Kids rule the aisles while parents tag along for the ride at Toys "R" Us. It's one of the world's largest toy retailers, but it has lost its top position in the US to retailing behemoth Wal-Mart. Toys "R" Us sells its wares in more than 1,650 stores worldwide, as well as online. In addition to about 880 US Toys "R" Us and Babies "R" Us stores, the retailer operates more than 325 side-by-side stores, which sell both toys and juvenile products, including infant and toddler apparel, furniture, and feeding supplies. Toys "R" Us is privately held by investment companies KKR and Bain Capital and real estate firm Vornado Realty Trust. The company filed in IPO in 2010 but finally withdrew it in 2013.
The offering sat in the IPO pipeline for almost three years. Despite an impressive turnaround as a private company under CEO Jerry Storch, the wild swings in the stock market and fear of another recession finally put the kibosh on it, and the company formally withdrew the offering in March 2013. More fundamentally, the toy seller's sales growth has stalled, which hasn't helped its IPO prospects. Toys "R" Us was taken private in 2005 by a private equity group for $6.6 billion.
With more than 625 international stores and some 140 licensed stores in 35 countries in Asia, Europe, and the Middle East, Toys "R" Us International contributes 40% of its US-based parent company's sales. Japan, the UK, and Canada are its largest foreign markets, accounting for about half of its international store presence. The toy retailer first ventured overseas in 1984.
Toys "R" Us's retail operations include its main chain Toys "R" Us stores, the Babies "R" Us chain, and side-by-side (SBS) stores, which combine Toys "R" Us stores and Babies "R" Us stores merchandise under one roof. The retailer's "juvenile integration" strategy seeks to boost sales and profits by offering customers "one-stop shopping" by building new SBS stores and converting existing stores to the hybrid format. The company also owns famed upscale toy emporium FAO Schwarz (acquired in 2009), which operates a landmark store in New York City. Online offerings include Toysrus.com and Babiesrus.com, as well as etoys.com, a seller of toys and juvenile products. The Toys.com (acquired in 2009) Internet domain redirects customers to the company's toy chest of e-commerce sites. The firm also owns the KB Toys brand and e-commerce site, which also directs online shoppers to its other sites.
In fiscal 2012 (ends January), total sales were essentially flat (up just 0.3% vs. the prior year). Domestic and international same-store sales declined by 1.7% and 2.7%, respectively. (In fiscal 2011 the toy seller's sales inched up about 2%.) The lackluster growth in 2012 sales was in spite of the addition of more than 100 stores, most located overseas. Net income declined more than 9% in fiscal 2012 vs. the prior year, but not as steeply as in the previous annual comparison.
The IPO was meant to underscore the impressive turnaround at the once-troubled toy retailer. Indeed, under CEO Storch, the former vice chairman of Target who joined the company in 2006, Toys "R" Us made a concerted effort to clean up its stores and reduce clutter to make shopping easier and more enjoyable. To that end, Storch has focused on making Toys "R" Us a leaner, more efficient retailer. The toy seller has emphasized customer service and stocked up on top-selling and proprietary items (like special Barbie dolls available only at its stores) for its busy holiday seasons. Storch also improved relations with key manufacturers, such as Mattel and Hasbro. (The company has some vendor relationships with some 3,700 manufacturers and importers.) In sum, Toys "R" Us has been transformed from a chaotic warehouse full of cheap, mass-market toys (that were often out of stock), to a cleaner and leaner, customer friendly purveyor of top-selling and proprietary toys and juvenile merchandise. Nevertheless, it still faces declining sales and fierce competition from Wal-Mart and Amazon. As one of the last big toy retailers, Toys "R" Us is grappling with how to grow its business.