Toys “R” Us is closing all its US stores after futile efforts to attract customers

BI Intelligence
US ecommerce sales by product category

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Legendary toy retailer Toys “R” Us is planning to close or sell all US stores, according to The Washington Post. This would mean 800 stores, which employ about 33,000 people, would be affected.

This is a sharp change from its announcements in January that it would only be closing 182 US stores. Earlier this week, the retailer stated it would be closing all of its stores in the UK, and there were reports that it had ceased payments to suppliers.

The toy retailer filed for Chapter 11 bankruptcy last September as it grappled with a looming $8 billion of debt. Toys “R” Us’ struggle to repay its debt is hindered even further by its competitors' abilities to compete on very low pricing. Retailers like Amazon and Walmart have the advantage of offsetting low margins in their toy categories, as shoppers may choose to purchase higher margin products simultaneously. Meanwhile, Toys “R” Us has no buffer, making it difficult to turn a profit while its competitors compete fiercely on low prices.

The company’s recent efforts to draw in customers have been futile, despite the uptick in sales in the retail sector. It began revamping stores in an effort to become more interactive last fall by building Nerf target practice areas, allowing customers to fly drones in stores, and introducing an augmented reality (AR) game that could be played in stores. And despite Toys “R” Us' efforts to price-match online holiday deals from its competitors, which resulted in the retailer discounting 10% more items than the previous year, it had a disappointing holiday season. This failure to improve sales reveals how maligned these strategies are, as retailers saw their largest increase in holiday sales since 2010.

A group of toy makers are looking into purchasing up to half of Toys “R” Us’ stores in the US, but they'll need to do what Toys “R” Us could not — create an enticing online and in-store experience. Led by Isaac Larian, chief executive of MGA Entertainment, the group submitted a bid to buy the retailer’s Canadian arm on Wednesday, and stated that they are looking into purchasing some US stores.

If they do purchase the US stores, they will need to ensure that they can reverse the toy retailer's shortcomings, namely by investing in better online initiatives and creating a more unique and enjoyable in-store experience. Although the retailer did see some success in providing omnichannel options, it was frugal with its investments in its e-commerce operations. If the new owners wish to revive these stores, they will have to invest in e-commerce operations and create an in-store experience that resonates with customers.


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