Toys 'R' Us

views updated

Toys 'R' Us

founded: 1978

Contact Information:

headquarters: 461 from rd.
paramus, nj 07652 phone: (201)262-7800 fax: (201)262-7606 url: http://www.tru.com

OVERVIEW

Toys 'R' Us is the world's number-one toy retailer, carrying items such as toys, games, furniture, diapers, and sporting goods. The company has made growth a priority, and has achieved it through various means, including computer software sales and overseas expansion. The company also cut prices, increased advertising, and added several specialty shops, which are located within the toy stores. The latter includes a children's book store called Books 'R' Us, the Lego Store, and the Learning Center.

Toys 'R' Us operates more than 1,200 stores under the Babies 'R' Us, Kids 'R' Us, KidsWorld, and Toys 'R' Us names. Even with such an inclusive market, the company experienced a drop in profits when discount stores such as Wal-Mart started to compete with the world-famous retailer. The company also faced charges that alleged the blocking of sales to warehouse clubs, such as Price/Costo. In order to combat these problems, Toys 'R' Us concentrated on a new store layout called "Concept 2000." These stores feature a racetrack, oval aisles, and life-size toy icons. The company also opened 90,000-square-foot superstores that combines all of its retail chains under one roof.

Each of the subsidiaries operated by Toys 'R' Us proved to be successful. Kids 'R' Us grew to become one of the largest children's clothing chains in the United States. The stores offer quality merchandise and name-brand items at affordable prices. Babies 'R' Us, purchased in 1997, is an expansive 45,000-square-foot facility that offers everything new parents need. The stores stock apparel, car seats, bedding, strollers, and many other items necessary for families with a new arrival. Finally, the KidsWorld superstores feature baby- and child-related toys and products. They stress customer service, fun, and excitement. The 90,000-square-foot stores offer the same products as the other stores, along with a quick-service food chain, carousel, snack bar, haircutting center, photo studio, and shoe department. As a whole, Toys 'R' Us focuses on providing its customers with quality service and merchandise that appeals to children and adults.

COMPANY FINANCES

In 1997 sales reached $11.0 billion, an 11-percent increase from 1996 sales of $9.9 billion. Net earnings increased to $490 million in 1997, up from $427 million in 1996. Earnings per share increased to $1.54, which grew to $1.72 by January 31, 1998—below the projected earnings of $1.90. Overall, Toys 'R' Us controls 20 percent of toy retailing, down from 25 percent in 1990.

HISTORY

Charles Lazarus, founder of Toys 'R' Us, began his career in retailing in 1948. With $2,000 in savings and a $2,000 loan, he converted his father's Washington, D.C., bicycle repair shop into a children's furniture store. Eventually he added toys at the request of customers, and renamed the store Children's Supermart. He added a second store, implementing a cash-and-carry system, but it was the opening of his third store that established him in the industry. In 1958 Lazarus opened a 25,000-square-foot discount toy store that offered a wide variety of merchandise and boasted prices 20 to 50 percent lower than those of other retailers.

By 1966 store profits had reached $12 million, but Lazarus had added only one store and needed money for expansion. He sold his company to the discount store operator Interstate Stores for $7.5 million. This was done under the agreement that Lazarus would retain control of the toy operation. The arrangement worked in the beginning, but in 1969, when the store showed an $11-million profit on $589 million in sales, Interstate started to feel the heat from the competition. By 1974, even with the expansion to 47 stores and a $130-million yearly profit, Interstate had lost $92 million and filed for bankruptcy.

Lazarus continued to gain profits in the toy division, due in part to his idea of selling toys year-round instead of just during the Christmas season. He was also encouraged by toy manufacturers in the form of generous credit and, by 1978 he had generated enough profit to pull Interstate out of bankruptcy. At this time Lazarus regained control of the company, renaming the chain Toys 'R' Us. The new name was written with the 'R' backwards to gain attention. With 72 stores and 5 percent of the toy market, Toys 'R' Us showed a $36-million profit on $349 million in sales during that first year.

From 1978 to 1983 Toys 'R' Us' net earnings grew at an annual rate of 40 percent. Market share climbed 12.5 percent, and the number of stores grew to 169. During this time the company expanded by opening the first two Kids 'R' Us clothing stores.

Toys 'R' Us became a source of stiff competition for other toy stores, causing chains such as Child World and Lionel to file Chapter 11 bankruptcy in 1992. In 1993 Kids Central, operated by Service Merchandise, closed completely. During this same time the company started and continued its international growth. Toys 'R' Us expanded into Japan and Europe, moves that proved to be quite lucrative. The company continued to experience a great deal of success and, by 1996 planned to open 35 new toy stores, 10 Kids 'R' Us locations, and 55 international toy stores.

