Filing for Chapter 11 bankruptcy protection gives Toys R Us Inc. some breathing room and a chance to come up with a better online and offline integration and strategy, retail experts say.
The bankruptcy filing had been rumored for weeks and prompted some suppliers to scale back their shipments to the toy retailer, No. 38 in the Internet Retailer 2017 Top 500.
Other signs of trouble had surfaced earlier. So far this year, traffic to ToysRUs.com is down 41% compared with 2015, according to data from digital analytics firm SimilarWeb. The retailer’s online traffic for 2016 was not immediately available. More importantly, the retailer’s traffic also fell during the 2016 holiday shopping season from November through December, says Gitit Greenberg, SimilarWeb’s director of digital insights.
“Their holiday season traffic—a key indicator for retail strength—plummeted by 18.2% to 116 million visits from 2015 to 2016,” she says. “While the death of brick and mortar is far in the distance, brands that are unable to create a comprehensive and integrated online/offline experience are going to struggle,” Greenberg says.
Creating a comprehensive omnichannel shopping strategy, retail industry veterans say, contributed to the current state Toys R Us finds itself in. But the retailer’s website will continue to operate, as will most of its stores, and experts say Toys R Us can work to fix the areas where it fell short.
“Bankruptcy gives them breathing room,” says Steve Dennis, a longtime retail executive who is the founder and president of retail consultancy SageBerry Consulting. “Once you get in that downward spiral and you don’t have the time or the money to take action on the fundamental reasons why you got into trouble in the first place, it’s only a matter of time before you sink into oblivion.”
On Wednesday, Toys R Us CEO Dave Brandon said the world’s biggest toy chain will come out stronger. “It’s the dawn of a new day for the company,” he said during a press event at a store in New York’s Times Square. “It’s the opportunity to do things we’ve wanted to do for a long time, but haven’t been able to.”
Retail experts say signs of the toy retailer’s struggles emerged much earlier than that, however.
Toys R Us was hamstrung in the early days of e-commerce by a 10-year deal it signed with Amazon.com Inc. (No. 1 in the Top 500) in 2000 wherein Amazon would run ToysRUs.com. Toys R Us successfully got out of that deal in 2006 so that it could operate ToysRUs.com independently after suing Amazon in 2004. The toy retailer claimed that Amazon wasn’t giving Toys R Us agreed-upon exclusivity when it came to games, toys and baby products sold on Amazon and that competing retailers were selling similar products on Amazon’s site.
Some say Toys R Us simply didn’t do enough to make up ground when it came to digital.
“The retailer fell flat because it concentrated its investment in its stores and failed to meet growing online demands,” says Jason Nyhus, vice president of global marketing and communications at global e-commerce software provider Digital River Inc. “It’s all about meeting customers when and where they want to shop—putting on the white glove so to speak. When your customer has two young children, some days the best shopping experience may be online, while they are in their pajamas, and after the kids are in bed.”
Dennis says he’s not sure how well the retailer’s online and offline integration worked. “That’s one thing that Best Buy and others have used to neutralize the Amazon threat,” he says. “You can leverage the advantage of physical stores, immediacy and ability to see the product. I don’t know that Toys R US ever did anything on the online/offline digital front.”
Dennis says the toy retailer, which grew its online sales by 10% year over year to an Internet Retailer-estimated $1.488 billion in 2016, faces a number of threats moving forward.
Chief among them are tactics used by mass merchants such as Amazon, Wal-Mart Stores Inc. (No. 3) and Target Corp. (No. 20).
“There’s the fundamental problem when Amazon makes your category more of a loss leader, and it’s hard to compete on price and assortment with those guys,” Dennis says. “I also think that Toys R Us over the years has been challenged by Target and Walmart and others that have used toys as a loss leader to drive traffic. Toys R Us didn’t do enough to distinguish itself beyond price and a decent selection, but compared to Amazon, it hasn’t offered the best selection.”
Not better integrating its online and offline stores years ago has left Toys R Us playing catch-up at a time when it’s already strapped for resources. “If they haven’t made the technology investments, there’s probably a lot of process changes they’d need to make at the store level, improving their digital capabilities,” Dennis says. “Most of those things are expensive.”
Because of that, he says Toys R Us faces an uphill climb if it’s going to become viable.
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