‘Toy ‘R’ US’

‘Toy ‘R’ US’

The name ‘Toy ‘R’ US’ tends to take people back to when they were still kids leaving a store made of mortar with your mother’s firm grasp in one hand and a toy in the other.  Toy R US is an American based company founded in the year 1948 that deals with children’s toys, games, and products. The company began when Charles Lazarus, who was 25 at the time, realized his lifelong dream of opening a child-oriented store. At first, the company dealt with children’s furniture before slowly incorporating toys. In 1957, the company opened its first toy store, motivated by customer demand. However, the company had to wait for another 12 years before introducing Geoffrey the Giraffe, its famous mascot, although it took a while before its popularity hit the roof. Geoffrey became a celebrity starring in various TV commercials with hundreds of children. By the 1980s, the company had diversified and had ventured into children’s’ clothing before being joined in 1996 by the Babies ‘R’ Us.

Upon the introduction of the internet in 1988, the company launched a website Toysirus.com, which was received gladly and became one of the most visited toy and baby product sites. In 1999, the company strengthened its position in the growing sector by acquiring an educational toy business competitor company, Imaginarium. The company enjoyed the view of being a top family destination from the year 2001 when it opened an International flagship store in the New York Times Square before being closed in 2015. Overly, the company faced a lot of difficulties in the 2000s that include company distress and closure of most of its locations.

Although many of the executives tried to restore the company with numerous strategies, the plans failed, and the company kept struggling in the changing retail landscape. By 2018, Toy ‘R’ Us in Canada was the only remaining company of the ‘R’ Us global brand. After managing to distance itself from the liquidation of its parent company, it began to charter its way into the uncertain future alone. Although this Canadian Toy ‘R’ Us company had humble beginnings since it was founded in 1984, it has outlived its American parent and is now an 82-store chain company.

Firms such as ‘Toy ‘R’ US’ that specializes in the online retail business of toys and hobbies must analyze and understand their business environment to come up with strategies that will ultimately provide them with a competitive advantage to outlive their rivals. Michael E. Porter put forward a model in an article in Harvard Business Review in 1995 that put forward a system that would help determine the competitiveness of a business environment landscape. The model is made up of five forces with their strengths that aid strategic planners in seeing the essential profit potential of an industry. The advantages of these forces vary within industries meaning that each sector varies depending on attractiveness and profitability. As a sales manager of Toy ‘R’ Us company, I have been assigned the task of finding the company’s strengths and weaknesses in an aim to establish the company’s profit potential. This paper makes use of Porter’s Five Forces in analyzing the environment in which Toy ‘R’ Us operates, in terms of attractiveness through essential profit potential in a bid for strategic planners to put into place strategic decision.

Threats of new entrants

Achieving an economic scale can be somewhat tricky in the environment that Toy R Us operates. Those with large production capacities, therefore, have a cost advantage that makes new entrants find production costly. This, therefore, makes the threats of new entrants into the market a lesser force. Firms within this kind of business environment also deal with differentiated products in comparison to standardized products making product differentiation within this industry reliable. This puts a great emphasis on advertisements and customer services also, therefore, weakening the force of the threat of new entrants. Capital requirements needed when setting up the business is high in this industry. This is because of the enormous costs that are likely to be incurred during development and the massive costs of research. New entrants are therefore expected to face difficulties when setting up the business, thus making it a weaker force. Government policies put in place that entail the acquisition of licenses and legal requirements that are needed before getting into business are likely to pose difficulties for new entrants.

However, new entrants are likely to gain easy access to distribution channels, and this can easily enable them to set up their distribution networks, thus making their businesses thrive. A few retail outlets handling these kinds of products exist in the market, making it easier for them to get them on their shelves, posing a stronger force with the threat of new entrants.

Toy R Us possesses a more significant cost advantage than the rest of the industries. As such, the company can make good use of its economic scale. This is likely to fight off and discourage the new entrants from venturing into this business, considering that it has been in business longer. Innovation is one of the most successful ways of product differentiation. By differentiating its commodities from those of new entrants and spending more on marketing to focus on building a strong brand recognition, Toy R Us will be able to retain its customers rather than risking to lose them to the new entrants.

Bargaining Power of Suppliers

In comparison to the buyers, suppliers in this industry are relatively high in number. They, therefore, have minimum control over prices. Even more, the suppliers providing these products are less differentiated and relatively standardized, with shallow potentials of switching costs. This, in turn, makes it easier for Toy R Us to interchange between suppliers.

