Toys R Us was considered one of the original category killers, the all-in-one big box store that fully dominated an industry. It led to a string of similar chains, including Staples, Barnes & Noble, and Jared, which was once touted as the category killer for jewelry.
But now even the world’s biggest toy store has shown that it is not immune to the winds roiling retail. This week, it filed for Chapter 11 bankruptcy protection.
The venerable chain has been hurt not only by Amazon—which has emerged as an all-in-one category killer—but also by discounters like Walmart and Target.
Let’s look at Toys R Us’ main selling point: If you wanted a toy, it was the easiest and cheapest place to buy one. It also carried everything. But that selling point was destroyed by the web, which is an even easier place to shop, with even more inventory, and sometimes cheaper prices.
As a story in a Harvard Business School’s Working Knowledge notes, size—once the category killer’s secret weapon—has turned into a liability:
For many, the economics of a store can suddenly become negative when 5 to 10 percent of their total floor space (in high-margin categories) becomes unproductive due to customers migrating to e-tailers.
Now analysts are saying the chain needs a total change in mind-set. They argue it can no longer afford to resemble an overstocked warehouse packed with the same items consumers can find online. It has to give shoppers a reason to walk in the door now that they no longer need to.
As A. T. Kearney’s Greg Portell told Retail Dive:
Particularly in this segment, it’s supposed to be fun. And while that seems maybe a little childish, you want an esprit de corps, you want a feel and a vibe and all those attributes to be positive and cheerful.
He suggests that the company start a “puzzle of the month” business, or start producing proprietary products—“just something that signals you’re doing something different…something that gets people excited.”
Indeed, the company has talked about bringing its stores to life, adding demonstrations and more interactivity.
Some even think that it should get more into curation and personalized service. In other words, it should act more like a small independent. Which is ironic: Decades ago, Toys R Us drove many of those local toy stores out of business. Now, its future may depend on learning to act like one.
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