Article by Dominic Calabretta
The first Australian Toys R Us store opened in September 1993, and I remember it so vividly. Walking up and down isles filled with every possible toys and games imaginable for a child.
Sadly, since the US parent company filed for bankruptcy in the US in September 2017, all US and UK stores have closed down. And while the Australian arm had advised it was business as usual for its 39 stores, the Wall Street Journal quoted Toys ‘R’ Us chief executive David Brandon as telling staff the company was likely to liquidate operations in France, Spain, Poland and Australia as well.
I hope the Australian arm can survive, but all odds are against it. Now that it might be nearly gone, I feel a strange feeling of nostalgia, and guilt. I cannot recall the last time I stepped in one of the stores, it became a lot easier to buy from a store like Kmart or online, and I feel I am partially to blame. I am sure others are also in the same boat.
So where did it go wrong? There are various reasons, but the main one that springs to my mind is INNOVATION DIED.
Let’s go back in time to a year which marked the change of an era, the last year of the 20th century and beginning of the 2000’s.
In the early days of the dot com bubble of the late 1990’s, online retail was born. In this period, Toys R Us was so inundated with online orders on its website that it fell behind with orders during the crucial Christmas season. As you can imagine, the business received a lot of criticism as a lot of customers did not receive their gift orders in time for Christmas. There were a lot of unhappy children at the time!
So the company decided to fix the problem by signing a 10-year deal with Amazon soon after in 2000 At the time, Amazon was an e-commerce platform barely surviving as a books-only website. The deal with Amazon was to run Toys R Us’s online business in exchange for exclusive rights to sell its toys and baby products. Since the deal was struck, Amazon has risen to the largest online retailer in the world, whilst Toys R Us has sadly diminished.
What the above tells me is that Toys R Us has lacked innovation and clearly did not believe in the internet when it struck it’s deal with Amazon. Toys R Us simply became a toy store that was not as easily accessible as other stores such as Walmart in the US, Tesco in the UK and Kmart in Australia.
Its stores were randomly located and a bit of a pain to get to. The business lost its magic spark it initially had when it commenced. It became a boring store that sold toys like everybody else. It also had very bad online presence, which was made very late and probably by then the horse had bolted with Amazon and other online retailers already having gained a large market share in this space.
Toys R Us had all the ingredients of a successful business that should have survived. It had a great brand. It was in a niche market. Its products are timeless – children will always want toys. It had market share when it commenced. It belonged to a multi-million dollar industry. Everyone knew the brand. And it had that nostalgic element bringing adults back to their childhood days.
What it did not have was innovation. Other companies have suffered the same consequence who did not evolve with the times and continue to innovate. Companies such as Kodak, Blockbuster and Nokia are similar examples where companies lost their edge due to letting the world pass by and not being innovative.
So the hard lesson we must all take from this sad story is companies and the people behind these companies must always strive for change and innovation. Just because something worked 5 years ago does not mean it will work forever.
We see a lot of business failures, and as part of our restructuring process, we always promote the concept of change management. A formal restructure such as a Voluntary Administration and Deed of Company Arrangement may solve a company’s debt issues, however it does not fix problems that may have existed within the business. A successful restructure should always incorporate an improvement in the operation of the business.
The lesson is simple. Innovate or die.
Domenic Calabretta is a registered liquidator and solicitor who has helped thousands of clients in distressed situations. Domenic is a principal at the restructuring and advisory firm Mackay Goodwin.