Toys ‘R’ Us appears to be headed for chainwide store closures and liquidation in both the U.S. and the UK, where the retailer operates approximately 100 stores, according to a BBC News report. However, CNBC reports that the retailer is exploring a plan that would keep approximately 200 of its 800 U.S. stores open, in part by combining the stores with stronger Canadian operations.
The demise (or the drastic slimming down) of this once-iconic chain raises urgent questions for other retailers seeking to avoid its fate:
• How ‘special’ does a specialty retailer have to be? The merchandise at Toys ‘R’ Us is highly brand-driven, but consumers have numerous other places to buy these items — from Amazon to big box stores like Target and Walmart. Toys ‘R’ Us lacked the hands-on experience of Build-A-Bear or the private label brand power of Lego, creating a differentiation problem in a highly competitive field.
• Does the store experience match today’s taste for experiential retail? Just days after filing for bankruptcy in September 2017, Toys ‘R’ Us announced plans to launch “Play Labs” at 42 stores, providing spaces for kids to test out the season’s hottest toys. Such investments can keep customers in stores longer and add value to purchases, but the move was arguably too little, too late.
• Is the company carrying too much debt for a slow-growth economy? Some analysts believe Toys ‘R’ Us would have had a fighting chance to emerge from bankruptcy but the significant debt it carried was too heavy a weight to overcome. “Toys ‘R’ Us is going under for one reason only: KKR leveraged them with over $7B in debt for expansion even in spite of increased competition from Walmart, Amazon, Target and others,” wrote Greg Buzek, Principal Analyst, IHL Group in a March 13 blog post. “It was not the market dynamics that took these companies over, it was the fact that their owners took on so much debt that it positioned them to only be successful if…