Retail

The Rise And Fall Of Toys R Us

The founder of Toys R Us passed away yesterday (March 22) at the ripe old age of 94, barely a week after news broke that the toy chain would be closing its doors for good.

Charles Lazarus certainly accomplished a lot in those 94 years. Millennials across America singing “I’m a Toys R Us kid” in as solemn a fashion as possible this week are a testament to that. The store that started in Lazarus’ dad’s bike repair shop grew to dominate the toy industry and push competitors out of business.

In honor of Lazarus and the toy store that captured children’s imaginations (and parents’ dollars) for generations, let’s look back on the rise and fall of Toys R Us.

 

The Early Days

Charles Lazarus, born in 1923, opened his first children’s goods store in 1948. He had just returned from serving in World War II. At the time, all his friends were eager to go home, get married and have children.

Lazarus listened to people painting visions of the American Dream over and over, and what he heard was: opportunity. These hopeful parents would soon need everything it takes to care for an infant: cribs, carriages, strollers, high chairs. So, Lazarus opened Children’s Bargain Town in his father’s bicycle repair shop in Washington, D.C.

But parents weren’t coming back for supplies as they added more children to their families. They already had all the baby goods they needed. To inspire repeat business, Lazarus began selling inexpensive toys.

The toys eventually overtook the baby supplies business, spurring Lazarus to shift his focus fully to toys.

 

Toys R Us Is Born

In 1957, Lazarus renamed the company Toys R Us and adopted a supermarket-style approach to toy sales, with concrete or tile flooring and aisles upon aisles of children’s playthings. Thus, the first big box toy store was conceived.

It was the very origin of the phrase “kid in a candy store.” While competitors had small shops with limited product selection, Lazarus had it all at Toys R Us. No one had ever seen anything like it — and on the heels of the war and the Great Depression, it also evoked a new and pleasant sense of American abundance.

The great thing about toys, when compared to nursery staples, is that toys can break or go out of style much more quickly, requiring parents to return to the store more often.

Lazarus was able to purchase Japanese toys cheaply and in bulk as the country worked to rebuild its economy. Other producers were also happy to sell him toys for less, knowing the exposure and positive business they would gain on Toys R Us’ shelves.

 

The Making of a Giant

Family-owned toy stores simply couldn’t offer the level of discovery promised by Toys R Us. Department stores saw seasonal toy sales flounder due to the year-round demand (and fulfillment) created by this industry giant. And fueling it all was the rise of television, where brands such as Mattel could market their toys directly to children — stoking the fires of demand.

Toys R Us went public in 1978. Over the years, it catapulted the $500 million toy industry of the 1950s to a $12 billion industry by 1990. It once stocked 18,000 different toys in 1,450 global locations, owning a full quarter of the global toy market.

It also kept a variety of baby products on the shelves — because even when parents didn’t want to add to their children’s toy collections, they still needed items like diapers and formula.

Lazarus leveraged computer technology for inventory before most, which enabled him to discover trends faster than his competitors in the 1980s.

 

Slow Decline Sets in

Lazarus handed off the reins as CEO in 1994. Was that the beginning of the end? Or perhaps it was when the company was bought out by private equity firms in 2005. Or maybe, as CNN Money suggested, it happened when Walmart undercut its prices on diapers.

What’s certain is that the company started cutting back on its stock and struggled — along with every other retailer — in the face of rising eCommerce popularity. Stores became more and more dated. By the time the Times Square Toys R Us megastore closed in 2015, it was already too late for the chain.

In the end, Toys R Us dug its own grave in a way. The big box model it helped create ended up eating it alive as even bigger big box stores overtook it. This competition drove executives to reduce stock and continually slash prices — effectively, wrote History.com, slashing the magic with them.

 

Salvage Attempts Fail

Toys R Us went through four CEOs in 16 years, each tasked with the prospect of turning things around for the struggling company. However, debt continued to grow throughout this period, and top line sales growth eluded the company.

Private equity firms Bain Capital, Kohlberg Kravis Roberts and Vornado Realty Trust took Toys R Us private in a $6.6 billion leveraged buyout deal in 2005, aiming to position the company for a stock offering a few years down the road to let investors cash out.

The company did register for an initial public offering (IPO) in 2010, but the market stalled and sales continued to decline, leading the chain to withdraw its IPO registration in 2013.

In 2016, Toys R Us hired a law firm that specialized in corporate restructuring. In 2017, it filed for bankruptcy, planning to use the move as a springboard for an ambitious reinvestment plan to get back on its feet. Now, in 2018, it has succumbed to what may have been inevitable all along.

 

Nails in the Coffin

Just six months ago, CEO David Brandon had a plan to upgrade online sales, renovate stores and infuse the shopping experience with augmented reality.

However, according to USA Today, the company was already drowning in its own debt by then — around $5 billion worth.

It didn’t help that Toys R Us filed for bankruptcy in September 2017, creating uncertainty and driving business elsewhere going into the critical holiday season. That drove competitors to ramp up toy discounts in November and December. And it drove vendors to throttle back on supplies, fearing they would not be paid for their goods.

If the one-time juggernaut hoped that end-of-season holiday sales could save it as had occurred in the past, it was mistaken: A general decline in toy sales left competitors with plenty of inventory — and Toys R Us with no leverage to sell late at high margins after those competitors ran out of stock.

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