Toys “R” Us, Inc. Case Study

Toys “R” Us, Inc. Case Study

In the 1980s, Toys “R” Us, Inc was leading toy manufacture all over the globe (Campbell & Whitehead, 2018). What is more, the firm diversified its services by launching a children’s clothing outlet. In the late 1980s, development in technology led the company to start Toysrus.com, which becomes the most visited website for toys and baby products. In 2001 the company launched a New York store, which was a leading destination for most families in the United States until its collapse in 2015. By 2018, Toys “R” Us, Inc. only had an 82-chain branch in Canada initiating a new course into uncertainty without the parent enterprise in New York.  As an external business consultant, I conducted an extensive research study on Toys “R” Us, Inc. to come up with a case study on the company. By doing a descriptive analysis, this paper presents a case study of Toys “R” Us, Inc. conducted by me, an external business consultant, to discover the primary challenges that led to the collapse of the company. It outlines potential solutions and recommendations that could boost productivity and facilitate long-term sustainability.

Problem Statement

The arrival of electronic commerce bigwigs such as Amazon and eBay affected the market of Toys “R” Us, Inc extensively (Campbell & Whitehead, 2018). As a result, it led to the caused bankruptcy and other financial challenges for Toys “R” Us, Inc. Also, the technological growth of the toy industry meant that most toy producers had to maximize discounts to attract customers. However, the discount call was compelling to large retailers and online market stores like Wal-Mart, Amazon, and Target Corporation. To be more precise, these enterprises enabled a more distributable price base. Also, they had more innovative ideas like one-click shipping and online wallets combined with affordable delivery. In the long, customers’ preference for the more expensive and less creative Toys “R” Us, Inc. decreased extensively, leading to its demise. Since the early 2000s, the technology environment changes consistently; in spite of this fact, Toys, “R” Us, Inc. did not adopt effective technology to support its long-term sustainability.

In early 2000, Amazon’s reputation stood out due to its relationship with Toys “R” Us, Inc. Despite this strong bond, the close coordination between the Toy Company and Amazon transformed from co-operation to opposition. In the year 2000, Toys “R” Us, Inc had a ten-year deal with Amazon to create a co-brand in Amazon’s online platform (Campbell & Whitehead, 2018). In this agreement, Toys “R” Us, Inc was to give up the website and exclusively sell online products via Amazon. The partnership was okay until 2006 when Amazon breached the contract when they included other competitors such as Target corporation into the online website that was primarily for Toys “R” Us, Inc. Later, the ensuing lawsuit took some time, and Toys “R” Us, Inc had compensated fifty-one million dollars in 2009. Despite this settlement, the bungled agreement wasted extensive resources that affected the market share and online presence of Toys “R” Us, Inc. That marked the beginning of losses for the Toy Company, and they could not keep with the highly-competitive environment.

After 2006, Toys “R” Us, Inc. acquired Etoys.com, Epregnancy.com, and BabyUniverse.com in a bid to consolidate the online business in a different direction from Amazon (Campbell & Whitehead, 2018). However, this initiative did not bring stable success, and Toys “R” Us, Inc. had a total of fourteen percent online sales. Online competition became impossible for Toys “R” Us, Inc. As a result, the firm had to adopt the traditional “stack them high, sell them cheap” merchandising strategy to facilitate a more involving customer experience to ensure sales in their physical outlets. While online presence was a critical challenge, the balance sheets of the company indicated another major problem. Toys “R” Us, Inc. had a significant amount of debt; that is about four hundred million annual costs that were not serving the firm’s business initiatives. What is more, during the last moment of the company, it had about seven billion US dollars in revenue and fourteen percent market share, which was okay; however, the total debt covered half of the gross operating profit. Due to these challenges, it was unclear whether Toys “R” Us, Inc. would keep with leading competitors such as Amazon and eBay.