In 1997 Toys 'R' Us bought the chain Baby Super-store, creating Babies 'R' Us. Although it acquired new business in the baby furnishings market, the store continued to lose business to Wal-Mart and the warehouse clubs. In an attempt to reverse this trend, some stores were revamped to make them more customer-friendly. Along with this "Concept 2000," two megastores were opened under the name KidsWorld. These combined the Toys, Babies, and Kids 'R' Us stores under one roof, along with a restaurant, hair salon, and candy store. So far, the megastores have failed to make the mark.

In 1997 Toys 'R' Us lost in court to the Federal Trade Commission (FTC), who charged the company with using its marketing clout to force major toymakers to sell popular toys only to Toys 'R' Us and not to the warehouse clubs. Toys 'R' Us is appealing the anticompetion charges.

STRATEGY

In 1996 the company began a worldwide restructuring program, streamlining its inventory by more than 20 percent. It is hoped this will make it easier for customers to find what they want. With this in mind, "Concept 2000" was introduced to improve the shopping experience. Stores were redesigned and a greater emphasis placed on customer service. Customer information centers are now located in each store to provide a single location to get help.

Baby and gift registries are also becoming available in each store, which allow customers to scan their selections from throughout the store into a registry, using a hand-held scanner. Other customer draws include areas featuring a particular concept, such as Toy Story and Video Test Drive Shops. There will also be more emphasis on private-label development and exclusive products from key toy manufacturers.

The superstore concept was exemplified in KidsWorld, which opened in 1996. This all-in-one warehouse offers food, toys, clothing, baby accessories, and even a photography studio. Expansion continued in 1996 with the addition of 104 stores, including first franchises in Indonesia, Italy, Saudi Arabia, South Africa, and Turkey. The company was projected to open 105 stores in 1997.

Not only does Toys 'R' Us emphasize customer service, it has a new vision. According to CEO Nakasone, "We think it is important for us to break the boundaries of how we perceive ourselves, thereby allowing us to sell not only products, but services . . . to serve not only children, but families . . . and to provide not only toys, but also fun. Our strategy, therefore, is to broaden and capitalize on our brand equity as a company focused on fun—not just for kids, but for the entire family. By expanding the definition of merchandise and services we offer, we believe we can capitalize on our established name and image. We plan to expand our vision statement to the following: 'Toys 'R' Us . . . The Worldwide Authority on Kids, Families, and Fun'."

The Internet provides Toys 'R' Us with a new forum for sales. The company's home page will allow customers to purchase some products directly online. Catalog shopping will also be explored. In celebration of its fiftieth anniversary, Toys 'R' Us will begin a year-long promotion in the third quarter of 1998. With the theme "Forever Fun," the promotion will feature special events, exclusive products, and gimmicks.

FAST FACTS: About Toys 'R' Us

Ownership: Toys 'R' Us is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: TOY

Officers: Robert C. Nakasone, CEO, 50, $980,943; Bruce Krysiak, Pres. & COO, 47; Louis Lipschitz, Exec. VP & CFO, 53; Gregory R. Staley, Pres., Toys 'R' Us International Division, 50, $613,200

Employees: 116,000

Principal Subsidiary Companies: The principal subsidiaries of Toys 'R' Us are: Kids 'R' Us, Babies 'R' Us, and KidsWorld.

Chief Competitors: Toys 'R' Us' main products are toys, children's clothing, and furniture, so primary competition comes from: Kmart; Sam's Club; BJ's; Price Club; Costco; Zany Brainy; Noodle Kidoodle; Target; and Wal-Mart.

CURRENT TRENDS

Financially, 1996 was a very good year for Toys 'R' Us. Fourth-quarter earnings were reportedly a record-breaking $4.7 billion, an increase from the fourth quarter of 1995. Sales for the entire year were up 5 percent from 1995, and were recorded as $9.9 billion. Michael Goldstein, the chairman of the board of Toys 'R' Us, stated, "We are pleased that each of our divisions experienced comparable store sales increases and improved operating earnings in 1996. Our comparable U.S.A. toy store sales increased over 2 percent for the year." Goldstein also stated that the success was also due, in part, to the implementation of new inventory repositioning. This helped to reduce the clutter in the stores, and enabled the company to design more dramatic displays. The acquisition of Baby Superstore, renamed Babies 'R' Us, was also a catalyst in the reported growth. The purchase was completed in 1997, and the reported price for the venture was $376 million. The purchase expanded the company's market within the entire realm of the children's merchandise industry.

Goldstein had a positive outlook for 1997. New product offerings and an increase in the video game business were elements in his optimism. Products derived from such movies as Star Wars were in the works, and the company planned to open several new stores as well. Twenty-five new toy stores and five Kids 'R' Us stores were in the works for that year, and international growth was also planned. In 1996, 32 stores were opened in Australia, Austria, Canada, France, Germany, Japan, Spain, and the United Kingdom. Prospects for 1997 included five new countries, including Indonesia, Saudi Arabia, Italy, South Africa, and Turkey. New Kids 'R' Us and Babies 'R' Us stores also opened.

