Toys 'R' Us talks Times Square, new store prototypes, profits and more
New York -- Toys “R” Us’ priorities for 2015 include advancing its mobile capabilities, improving its Babies “R” Us business and reducing costs in a drive to become more efficient, company executives said Tuesday during a media presentation in New York. The retailer will also continue to work on transforming its online and in-store customer experience, and debut two store prototypes this year, one for its namesake brand and the other for Babies, later this year.
In remarks to the press, company chairman and CEO Antonio Urcelay confirmed numerous reports that Toys “R” Us had not renewed its lease on its Times Square flagship, which was the site of the presentation. He explained the company did not exercise its right to renew the lease because it didn’t want to commit without knowing the rent. But he said the company is still talking with the landlord and suggested it would like to stay in the building if a reasonable rent can be reached. (The lease on the company’s other iconic signature Manhattan location, F.A.O. Schwarz on Fifth Avenue, expires in 2017, and no decision on that lease has been reached yet.)
“We have been a happy tenant of this building,” Urcelay said. “The store is doing fantastic, but there is a limit to what we can pay for it. If we were to move from here, we would explore other opportunities.”
The chief executive stressed that the company has no plans to close a significant number of stores at this time.
Urcelay was upbeat in his remarks about the company, but stressed that the chain still had a ways to go in its turnaround. In 2013, Toys “R” Us introduced its “TRU Transformation” strategy, which, among other things, emphasized upgrading the customer experience, optimizing the online business, and right-sizing the company’s cost-structure.
In 2014, the chain cut $100 million, primarily in U.S. SG&A and cost of goods, and an additional $50 to $100 million is expected to be realized by fiscal 2016. In addition, it recently identified $50 to $75 million of potential savings in its international operations.
“We said (last year) we are in a journey" Urcelay said. "It was not about one year. We are transforming a company."
Toys “R” Us swung to a net profit of $265 million in its most recent fourth quarter, compared to a $210 million loss in the year-ago period. For 2014, it reported a net loss of $292 million, a big improvement the previous year, when it had net loss of over $1 billion. (Net sales totaled $12.4 billion, down 1.5% from last year. However, online sales rose 6.8% to $1.23 billion last year.
“We are pleased with the way things are evolving,” Urcelay said. “We believe the measures we put in place last year are moving the company in the right direction. We are building a much more solid future for the company.”
Urcelay noted that Toys “R” Us margins improved in 2014 as a result of more disciplined promotional activity and inventory management.
“We are pleased with our combination of margins and sales,” he said.
Toys “R” Us’ adjusted earnings before interest, taxes, depreciation and amortization have also improved. By that measure, profit rose 10.1% to $642 million last year.
“We go for the profit,” Urcelay said. “That is our business model. We don’t care about beating everyone on sales growth.”
Here are other points that Toys “R” Us detailed for 2015:
• The retailer will continue to improve its U.S. stores with faster checkouts, improved maintenance, better signage and brighter lighting. Some 158 stores in five markets will receive interior improvements, and 219 stores will be relamped, in 2015. Lighting audits are being introduced for all stores.
• A new service model will be introduced in Babies “R” Us stores to help first-time parents have a better shopping experience, along with expanded parenting classes.
• Mobile has become the most important driver of e-commerce traffic, with 57% of Toys “R” Us U.S. digital visits coming from mobile or tablet devices. Mobile devices will be rolled out to store associates to better serve customers.
• The company will continue to grow internationally, with Southeast Asia and China the sweet spots. Global revenue accounts for 39% of the company’s total annual net sales.
• The chain has engaged a design firm and “retail innovation consultants” to help develop its new store prototypes, which will be put existing store locations.
“We plan to learn from the pilots and will scale ideas that work well into our other stores,” said Hank Mullany, president, Toys “R” Us, U.S.