Kids rule the aisles while parents tag along for the ride at Toys "R" Us. The company is one of the world's largest toy retailers despite losing its top position in the US to retailing behemoth Wal-Mart. Toys "R" Us sells its wares in more than 1,620 retail or licensed stores worldwide, as well as online. Of its 865-plus Toys "R" Us and Babies "R" Us stores in the US and Puerto Rico, the retailer operates nearly 225 juvenile stores and more than 210 side-by-side stores, which sell both toys and juvenile products. It also runs 250-plus smaller Express stores for seasonal times and operates the legendary FAO Schwarz brand. Toys "R" Us is privately held by investment firms KKR and Bain Capital and real estate firm Vornado Realty Trust.
Toys "R" Us operates two business segments: Toys "R" Us Domestic and Toys "R" Us International.
Its Domestic segment, which generated 62% of the company's total revenue in fiscal 2016 (ended January 30, 2016), focuses on selling products in the core toy, juvenile (including baby), learning, and seasonal categories through 866 stores that operate in 49 states in the US, Puerto Rico, and Guam as well as the Internet. The company's International segment (38% of revenue) peddles the same product categories through 756 operated and 252 licensed stores in 38 countries and jurisdictions and through the Internet.
The toy maker and marketer's business is supported by 18 distribution centers: eight devoted to domestic operations and 10 focused on international operations (excluding licensed business). The company's third party logistics providers JB Hunt Transport and Performance Team Freight Systems manage the delivery of inventory from the company's distribution centers to its stores.
Some of the company's subsidiaries include Toys "R" Us Properties (UK) Limited; Toys "R" US Europe, LLC; and Toys "R" Us Australia Holdings, LLC. The company also owns famed upscale toy emporium FAO Schwarz, which operates a landmark store in New York City, as well as the KB Toys brand and e-commerce site. Toys "R" Us's online offerings include Toysrus.com, Babiesrus.com, Toys.com, as well as etoys.com, which sells toys and juvenile products.
Toys "R" Us operates in the US and more than 35 countries around the world. It generated 62% of its total sales from its US stores during FY2016, another 10% from Europe, and 10% from Japan. The company's other major markets are in Canada (7% of sales), the UK (6%), China and Southeast Asia (3%), and Australia (2%).
Sales and Marketing
The toy retailer utilizes a variety of marketing and advertising channels to reach its target audiences. Its mass marketing programs include email marketing, national television and radio spots, direct mail, targeted magazine advertisements, catalogs/rotos, and ads in national or local newspapers. Other strategies include targeted door-to-door distribution, direct mailings to loyalty program members, and in-store marketing.
Toys "R" Us’s most effective piece of advertising in the United States is “The Great Big Toys "R" US Book of Awesome” promotional catalog, which features an interactive digital app and is sent before the holiday selling season via direct mail, newspapers, and in its stores.
Toys "R" Us has been cutting back on its advertising spend in recent years. It spent $326 million on advertising in FY2016, down from $379 million and $433 million in fiscal years 2015 and 2014, respectively.
Toys "R" Us's annual revenues have fallen 15% since their highs in FY2012 due to unfavorable foreign exchange rates overseas and fierce competition among larger big-box retailers and e-commerce sites. The retailer's thin profit margins coupled with higher overhead costs have led it to losses since FY2014, though its losses have been receding since then.
The retailer's revenue tumbled 5% to $11.8 billion in fiscal 2016 (ended January 30, 2016), mostly because of unfavorable foreign exchange rates tied to the stronger US dollar. Excluding foreign currency impacts, however, net sales actually increased slightly thanks to new International store openings and comparable International store sales growth of 3.2%, driven by higher baby gear/apparel and construction toy sales. Sales declined by 2% in the US as the retailer closed more stores and saw a 0.6% decline in same-store sales as portable electronic, video game software, and baby supply sales dragged. Collectibles and preschool toys in the US, however, were a bright spot.
Toys "R" Us entered the red for a third consecutive year, reporting a net loss of $130 million as high selling, general, and administrative (SG&A) costs continued to leave the company with razor-thin profit margins. The retailer cut its losses drastically compared to the prior year's $292 million loss, however, mainly as it paid less for payroll expenses as it shuttered more stores in the US.
The retailer's cash levels fell by half to $248 million for the year due to payment timing as it used more cash toward vendor payments within its International segment, and because it used more cash to build up its merchandise inventories to maintain stronger in-stock positions.
As one of the last big toy retailers, Toys "R" Us has been grappling with how to grow its business amid a weak selling environment for specialty retailers. The toy chain competes with Wal-Mart Stores and Target, which both lure shoppers with groceries and other basics. Furthermore, its breadth of selection is being challenged by online giant Amazon.com.
To turn around its situation and set the company up for long-term profitability, the retailer in 2016 reiterated its customer convenience-oriented strategy to integrate both its online and brick-and-mortar offerings by utilizing its "In-Store Pick Up," "Ship from Store," and "Ship to Store" fulfillment channels. In recent years, it's also been using its "juvenile integration" strategy, seeking to boost sales and profits by offering customers "one-stop shopping" by building new side-by-side stores, which combine its Toys "R" Us stores and Babies "R" Us stores merchandise under one roof, and by converting existing stores to the hybrid format.
The company has also been looking to improve its supply chain management, optimize its inventory mix, and upgrade its automated replenishment system to improve its inventory turnover. The toy retailer also continues to expand its stores globally as the US market continues to mature, opening its 100th store in China in January 2016.
In March 2013, Toys "R" Us withdrew its IPO after sitting on it 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 spurred the company to formally withdraw the offering. More fundamentally, the toy seller's sales growth had stalled and competition had increased, which ultimately conspired to doom its IPO prospects.
Toys "R" Us was taken private in 2005 by a private equity group after being a public company for nearly three decades (1978 through 2005). The toy retailer first ventured overseas in 1984.