entrepreneur in 2008. “I decided that I would open a store in my father’s bicycle-repair
shop. But instead of selling bikes, I would sell cribs, carriages, strollers, high chairs—everything for the
baby. My instincts told me the timing was right.”

Those instincts didn’t just help Lazarus capitalize on the baby boom: They helped originate Toys ‘R’ Us.
Once a retail juggernaut, the store dominated the entire toy industry—and children’s imaginations—by
driving its competitors out of existence.

Now, the retail giant has been forced into bankruptcy, the victim of a retail model it helped pioneer. In
March 2017, the 70-year-old business announced that it would call it quits. It was the end of an era for
the store that once held a lock on the entire toy industry and made toy shopping—once a seasonal
treat—into a regular family outing.

Lazarus opened his first store, Children’s Bargain Town, in Washington, D.C. in 1948. Specializing in baby
goods, it only began selling toys once Lazarus realized customers didn’t come back for more strollers,
high chairs and other baby goods with their second child. He started selling a few inexpensive toys, then
added to his inventory as they proved popular.

But Lazarus wasn’t content to stop with a single store. He had an idea that was bigger than Children’s
Bargain Town or any kids’ store he had ever seen—a massive store filled with every toy in existence. In
1957, he got out of the baby furniture business, renamed his company Toys ‘R’ Us and created the first
ever big-box toy store.

The new megastore took a supermarket-style approach to toy selling, which distinguished it from every
other toy store in existence. Most toy stores were small and family-run, and only carried a limited line of
products. Lazarus’ stores, on the other hand, were orders of magnitude larger than their competitors,
and presented a smorgasbord of thousands of different toys.

Big-box stores like Toys ‘R’ Us astonished the era’s consumers, who had simply never seen stores that
big and crammed with merchandise. “What Lazarus really captured was this sense of American
abundance after the war and after all those years of depression,” says Richard Gottlieb, founder of
Global Toy Experts and an authority on the toy business.

Gottlieb sees Lazarus as part of a bigger wave of entrepreneurship that took hold in the post-war years.
“The modern American toy industry was really created by Jewish soldiers coming back from the war,” he
says. Other Jewish industry superstars include Isaac Heller, who converted military surplus into toys for
boys in the 1950s, Elliot Handler, the founder of Mattel, and Milton Levine, creator of the wildly popular
“Milton’s Ant Farm,” which was a hit with kids during the 1950s and 1960s.

Lazarus’ idea was deceptively simple: build a supermarket for toys. While other toy shops had display
cases and decorative interiors, Toys ‘R’ Us had concrete or tile flooring (better for the bottom line) and
rows of toys laid out next to each other, grocery store-style. The store’s bare-bones appearance didn’t
seem to matter to consumers, who were entranced by the toys within.

And what toys. The 1950s and 1960s ushered in some of the most iconic toys of all time, from Mr.
Potato Head to Barbie to the Easy-Bake Oven. As Japan rebuilt its economy, it began to
produce inexpensive toys, like tin robots and cars and stuffed animals, that Lazarus purchased cheaply
and in bulk.

Lazarus bought and sold so many toys that he was able to negotiate contracts to buy toys for cheaper
than his competitors. This made Toys ‘R’ Us into what retail historians recognize as the first “category
killer”—a company that so completely dominates its retail category that it drives all of its competition
out of business.

Mom ’n’ pop toy stores buckled, unable to captivate children with the sheer promise of discovery
offered by Toys ‘R’ Us’s large inventories. And department stores, which had once relied heavily on
seasonal toy sales, soon realized that Toys ‘R’ Us had created a year-round demand they weren’t able to
serve as effectively.

The company had help. As television reached more and more households, Toys ‘R’ Us benefited from
advertising by toy manufacturers. Companies like Mattel could now market their newest offerings to
kids directly, which fueled demand for the toys Lazarus stocked.

TV helped consolidate Toys ‘R’ Us’s brand, too. The store used its mascot, a loveable giraffe named
Geoffrey, in TV spots for the company beginning in 1973; soon he was a TV commercial staple, even
acquiring a wife, Gigi, and children Junior and Baby Gee. And in the early 1980s, the store’s TV spots
became even more iconic with a catchy jingle that featured a self-identified “Toys ‘R’ Us kid” who didn’t
want to grow up.