Analysis 2

To certify my findings, I implemented various analytic tools to describe the challenges that led to the demise of Toys “R” Us, Inc. The first tool is Porter’s Five Forces of Competitive Position Analysis, which includes: competitive rivalry, the threat of new entry, bargaining power of buyers, the risk of substitution, and the bargaining power of suppliers (Porter, 2008). Now, this tool will evaluate and assess the competitive strength of Toys “R” Us, Inc. concerning the success of rival companies like Amazon. Concerning the threat of substitution, in the late 1980s, Toys “R” Us, Inc was the leading producer of baby clothes and toys. When they launched Toysrus.com, the website was the most visited concerning child products all over the globe. However, the arrival of eCommerce bigwigs like Amazon became a threat to the toy market and eventually substituted Toys “R” Us, Inc. The substitution was Wal-Mart’s initiative to offer significant discounts on various products due to technological advancement and price increase in the toy industry. Since Toys “R” Us, Inc. was not flexible enough to change its business strategies on time like its rivals, the competitors took over the toy market.

Regarding the threat of entry, when similar producers of products or services exist, the possibility of customers to switch preferences and alternatives in response to price difference increase (Porter, 2008); as a result, the market’s attractiveness and power of supplier goes down. Similarly, Toys “R” Us, Inc. was the fast company to launch baby products in the United States of America. In spite of this, new companies like Amazon and eBay came later, took over, and are still leading competitors all over the globe despite the demise of Toys “R” Us, Inc. The first misstep of Toys “R” Us, Inc. was the ill-conceived ten-year deal hand over its website to Amazon and sold exclusively via Amazon. The deal meant that it only after some time until the company was private. Keep in mind that Amazon was just a new entrant in the kids’ industry. In other words, highly profitable markets will attract new entrants. As a result, profitability will reduce; unless the incumbents implement strategic barriers to entry, such as capital requirements, technology, and economies of scale, profits will reduce to a competitive level. With the right methods, the new-comers might take over the market.    

The core driver of competitive rivalry is the number and the productive capabilities of the competing enterprises (Porter, 2008). As a result, companies that produce similar products and services will minimize the overall market attractiveness. In the long, unless the incumbents implement strategic barriers of entry, their profitability will predictably reduce. Similarly, Amazon, Target Corporation, and eBay decreased the market area of Toys “R” Us, Inc. from eighty percent to fourteen percent. What is more, Toys “R” Us, Inc. failed to implement strategic barriers of entry, despite the fact its rivals were already operating in a better technological platform. As a result, their profitability reduced extensively, bankruptcy went up, and this led to the collapse and eventual closure of the parent company, leaving a subdivision sector that is uncertain of its long-term sustainability. When firms like Walmart came into the industry, they immediately implemented various technological developments to attain an edge over Toys “R” Us, Inc. More precisely, they had online digital wallets that made financial easier and more efficient for consumers. Secondly, they had the one-click shopping system that saved a lot of time for buyers. Thirdly, they had cheap delivery prices than   Toys “R” Us, Inc.

That aside, supplier power means the capability of product and service suppliers to influence the overall prices (Porter, 2008). And it is controlled by the uniqueness and quality of the product and the total cost of changing respective suppliers. Similarly, Toys “R” Us, Inc. never made innovations on their services. As s result, Amazon, Walmart, and Target took advantage of that and came up with unique, affordable, and high-quality services. Thus, customers of Toys “R” Us, Inc. changed their preferences and opted for other companies. Buyer power is the last of the five forces of competition, and it the capability of buyers to influence the price of products and prices. Due to the rapid development of technology, the prices of toys increased significantly. To curb this challenge, Amazon implemented huge discounts on their products. pOn the other hand, Toys “R” Us, Inc. did no change their prices; consequently, customers preferred affordable prices from Amazon to Toys “R” Us, Inc. In the long run, Amazon took over the online market, and it is still one of the most productive companies globally. At the same time, Toys “R” Us, Inc. is financially struggling with the parent company facing permanent closure recently.

Another primary analysis tool is a shared value within cooperates. It is the implementation of policies while enhancing the social conditions of the society in which the enterprise operates (Porter, 2011). Toys “R” Us, Inc. was the leading toy manufacture all over the globe. What is more, the firm diversified its services by launching a children’s clothing outlet. In the late 1980s, development in technology led the company to start Toysrus.com, which becomes the most visited website for toys and baby products.

