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 1,800 retail or licensed stores worldwide, as well as online. Of its 870 Toys "R" Us and Babies "R" Us stores in the US, the retailer operates 240 juvenile stores and more than 200 side-by-side stores, which sell both toys and juvenile products. It also runs 265 smaller Express stores for seasonal times and operates the legendary FAO Schwarz brand. Toys "R" Us is privately held by investment companies 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 61% of the company's total revenue in fiscal 2015 (ended January), focuses on selling products in the core toy, juvenile (including baby), learning, and seasonal categories through about 870 stores that operate in 49 states in the US, Puerto Rico, and Guam as well as the Internet. The company's international segment brought in 39% of the company's FY2015 revenues, and peddles the same product categories through 730 operated and 210 licensed stores in 36 countries and jurisdictions and through the Internet.
The toy maker and marketer's business is supported by 18 distribution centers: 8 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 generates 60% of its total sales from its US stores, another 11% from Europe, and 10% from Japan. The company's other major markets are in Canada, the UK, China and Southeast Asia, and Australia, which made up a combined 18% of the its total sales in 2014.
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 Christmas Book” promotional catalog, which is sent before the holiday selling season via direct mail, newspapers, and in its stores.
Toys "R" Us spent $379 million on advertising in fiscal 2015 (ended January), compared to $433 million and $449 million in fiscal 2014 and fiscal 2013, respectively.
Toys "R" Us's annual revenues have been slowly declining since 2012 due to fierce competition among larger big-box retailers.
The retailer's revenue dipped by 1% to $12.36 billion in fiscal 2015 (ended January), mostly due to 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 1.8%, driven by higher action figure, seasonal outdoor product, and construction toy sales. Sales declined by nearly 2% in the US, however, as video game, portable electronic, educational electronics, creative activity products,and outdoor product sales dragged. Girls' role play products and accessories in the US, however, were a bright spot.
Toys "R" Us entered the red for a second year, reporting a net loss of $292 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 $1 billion loss, however, mostly as it didn't face the $378 million in goodwill impairment charges and the $51 million in losses from obsolete inventory suffered in FY2014. Additionally, the company paid less in income taxes, SG&A costs, and interest expenses in FY2015.
The retailer's cash levels also rebounded sharply in fiscal 2015 thanks to fewer cash losses, though operations used $476 million for the year.
As one of the last big toy retailers, Toys "R" Us is 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 breath 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 2015 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.
Toys "R" Us's IPO, which it retracted in 2013, was meant to underscore the impressive turnaround at the once-troubled toy retailer. Indeed, under CEO Storch, the former vice chairman of Target, Toys "R" Us has made a concerted effort to clean up its stores and reduce clutter to make shopping easier and more enjoyable. Storch has also been focused on making Toys "R" Us a leaner, more efficient retailer with an emphasis on customer service. Storch has also improved relations with key manufacturers, such as Mattel and Hasbro, to ensure they keep the store's shelves lined with high-quality products.
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.