The Rise And Fall Of Toys R Us

Summary

Toys R Us, once a toy industry giant, rose to prominence in the 1970s and dominated the market for decades. However, its failure to adapt to the digital age, a costly partnership with Amazon, and the rise of big-box retailers led to its downfall. The company, bought by private equity firms in 2005, struggled with mounting debt and competition. Despite efforts to recover, it filed for bankruptcy in 2017, closing its 800 stores and marking the end of an era in the toy retail sector.

Takeaways

• 😀 The origins of Toys R Us trace back to Charles Peele Azeris, who opened a baby furniture store in Washington DC in the 1940s, eventually expanding into toys.
• 😀 In 1978, Toys R Us became a sensation and went public, becoming the leading toy retailer in the U.S.
• 😀 The company’s rapid expansion in the 1980s led to challenges in maintaining a lean and profitable store base, with some locations struggling financially.
• 😀 Toys R Us failed to adapt to the rise of e-commerce in the early 2000s, notably through a costly and unsuccessful partnership with Amazon.
• 😀 Amazon's move to sell third-party products undermined the exclusivity Toys R Us expected from their partnership, leading to legal battles and financial setbacks.
• 😀 The rise of big-box retailers like Walmart, Target, and Kmart selling toys at discounted prices further eroded Toys R Us' market share.
• 😀 In 2005, Toys R Us was bought by a group of private equity firms—KKR, Bain, and Vornado—for $6.6 billion, with the hope of revitalizing the brand and taking it public again.
• 😀 Despite the acquisition, Toys R Us struggled to pay down debt, facing competition from new entrants in the baby product market, such as Diapers.com and Buy Buy Baby.
• 😀 The toy industry itself began to decline between 2012 and 2017, with annual decreases of around 3.1% as children shifted their interests to computers and video games.
• 😀 Toys R Us filed for bankruptcy in 2017, following financial troubles and mounting debt, leading to a liquidation of roughly 800 stores across the U.S. and a devastating blow to the toy industry.

Q & A

How did Toys 'R' Us begin its journey in the retail industry?

Toys 'R' Us began as a baby furniture store called Children's Bargain Town, founded by Charles Peele Azeris in Washington D.C. in 1948. It expanded into toys two years later, setting the foundation for the iconic toy retailer.

What event in 1978 significantly contributed to Toys 'R' Us's growth?

In 1978, Toys 'R' Us went public by trading on the New York Stock Exchange. This marked a turning point in its expansion, helping the company grow into a dominant force in the toy retail industry.

Why did Toys 'R' Us fail to adapt to the internet era?

Toys 'R' Us struggled to adapt to the rise of e-commerce, particularly after signing a costly partnership with Amazon in 2000. While the deal granted Amazon exclusive rights to sell Toys 'R' Us products, it soon backfired as Amazon began selling third-party products, competing directly with Toys 'R' Us.

What was the impact of discount chains like Walmart, Target, and Kmart on Toys 'R' Us?

Discount chains like Walmart, Target, and Kmart began selling toys as loss leaders, using them to attract customers into their stores. This put significant pressure on Toys 'R' Us, forcing the company to compete on price while struggling to maintain its market share.

How did private equity investors influence Toys 'R' Us in 2005?

In 2005, private equity firms KKR, Bain, and Vornadoe acquired Toys 'R' Us for $6.6 billion. They hoped to revitalize the company and take it public, but instead, the company became burdened with debt, which hindered its ability to invest in modernization and growth.

What role did the decline in the toy industry play in the challenges faced by Toys 'R' Us?

The toy industry began to decline in the early 2000s, with a contraction rate of 3.1% annually from 2012 to 2017. This decline, combined with children's growing interest in electronics like video games and tablets, contributed to the struggles faced by Toys 'R' Us.

What was the outcome of Toys 'R' Us's bankruptcy filing in 2017?

Toys 'R' Us filed for bankruptcy in 2017, unable to pay its debts. Despite restructuring efforts, it was unable to recover, leading to the liquidation of its U.S. stores and the closure of roughly 800 locations across the country.

What caused the vendors' refusal to ship products to Toys 'R' Us during its bankruptcy?

When Toys 'R' Us filed for bankruptcy in 2017, nearly 40% of its vendors refused to ship products without cash on delivery due to concerns about being paid. This created a 'run on the bank' situation, exacerbating the company's financial troubles.

How did competitors take advantage of Toys 'R' Us's struggles during the bankruptcy period?

During Toys 'R' Us's bankruptcy proceedings, competitors took advantage of the situation by slashing their prices. This intensified the challenges for Toys 'R' Us, particularly during the critical holiday season, ultimately contributing to its inability to recover.

What was the final blow that led to the liquidation of Toys 'R' Us?

The final blow for Toys 'R' Us came when it failed to recover from its bankruptcy proceedings, with disappointing holiday sales and mounting debt. The company was ultimately forced to liquidate its assets and close its stores, marking the end of an era for the iconic retailer.