Additionally, in 2001 the company launched a New York store, which was a leading destination for most families in the United States. Despite high productivity, they did not implement the shared value strategy, and their main competitors took advantage of that. To be more precise, Amazon implemented affordable delivery services, efficient online payment systems, and time-saving shopping activities. These initiatives enhanced societal conditions by making service delivery more efficient. In the long run, they took over the whole market, and Toys “R” Us, Inc. experienced extensive losses, which led to bankruptcy.

Despite all the challenges facing Toys “R” Us, Inc., there are various solutions that can be or should have been to try and save the company. First of all, is sustainable management; it is the ability to meet current needs without compromising long-term needs. When Toys “R” Us, Inc. had a ten-year agreement with Amazon, its primary focus was to give up its website and exclusively sell online products via Amazon without considering the long-term possibility of privatization. As a result, the implementation of sustainable management could have prevented the bungled agreement. Secondly is constructing a business safety net. The business safety net is any strategy that reduces potential risks that could lead to losses in the short or long term (Kiron & Unruh, 2018). One of the most significant safety nets is adopting appropriate technology in response to the changing competitive environment. Perhaps if Toys “R” Us, Inc. had implemented innovative ideas like one-click shopping, online wallet, and affordable delivery services, there is a high possibility that they could have maintained their competitive performance up-to-date.

The ultimate solution is creating shared value to reinvent capitalism (Porter, 2015). The traditional capitalism that Toys “R” Us, Inc. implemented is under siege. Capitalism does to meets social needs, does not build wealth, and limits efficiency. As a counter to capitalism, Toys “R” Us, Inc. should have created a shared value initiative to bring the business and the society together. It means they create economic value in a manner that prioritizes the community by addressing communal needs and challenges. In the long run, Toys “R” Us, Inc. should have reconnected their success to societal progress.

In summary, shared value is at the core of companies as the new strategy of attaining success. Out of all the three solution alternatives, as a professional consultant, I believe sustainable management is the most effective strategy. Toys “R” Us, Inc. failed because they were too comfortable with their high productivity without focusing on their long-term goals. Therefore, sustainable management is the best strategy since it focuses on long-term sustainability since current resources cannot serve the same purpose after a long period.

In the 1980s, Toys “R” Us, Inc was the leading toy manufacturer; the firm diversified its services by launching a children’s clothing outlet. Also, the development of technology led the company to start Toysrus.com, which becomes the most visited website for toys and baby products in the United States of America.  What is more, in 2001, Toys “R” Us, Inc. launched a New York store, which was a leading destination for most families. However, the arrival of electronic commerce competitors such as Amazon and eBay affected the market of Toys “R” Us, Inc extensively. In the long run, it led to bankruptcy and the eventual collapse of Toys “R” Us, Inc. By conducting a descriptive analysis, this paper presents a case study of Toys “R” Us, Inc. conducted by me, an external business consultant. And Toys “R” Us, Inc. failed because they did not implement strategic barriers to entry initiative to maintain their high performance in the toy industry.

References

Campbell, S. & Whitehead, K. (2018). TOYS “R” US CANADA: IS PLAYTIME OVER? Ivey Business School Foundation.  (1)1-8

Kiron, D. & Unruh, G. (2018). Business Needs a Safety Net. MIT Sloan Management Review, 59(3):1-6.

Porter, M.E (2008, June 30). The Five Competitive Forces That Shape Strategy. Youtube. https://www.youtube.com/watch?v=mYF2_FBCvXw&t=184s

Porter, M.E (2015, June 8). Shared Value as Corporate Strategy. Youtube https://www.youtube.com/watch?v=vaEv4frj-88&t=0s&list=PL4pqY0N7PHPaF5VWDZ_NUBEqfN702cfOM&index=4

Porter, M.E. & Kramer, M.R. (2011). Creating Shared Value. How to reinvent capitalism—and unleash a wave of innovation and growth. Harvard Business Review, 89(1-2):62-77.