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No Mere Child’s Play: Toys “R” Us Chapter 11 and What We Can Learn From It

Posted by West McDonald on Oct 10, 2017, 1:31:02 PM

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If you’ve been following the news you may have discovered, like I did, that Toys “R” Us has filed for Chapter 11 bankruptcy protection.  The company employs over 65,000 employees around the world and operates over 1,000 brick and mortar store locations as well as being a giant online retailer.  Somehow they’ve accumulated over $5 billion dollars in long-term debt and find themselves having to restructure or die.  Child’s play this is not.

This particular story hit home for me pretty hard, and if you have kids, it may have for you as well.  My family frequents Toys “R” Us for birthdays, Christmas and sometimes just because we need a little fun.  As an avid Star Wars fan, I often go to their stores to check out what’s new and have spent a ton more money on them than a grown man should ever admit to.  But there it is.  My entire family is a little sad over the news.

Personal feelings aside, there are some very good lessons for the rest of us in the business world that arise out of this story.  Think about it: Toys “R” Us is a giant company with a lot of smart people working for the corporation.  What went wrong?  Why are they struggling to stay afloat? It’s not that people have stopped having children, there are still plenty of those around last time I looked.  Have children stopped liking toys? What a silly question.

iStock-812588134.jpgPeople are still buying toys.  In fact, they are buying more toys than ever.   If you look at the 2016 investor presentation of one of the largest toy manufacturers on earth, Hasbro, you will find the following:

  • 10% CAGR over the last 10 years (Franchise brands)
  • 20%+ operating profit (Franchise brands)
  • 28% revenue growth in 2016 (Partner brands)
  • 11% revenue growth for Q2 2017 (global average)

Source: http://files.shareholder.com/downloads/HAS/5233725188x0x478557/48615F4C-B665-40EC-B5AC-447FAC08A38A/Hasbro_Investor_Presentation.pdf

So, if there are still children and those children still like toys, what happened to Toys “R” Us?

My personal summation in one sentence:

The way people buy things has changed.

Stop and think about that sentence for a second, because it is an important one for ALL of us that provide products and services to think about.  If the goods and services that are being sold are still enjoying healthy revenues, profits and growth, you would think that a giant retailer like Toys “R” Us would be experiencing the same.  Some would argue that the $5 billion dollars in debt and associated interest payments are the cause.  I would say that it is not, that the debt is simply a system of the giant toy retailer missing the boat on changing buying habits.

Before we go any further, ask yourself this simple question: Have your buying habits changed? Some more granular questions for you to consider when answering this:

  • Movies & Music:  How are you buying or renting those today, or are you buying them at all any more?
  • Electronics: How did you buy them 10 years ago? How are you buying them today?
  • Services: Are you buying software and business tools outright or acquiring in a different way than you used to?

Many of you might have noticed that when you put some focus on it that your buying habits have changed in 2 major ways:

  1. You purchase a lot of things online today
  2. You use “As A Service” models for things that you used to buy

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In the case of current predicament Toys “R” Us is in, I would hazard to guess that #1 is what is affecting them most today.  They are not alone.  Many “Big Box” retailers from electronics to hardware to office stationary are experiencing their own set of critical business issues.   I know, it’s not as simple as “1” thing, but if I was to put the reasons in order, the advent of online retail companies would jump to the top of the list.  The Amazon.com model has completely disrupted traditional brick and mortar product sales models.

Time to open up the toy box in your own office.  If you are a business owner, there are some additional questions you need to ask (and you need to be quick about it!):

  1. Is the way I sell/offer my products and services losing ground to new business models?
  2. Are things that people used to “buy” turning into things that people “subscribe” to?
  3. If I know I need to change course, how much time do I have to do it successfully?

If you’ve answered all of the above questions honestly, then you may have come to the following simple conclusion:

The way that I sell things has to change and fast.

Hard medicine and easier said than done, I know.  But who said the business of business was ever going to be easy?  I see the need for change growing every day in my own industry, the office equipment channel.  The traditional model of office copy and print is under a great deal of pressure from what many people would argue is commoditization and increased competition.  I don’t believe that these are reason, at least not entirely.  I see many organizations in my space that are generating record profits by altering how they charge for their services and by going deeper into solving customer needs. Seat Based Billing (SBB) instead of cost per page or selling toner cartridges outright is one example of how some are growing their businesses ahead of their competitors in our channel.  

Will Toys “R” Us successfully make the changes necessary to survive and thrive? I certainly hope they do.  The lesson for the rest of us as business owners and senior managers is to make sure we make decisions about how people are buying things and about how we will satisfy those new buying habits BEFORE disaster strikes.  Who of us will meet the challenge and in what ways will we do so?

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Topics: business, business model, business strategy, Business Tips, new business, SAAS, sales, selling, business growth, toys r us

West McDonald

Written by West McDonald

West McDonald is Vice President of Business Development for Print Audit.

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