The holiday season is rapidly approaching and Toys "R" Us is already the first major retail causality--here's how they could have prevented bankruptcy.
On September 18, Toys “R” Us filed for Chapter 11 Bankruptcy and shook up the holiday shopping season well before it began. It seems as if the bankruptcy was due to a combination of the company’s crippling $5 billion debt, its inability to keep pace with online retailers, and the company’s failure to offer prices competitive with big box stores.
But what was the final nail in the coffin for this giant toy retailer?
It might stem from the company’s failure to invest in its own digital transformation. An earlier investment in e-commerce offerings and omni channel experiences might have saved Toys “R” Us from an early grave.
But in order to truly understand what went wrong, let’s take a look at a few crucial events in the Toys “R” Us timeline:
1978: Toys “R” Us goes public.
Mid 80s – Mid 90s: Toys “R” Us is a category killer in its sector.
1998: Wal-Mart beats Toys “R” Us for the title of top U.S. toy seller.
2005: Toys “R” Us makes a pivotal decision to go from public to private again in a $6.6 billion leveraged buyout deal. The plan for this buyout was to boost sales and increase stock offerings so investors could cash out.
2010: The company attempts to go public again, but later withdraws due to declining sales.
2015: Toys “R” Us takes on its fourth new CEO in 16 years to try to help the struggling company.
2017: The company announces filing for bankruptcy.
From this timeline, it looks like the initial threat came from the big box stores, but, interestingly enough, Amazon Prime launched the same year Toys “R” Us went private again. A lack of development in e-commerce seems to have then finished what Walmart started in 1998 (and now even Walmart is struggling to compete in the e-commerce space).
Could the toy store have prevented bankruptcy by investing in digital in 2005? Of course, we won’t know the answer for sure, but based on my experience working at Centric Digital, there are numerous methods the company could have focused on to put them in a better position from both a competitive and financial angle. Here are just a few avenues they could have gone down:
Investing in e-commerce strategy
This is a no-brainer and should have been taken more seriously prior to 2017. Even the Toys “R” Us CEO, David Brandon, admitted the company was late to the e-commerce game with a recent statement, “Some organizations recognize faster than others there are shifts in the ways customers want to be communicated with and the way customers want to purchase products. It probably took us a while.”
While Toys “R” Us updated and streamlined the user experience for their website earlier this year, the damage was done. Ensuring that your customers have a seamless e-commerce experience is vital. For any companies that are not currently investing in their online shopping experiences, the best time to invest in this was 15 years ago. The second best time is now.
Providing an omni channel experience
If customers want to get the best prices, they’re going to go to Amazon, Target, or Walmart for their toys. But if a customer is looking for something special or needs personalized guidance, they’ll head to a local toy store and will be willing to pay more than the lowest price for great service.
Toys “R” Us, unfortunately, didn’t provide either of these solutions to customers. Their prices weren’t competitive, yet they offered the same in-store experience as a big box store. What they should have done was use digital to bridge the gap between these two options.
The company could have provided an in-store personalized digital experience for shoppers via a mobile app that would have customized the shopping trip. Mobile capabilities could have been used to guide parents or kids through the store, offer a map to recommended toys based on past behavior, or provide coupons through RFID. This would have been unlike anything that either Amazon or Walmart were providing, and it could have kept Toys “R” Us ahead of the game.
Exploring recent digital trends
When Pokémon Go took the world by storm, where was Toys “R” Us? That would have been the perfect opportunity for the retailer to partner with the Pokémon franchise and create interactive AR experiences for their customers while in store. It’s only now, a year later, that Toys “R” Us is rolling out an AR capability, Play Chaser™–a gaming app that will turn the stores into an interactive playground. This effort appears to be too little, too late.
Companies that are not investing in the digital transformation of their organization are more likely to be susceptible to disruption in the market. Toys “R” Us should have developed a digital strategy that would have catered to their customers and attracted prospects before Amazon took off. The lack of focus in this area made the overwhelming debt and inability to compete with giants like Amazon, Walmart, and Target insurmountable. Investing in digital capabilities would have made this company more agile and provided their customers with the types of experiences they were looking for.