Toys ‘R’ Us: New CEO, New Plans
For Toys “R” Us chairman and CEO David Brandon, it’s all about having a successful holiday in 2015 — a short-term goal that he believes will pave the way to leveraging longterm opportunities.
If the retailer can produce positive sales and consistent margins, it will be in a position to prosper in 2016 and beyond, becoming the great specialty toy company that he contends the world deserves.
“We have many opportunities, but first we have to win and be successful this holiday season,” said Brandon, who took the reins of Toys “R” Us, which operates 863 Toys “R” Us and Babies “R” Us stores in the United States, Puerto Rico and Guam, and 745 international stores and more than 250 licensed stores in 38 countries, in July 2015. “Most of what I’m reading indicates that the category is seeing some growth, and we are well-positioned to participate in that growth.”
The “force” is with him in that regard. Helped in part by the upcoming “Stars Wars” movie, 2015 U.S. toy sales are projected to increase 6.2%, the most growth the industry has experienced in more than a decade, according to NPD.
It also helps that the $12.4 billion Toys “R” Us is facing easy comparisons to last year’s holiday season when a less promotional stance hurt sales but improved margins. U.S. same-store sales fell 1.3%, compared with a prior-year increase of 1.8%, but gross margins improved 100 basis points during the nine-week holiday period ended Jan. 3, 2015.
Also, like many other retailers, Toys “R” Us is poised to benefit this season from lower gas prices and a reduced rate of unemployment.
Finally, the chain’s year-end balance sheet should also be helped by the closing of two pricey landmarks in Manhattan: the already-shuttered FAO Schwarz store on Fifth Avenue, and the Toys “R” Us flagship in Times Square, which will close on Dec. 30, 2015.
That’s all good news for Brandon, who concedes there wasn’t much he could do to change the trajectory of the company’s holiday performance, having only arrived in July.
“You can’t change the strategy because the strategy is already set, and I am going to learn more than I contribute this holiday season,” Brandon said. “We’ve been spending a bunch of calories trying to put ourselves in a position for a successful holiday season.”
That means focusing on the things Toys “R” Us can control, from purchasing and marketing to supply chain capabilities and the flow of product to the stores to in-store and digital experiences.
“As I look at every one of these areas, I feel, based on what I’ve learned and observed, that we are better positioned this year than we have been in recent years to compete this holiday season and have a very successful outcome,” Brandon said.
The company has done a lot of work on its website to provide better service, turn orders around quicker and deliver them faster.
“It corresponds with work we’ve done on our supply chain,” Brandon added. “On the store side, we have worked to make sure that customers have a lot of assortment options and the product they want is in supply.”
On the marketing side, the retailer is playing up its strengths — including the emotional connection that many consumers have with the brand — but adding new twists to help it remain relevant in a digital age.
“We’ve stepped up in terms of taking the old and refreshing it, and adding to it in how we message to customers,” Brandon said.
Social media figures prominently in the chain’s holiday marketing. But perhaps nothing reflects the new emphasis better than the chain’s annual holiday catalog, or, as it’s called internally, “The Big Book.”
At 96 pages, the 2015 edition is the company’s largest yet and, for the first time, features interactive elements, including an augmented reality experience played in tandem with the chain’s new app game, The Geoffrey Shuffle.
BEYOND HOLIDAY:A successful holiday will put Toys “R” Us in a better position to deal with the road ahead (a road that includes dealing with the company’s sizeable debt — it has $1.2 billion coming due in 2017).
“Here in the United States, our biggest struggle has been figuring out ways to provide growth engines to take this 65-year-old brand to the next level,” Brandon said. “It’s been an ongoing challenge for several years, and the challenges and opportunities associated with it are tremendous.”
Brandon credited Toys “R” Us for doing a great job over the last few years” with its “Fit for Growth” initiative, which included expanding the chain’s assortment of private-label and exclusive toys, combining Toys “R” Us and “Babies “R” locations, store improvements, digital enhancements — and plenty of cost cutting.
“I’m pleased to be here to participate in the second half of the challenge, which is the growth part,” he said. “Now that we are fit, it’s time for us to grow and we have to turn our attention and resources on how we do it. We have to build back share and sales momentum in the United States, which will dramatically improve our financial performance. So that is the focus.”
Brandon did not get specific about his plans for revving up sales growth. But he indicated the company will be taking more chances as it moves forward.
“We are testing and experimenting with a lot of things, and we need to,” he said. “We’ll get a lot of things right and probably some things wrong, but we’ll learn from it.”
STORES:In recent years, Toys “R” Us’ previous management had spoken of a “store of the future.” But the new chief has a broader perspective on it. For him, a store of the future is not only a physical plan. It also involves a merchandising plan, technology, right-sizing and the handling of all the expanded distribution needs of what a retail store is now responsible for. The company is testing a variety of formats, solutions and opportunities associated with all that, Brandon said.
“But I don’t believe there is any one store, format or initiative that is going to provide us with a platform for the future,” he added. “I think it’s going to be a series of learnings that we need to understand before we invest in the future of what brick-and-mortar is going to look like for Toys “R” Us.”
One thing is likely: smaller stores. In the United States, the company operates many older big-box stores, with a majority in the 45,000-sq.-ft. range. Outside the U.S., however, Toys “R” Us typically operates closer to a 25,000-sq.-ft. footprint that generates very close to the same levels of revenues as the larger U.S. counterparts, Brandon noted.
“The availability of real estate at affordable rates would indicate that one of the things we need to look at in terms of the next generation of Toys “R” Us stores is size,” he said. “Chances are it’s going to be smaller — significantly smaller.”
One of the things the chain is curren