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, but in the US it has lost its top position to retailing behemoth Wal-Mart. Toys "R" Us sells its wares in more than 1,540 stores worldwide, as well as online. In addition to about 875 US Toys "R" Us and Babies "R" Us stores, the retailer operates more than 370 side-by-side stores, which sell both toys and juvenile products, 250 juvenile stores, and about 60 Express stores. 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 spurred the company to formally withdraw 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 had been taken private in 2005 by a private equity group for $6.6 billion.
Toys "R" Us operates in the US (including Puerto Rico), which accounts for 60% of its sales, as well as Japan, Europe (including Germany, Austria, Switzerland, France, Spain, Portugal, and Poland), Canada, the UK, Australia, China, and Southeast Asia.
With more than 645 international stores and some 150 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.
As part of its business, Toys "R" Us operates through a pair of segments: Toys "R" Us Domestic and Toys "R" Us International. Its domestic segment focuses on selling products in the core toy, juvenile (including baby), learning, and seasonal categories through 875 stores that operate in 49 states in the US and Puerto Rico, as well as the Internet. The company's international segment peddles the same product categories through 665 operated and 163 licensed stores in 35 countries and jurisdictions and through the Internet.
Some of its subsidiaries include Toys "R" Us Properties (UK) Limited; Toys "R" US Europe, LLC; and Toys "R" Us Australia Holdings, LLC.
The toy maker and marketer's business is supported by 20 distribution centers: 10 devoted to domestic operations and 10 focused on international operations (excluding licensed business). To managed the delivery of inventory from the company's distribution centers to its stores, Toys "R" Us in 2012 inked a deal with third party logistics providers JB Hunt Transport and Performance Team Freight Systems.
In fiscal 2013 (ends January), total sales slipped by 3% vs. 2012. The company attributes the declines to a decrease in comparable store net sales from drops in its entertainment, juvenile (including baby), and core toy categories, as well as foreign currency translation. These were offset in part by a rise in net sales from new locations within its international segment, including stores acquired in the Labuan purchase.
During the same reporting period, net income for Toys "R" Us dropped 75% due to increases among selling, general, and administrative expenses, thanks to cost increases associated with the Labuan acquisition and rent expenses and an increase in interest expenses and income tax expenses. Indeed, for the past three years, net income has slipped due to an increase in interest expenses.
The company's retail operations include its main chain of 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.
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.
Affiliates of Bain Capital, Toybox Holdings, and Vornado Truck own about a 33% stake in the company.