Toys 'R' Us continues to develop specialty stores to place within its toy stores. Books 'R' Us and the Learning Centers offer learning-aid products and children's PC software that focuses on education and entertainment.

PRODUCTS

Toys 'R' Us stores sell toys, games, sporting goods, books, videos, and computer software. Kids 'R' Us stores feature brand-name and private-label children's clothing, while Babies 'R' Us features infant and preschool clothes, furniture, and other baby-care items.

CORPORATE CITIZENSHIP

Since children are the primary customers, Toys 'R' Us supports many national and regional children's health-care organizations In addition, the company decided to offer a grant to the "Reading Is Fundamental" program. The organization used a portion of the grant to provide books and other learning materials to underprivileged children. Toys 'R' Us also developed the Toy Guide, which focuses on the needs of handicapped children.

GLOBAL PRESENCE

In 1998 Toys 'R' Us had stores in 26 countries, with plans to open approximately 35 new stores. The largest market outside the United States was Japan with 64 stores. Of 1997's total sales of $11.0 billion, 26 percent or $2.9 billion came from sales outside the United States.

CHRONOLOGY: Key Dates for Toys R' Us

1948:: Charles Lazarus opens the National Baby Shop, a children's furniture store
1957:: The first Toys "R" Us store opens in Rockville, Maryland
1966:: Lazarus sells the company to Interstate stores but maintains control of the company
1974:: Interstate declares bankruptcy
1978:: Interstate changes its name to Toys "R" Us with Lazarus serving as CEO
1983:: The first Kids "R" Us stores open, selling children's apparel
1989:: Toys "R" Us and McDonald's (Japan) announce a joint venture to open toy stores in Japan with McDonald's given the option to open restaurants on the store sites
1997:: The Federal Trade Commission found the company guilty of anticompetition policies

EMPLOYMENT

Toys 'R' Us offers employees an environment in which they can express new ideas and work in an open atmosphere. The company stresses achievement and a commitment to go the extra mile. Employees are supportive of each other, and are given the opportunity to advance within the company. Toys 'R' Us also offers an extensive benefits program, said to be the best in the retail industry. Health coverage includes medical and dental, which includes doctor's visits, hospitalization, surgery, lab tests, and preventative treatments. The company also offers a life insurance and accidental death policy worth twice the amount of the employee's salary, as well as child and dependent care.

GHOSTS 'R' US

Strange things were going on in a Toys 'R' Us in Sunnyvale, California, back in the summer of 1991. Merchandise was flying off the shelves—literally. Employees said that deep in the heart of night, during the witching hour, a spectral presence would roam the aisles, causing mischief. Shelves left neat and tidy at closing time were found in disarray the next morning. A skate-board rolled down the aisle, apparently of its own accord. Assistant store director Jeff Linden recounted stories of toys flying through the air and hitting employees. A certain doll would cry "mama" over and over—but only if it was placed in a locked box.

Many laughed off the idea of a toy store haunting, including James Randi, a well-known skeptic of psychic phenomena. But store employees took the goings-on very seriously, and it attracted customers as well. Store management ultimately brought in a local psychic to get to the bottom of the matter. "I thought they were seeing things," exclaimed psychic Sylvia Brown. "I usually find ghosts in old houses. Not in a modern retail store." But Brown quickly was convinced when she entered the store. "I felt something. Especially in the last aisle on the left." In that aisle Brown conducted a séance and discovered (she thought) the spooking's spectral source: the ghost was one John Johnson, a circuit preacher who set his tent up in a field in Sunnyvale at the turn of the century—the same field where Toys 'R' Us would be built years later. Johnson fell in love with a rancher's daughter who did not return his love. And so, said Brown, Johnson is doomed to wander the field, now the toy store aisles, looking for his lost love, lamenting his plight, and just making an overall mess of the place. Brown produced a photograph taken during the séance that supposedly showed Johnson leaning against a shelf.

Randi, though, wasn't impressed with such proof: "Why don't they install a video camera? Why don't they put the place under surveillance? Call me, and I'll get rid of the ghost in three days." But no one ever called him because no one really wanted to dispose of old John Johnson. So what if he knocked a few toys around—he seemed, by most accounts, to be a friendly ghost. And, after all, who doesn't like a good ghost story, especially if it causes the cash registers to ring a little more frequently.

Toys 'R' Us employees have the option to buy into the company's stock plan, which offers stock and stock options. Employees can purchase stock through payroll deduction, and the deducted amount is matched by a 10-percent company contribution. Vacation time is based on the amount of time worked, including overtime, and the number of years with the company. Time off is provided for medical emergencies, jury duty, disability, and sickness. Toys 'R' Us stresses customer satisfaction, and, in order to achieve this, it provides employees with pleasant surroundings in which to work.