It worked: The company—which went public in 1978—helped turn a $500 million toy industry in 1950
into one worth $12 billion in 1990. At the height of its power, Toys ‘R’ Us sold 18,000 different toys in
1,450 locations around the globe and controlled 25 percent of the world’s toy market. During the store’s
heyday, it seemed like everyone was a “Toys ‘R’ Us kid.”

Although parents eventually grew concerned about overloading their children with toys, Gottlieb says
that oversaturation was never Toys ‘R’ Us’s challenge. In fact, the store only began to fail once it cut
back on the dizzying number of toys it carried. In 1994, Charles Lazarus stepped down as the company’s
CEO after nearly a half-century of selling toys to enraptured children.
Toys ‘R’ Us faced other challenges over the years, like the rise of e-commerce, changing toy tastes, a
transfer to private hands in 2005, and a leveraged buyout that failed spectacularly. The stores
themselves became increasingly dated.

But ultimately (and ironically), Toys ‘R’ Us became a casualty of the big-box model it helped create. The
original category killer was killed by big-box stores that were even bigger and more powerful than
Lazarus’ behemoth. Worried about competition from Wal-Mart and Amazon, executives began to
winnow the number of toys the store carried and focus even more on slashing prices.

But as Toys ‘R’ Us dialed back its offerings, it cut back on the magic, too. When Toys ‘R’ Us changed its
focus from the toys themselves to undercutting the competition, “You didn’t get the elation anymore,”
says Gottlieb. “They failed because they ceased to love toys.”

II. Statement of the Problem

 The rise of e-commerce, Toys R Us operates in over 1500 stores globally, and is also a large e-
retailer with online stores available in 12 countries. Toys R Us partnered up with ESV Digital in
France to be in charge of their Search Engine Advertising (SEA) campaigns in the local market.
With massive product range from best seller toys to baby care products, visibility of Toys R Us in
paid search is challenged by very high competition. Toys R Us wanted to maximize their Return
on Investment (ROI) and minimize Cost per Click (CPC) while exposing their product range to
potential clients through Google and Bing.

 Changing toy taste, New kids on the block "Kids are changing," says Kate Hardcastle (Retail
analyst)."An eight-year-old now, they can download an app in 30 seconds to distort their face
and make them look like Spiderman. Retail almost can't keep up."Birthday presents are now
tech-related, such as virtual reality headsets, drones or go-pro cameras, she says."That wasn't
something Toys R Us was able to get into very successfully," she says."They did it in a generic
way... it was just another aisle. "And like the rest of us, children are seeking experiences rather
than possessions. So a trip to a toy store is competing with trampolining parks, laser tag and go-
karting. But the digital ecosystem can be an opportunity as well as a challenge, says another
retail analyst, Steve Dresser. "For my four-year-old, YouTube is the first port of call. And there's
a lot going on around there."It isn't hard, he says, for retailers to spot fashions - like the current
trend for making slime - and capitalise on that, he suggests. The Irish chain Smyths has done so.
But Toys R Us failed there too.

 Their inventory management wasn’t well-planned or executed.

III. Objective

 Is to know why is it Toys R Us is still struggling — even as the wider toy industry booms.
IV. Alternative Course of Action

 They need to provide a compelling customer experience.

 They should make sure that the newest products being advertised were available.
 They have to produce the products based on the number of orders.

V. Findings, Conclusions and Recommendations

 The Toy “R” Us must not be easily accept an order if they can’t produced/deliver it at the right
time.

 The fall of Toys “R” Us was one long in the making. From a thorough business case study, we can
learn to adapt better to the times to help us make certain radical decisions and plan better to
stay in the game. This should be possible as long as strong leadership is maintained.
 The Case Study of Toy “R” Us

Prepared by: Ybañez, Divine Grace P.

BSBA MM4

MM7 (MWF 12:30-1:30)

Instructor: Mr. Jhun Veril