Moreover, profits made by these industries are closely bent to those of the suppliers because they play a vital role in being an essential customer to these suppliers. They, therefore, are forced to provide reasonable prices or risk losing customers. These factors make the bargaining power of these suppliers a lesser force within the industry, forming the suppliers pose very little threat.

Due to the lack of substitutes for the commodities provided by these suppliers, there is no competition with other products in the industry, making them essential players in the industry. This, in turn, strengthens the suppliers bargaining power within the industry

To be able to deal with the threat to the suppliers’ bargaining power, Toy R Us can seek to procure raw materials at lower costs. If the prices presented are not reasonable, the company can switch suppliers due to the low costs of switching suppliers. Another option that can be explored has as many suppliers as possible within the supply chain. For the case of different geographical locations, the company needs to have different suppliers to ensure effectiveness within the supply chain. In cases where both the supplier and the company can benefit, Toy R Us may help by building a close relationship with the suppliers.

Bargaining Power of Buyers

Since there are more suppliers compared to the companies that produce the final products in this industry, this implies that the buyers are left with few choices to pick from and therefore have very minimal say in determining costs. Also, there is a high product differentiation within the industry, implying that buyers cannot find other companies to switch to that produces certain products with ease. Moreover, buyers within this industry are more price-sensitive owing to their low incomes. They are, therefore, inclined to purchase these products at low prices. Buyers often make frequent purchases due to the vital role played by the quality of these products. This implies that buyers in the industry are less price sensitive. Generally, these factors discussed to play an important role in weakening the buyers buying powers force within this industry.

Product quality and differentiation have proved to attract and retain more buyers. Putting the focus on differentiation and innovation, Toy R Us is likely to attract more customers. It can also develop a vast customer base by focusing on marketing efforts aimed at building and reinforcing customer loyalty as well as selling these products at a low income due to its significant economic scale. It will, as a result, obtain a cost advantage and attract quite a large number of buyers.

The Threat of Substitute Products or Services

Toys R Us operates in an industry with very few products substitutes available produced. Even with the availability of alternatives, such industries make very fewer profits meaning that no limit exists on the highest potential benefit in the sector that Toy R Us operates. In other cases where substitutes are available, they are more expensive and of high quality. Toy R Us, therefore, sells at low and affordable prices but adequate quality making the buyers more likely to opt for substitute products. Thus, the threat posed by substitute products and services is weakened within the industry.

Toy R Us may switch to producing products of high quality offered at lower prices compared to the substitutes, which provide equal quality but at much higher costs. The firm can also differentiate its commodities so that buyers perceive them as more unique and won’t quickly shift to alternative products that do not provide exclusive benefits necessarily. Market research may help them understand their customers better in an aim to offer these unique benefits according to the buyers’ specifications.

Rivalry among Existing Firms

There are relatively few companies within the manufacturer that Toy R Us operates. These few companies that exist are significant, meaning that they are highly unlikely to make big moves unnoticed. The production that Toy R Us runs is experiencing growth each year and is expected to grow over the coming years. A positive production growth implies that the competitors are less likely to indulge in completive actions to capture market share with each other. These factors make the competition within the existing firms a lesser force within the production.

The few competitors exist within this industry. As such, they are likely to engage in competitive actions to gain positions in the market and become leaders. The fixed prices within the production are high within the industry at which Toy R Us operates. As such, they tend to push the industry to its maximum capacity by reducing the cost in cases where the demands tend to slacken. These factors make the competition within the existing firms a much higher force within the industry.

Since there are only a few firms in the online toy business, the increased rivalry is not a concern. Since this is an emerging industry, firms are working together to gain consumer acceptance and establish distribution channels. As we have seen, Toysrus.com is still working on their distribution channels and trying to keep consumer acceptance for this upcoming season by not replicating what they did last year.

To counter the competition within existing firms, Toy R Us needs to put more focus on new buyers more rather than winning the ones already in existing firms. Market research can also help in understanding the supply-demand situation within the production and thus help curb overproduction.

Conclusion

A greater force implies lesser profitability, while a weaker force implies higher profitability. By use of Porters’ five forces, a strategic planner can understand how each factor affects the profitability of the industry. Based on this argument of the production’s profitability can be created and thus used in planning strategically.

In conclusion, making decisions upon entering a particular industry, we can see that there are several factors one should pay attention to before choosing specific industries. The Five Forces Model helps to summarize broadly what to look at in sectors. Through evaluation of this industry, we have been able to see the edge to which they have over other competitors as well as new entrants, thus inferring that being backed by Toys “R” Us Inc. with such high brand loyalty, puts them in a good position. This company will continue to put happiness in children’s hearts and smiles on parent’s faces”.