3 Ways Toys ‘R’ Us Sealed Its Fate and How You Can Avoid Its Mistakes
Using a twenty year old playbook in a fast changing industry is not a winning business strategy.
PHOTO CREDIT: Getty Images
The announcement that retail giant Toys "R" Us would be closing all 735 of its U.S. stores was an end to an era for a company that for many of us was a big part of our childhood and evoked many positive memories of our first bike, or big wheel.
Despite the warm memories, it should not have been a surprise to anyone. The demise of Toys "R" Us has been long coming, a slow and lingering decline born from mostly self-inflicted wounds. In fact, it serves as a valuable case study for any entrepreneur who wants to avoid the same fate.
Here's what companies should take away from the big-box shutting its doors.
You need to provide a compelling customer experience.
The last time I set foot in a Toys "R" Us was with my daughter in Dedham, Massachusetts, about five years ago. The store was dimly lit and felt dirty. Everything about the place--from the shelves, to the walls, to the displays a lighting--just seemed tired. We didn't stay very long once we found what we came for, it just didn't seem as fun of a place for a kid as it should have.
In today's world--when you can buy anything you need from the comfort of your own couch--companies that depend on brick and mortar stores need to make sure they're not only enticing customers into the store, but also providing them with a pleasant experience once they're inside. There needs to be intrinsic value in visiting the store--especially in one that sells toys for children. If there isn't, that's a problem.
Toys "R" Us was aware of this, too. CEO David Brandon unveiled in an SEC filing last fall that the company had fallen behind competitors "on various fronts, including with regard to general upkeep and the condition of our stores."
Whatever industry you're in, or whatever product you sell, successful companies need to provide their customers with satisfying experiences.
Positive experiences lead to loyal relationships, which in the case of Toys "R" Us could have compensated for their higher prices. Instead, Toys "R" Us provided a worse experience than its competitors.
Anytime you navigate a company's website or drive to one of its physical locations, you should enjoy that experience. It shouldn't be difficult getting help, and it should certainly not leave you feeling vaguely depressed.
You need to focus on your culture and people.
For awhile now, Toys "R" Us has been as complacent internally with its culture as it has appeared externally.
Its reviews on Glassdoor are tepid at best. And of its 30,000-plus employees who will soon be out of a job, not one is receiving severance, according to CNN Money.
It's difficult for companies to succeed if those working for the company don't feel supported in their work. But it's even harder if leadership doesn't seem inspired to innovate or even commit to a specific strategy.
Well-run companies resemble battleships, moving swiftly and purposefully to specific destinations. As Toys "R" Us trundled to its ultimate demise, however, it resembled something more like a cruise ship that had stalled in the Caribbean, watching idly as the Amazons and Targets of the world expertly navigated the same seas it once controlled.
This stagnancy resulted from bad leadership decisions. By the time it filed for bankruptcy in 2017, Toys "R" Us was more than $5 billion in debt.
You shouldn't compete in games you can't win.
Toys "R" Us was selling commodity products and these days that means going head to head with Amazon and Walmart/Jet. It's a very hard game to win, with a graveyard of retailers who have tried and field.
One way Toys "R" Us could have differentiated itself from Amazon or Walmart is by turning their physical stores into destinations that children clamored to visit. They also could have could have come up with their own lines of toys, or something more exclusive on the product side. But due likely to their massive debt and rigid corporate structure, they did not take either of these paths.
At the end of the day, what Toys "R" Us provides aspiring entrepreneurs and business leaders alike is an HBS case study on how to become irrelevant. They neglected customer experience, let their internal culture falter, and they didn't differentiate their product or innovate strategically in any meaningful way.
We can look back fondly on how we felt as children rushing between the shelves, hearing the I'm a Toys "R" Us kid jingle come on T.V. But above all else, business leaders should take away that using a twenty year old playbook in a landscape that necessitates the ability to be dynamic and innovative is not a winning business strategy.