Toys “R” Us may have decided the best approach to winning customers is by kidding around, but that does not mean it will have to play nice.
Retailers are well known for their price-cutting (and cutthroat) tactics when selling toys. So Toys “R” Us, which has been losing market share to Walmart, Target and Amazon, set its gaze beyond the price tag and onto the tyke. It recently detailed plans to open a prototype store that will include play space and interactive technology to engage kids and attract parents. The chain also is arming its staff with mobile devices so they can provide more on-the-spot product information.
The move is a sign that Toys “R” Us is finally recognizing its most important customers – end users – and reaching them with what they value most: fun experiences. It’s about time. Consider what a standard Toys “R” Us looks like to a parent; then scale that image back to suit the gaze of a 3-foot-tall child.
And just like 7-year-olds who make their demands in the aisles, Toys “R” Us has sized up its opportunities and struck where it can gain an advantage. It’s well established that not all retailers can compete on price like Walmart, or on scale and convenience like Amazon. Toys “R” Us, aware of the same, is trying to own the competitive category of play, and has apparently drawn up its own game instructions.
These guidelines, embodied in a plan it launched in 2014 called “TRU Transformation,” might determine the chain’s future.
Winding up TRU
Not that Toys “R” Us invented the strategy of in-store play. Specialty toy stores pretty much survive on the concept, and Ikea has offered children’s play areas for decades. Even Apple took the idea of play and used it as a central concept in its in-store experience.
If anything, it is a wonder it took so long for Toys “R” Us to rediscover its childlike curiosity. Now in its mid-50s, the big-box chain has long been stuck in its ways, swapping out high engagement for lower expenses with stores that feel like mini warehouses. Meanwhile, the old strategy of bringing the warehouse indoors has lost its shine thanks in large part to online retail. Why expose yourself (and your child) to the sensory overload of toy skyscrapers when you can just order the Elsa Frozen doll from your smartphone?
Toys “R” Us CEO Antonio Urcelay, appointed in October 2013 after serving as president of Toys ‘R” Us Europe, seems to understand the critical importance of a positive customer experience. In his first year, he focused on making the stores more inviting, with brighter lights, faster checkout lines, better-controlled stock and more regular cleanings. This year he plans to open the prototype store with a play area; the goal is to eventually make all stores more engaging for children.
“It has to be something where kids want to go and play,” Urcelay told Bloomberg. “We have to reinforce that we are a specialist.”
Urcelay has the help of co-pilot Harry Mullany, a 30-year retail executive who was appointed president of Toys “R” Us U.S. in November 2013. Together, they introduced the TRU Transformation strategy in March 2014.
TRU in play
The TRU initiative fires off of three cylinders of service: easy, expert and fair. “Among our highest priorities will be to deepen our focus on the customer, build meaningful relationships through loyalty and targeted marketing programs, and improve the shopping experience both in-store and online,” Mullany said in a statement at the time of launch. Among the customer experience efforts, it is throwing support behind its Rewards “R” Us program and simplifying its promotional offers.
Many factors fall outside of the TRU strategy grasp. Birth rates have declined since 2007, for example, and there is that long shadow that online retail rivals casts. But Toys “R” Us also has itself to blame for waning sales, Urcelay has said.
It won’t be an easy win. Urcelay and Mullany will have to balance top-line goals against bottom-line obligations. Play areas will require investments, and Toys “R” Us has seen its revenue steadily decline, to less than $12.4 billion in fiscal 2014 from almost $13.9 billon in 2010, according to its annual report. Toys “R” Us posted a 2014 loss of $292 million. (Toys “R” Us also operates Babies “R” Us and FAO Schwarz.)
All these factors illustrate the grounds for tough action when it comes to play. They also underscore the fact that play won’t solve all the Toys “R” Us issues. In addition to a declining birth rate, Toys “R” Us also contends with its seasonality – 40% of its 2014 sales were generated in the fourth quarter, while rivals Walmart, Target and Amazon have detergent, running shoes and lawn furniture to balance out month-by-month sales receipts.
So while play may convert the shopping experience into something terrific, Toys “R” Us and the TRU strategy may need to reach even further to get customers coming back. Perhaps the right way to play this out is to blend one part experience with one part loyalty program and the customer insights derived from the program, and then mix in some changes to assortment. The result would reduce the pressure of seasonality while continuing to build on the retailer’s concept of creating more engaging experiences.
It’s not child’s play, but it could be the company’s game-changer.