Remember Toys “R” Us? Our Favorite Toy Store is Going Out of Business

Managing inventory is no easy feat, especially when your task is to carry hundreds of different toy brands and gaming devices. As you have all probably seen in the news, Toys “R” Us has filed for bankruptcy and plans on closing its 735 U.S stores and liquidating its assets. There are a variety of causes that may have added to the company’s demise, but its mismanagement of inventory may be one of the biggest causes. Because Toys “R” Us is known for its large variety of specific toys, it is hard for Toys “R” Us to make the popular switch of “ Just-in-Time” to save on inventory costs. That being said, their holding costs were very high. Additionally, Toys “R” Us was late to the game. The market was changing, with customers requiring instant gratification when shopping and expecting an experience when they enter a brick and mortar store. Toys “R” Us was not able to deliver this.

Forecasting, for both sales and inventory, is an area that the company could have easily modified. The article mentions, “with accurate inventory forecasting, stock levels can be determined by educated estimations rather than a one-size-fits-all approach (such as keeping three of every item on shelves, in Toys ‘R’ Us’ case). By utilizing sales data to predict required inventory ahead of time, individual product levels are based on projected demand, meaning customers are more likely to be able to purchase the products they want when they want them.” This would have lead to less unwanted stock stored in warehouses, which would have reduced holding costs and allowed for more effective cash flow management.

The bad management of the inventory supply has also caused Toys “R” Us to fall into massive debt. This is what triggered their file for bankruptcy. The company owes over 200 million dollars to its suppliers, and as total debt of 400 million. “According to Bloomberg, Toys “R” Us has missed payments to some suppliers without explanation and has quit negotiating on money owed before its initial.” Also, we talked in class about how prices are not always everything. A major issue with the company was the lack of experience they were giving their customers.  It was stated,“ The retailer’s sprawling warehouse-like stores also were a turn-off to consumers who are looking for “experiences” while they shop.” So on top of not having the sought out inventory and seeming cluttered when it did, Toys “R” Us was not giving their customers the experience other retailers had. Managing your inventory is a very important decision that managers need to oversee. Since demand fluctuates a lot in the toy industry, Toys “R”, should have better accounted for the needed safety stock and reorder dates. A company going under affects more than just the stockholders, because if this decision over 33,00 people are now out of jobs.

 

Articles-

https://www.supplychaindive.com/news/suppliers-Toys-R-Us-bankruptcy-debt-risk/505343/

https://www.cbsnews.com/news/toys-r-us-shutting-u-s-stores-liquidating-inventory/

https://www.tradegecko.com/blog/toys-r-us-how-out-of-stock-situations-are-killing-the-toy-giant

11 thoughts on “Remember Toys “R” Us? Our Favorite Toy Store is Going Out of Business

  • March 27, 2018 at 8:59 pm
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    Planning inventory it´s very important in order to meet the demand. But there are many ways of planning inventory. In class we have studied inventory planning based on the forecast sales and productivity. It is obvious that they did not plan inventory well, but, considering their sales it is also understandable. Their sales have been decreasing since 2012; around 25%. So, based on this fact, they probably predicted that their sales were going to keep decreasing, so, the inventory quantity was based on those sales.
    So yes, the fact that they could not meet the demand damaged them a lot. But I believe that it was not just that damage what brough them to bankruptcy. I remember when I was a kid I used to love going to Toys R Us because all I did in the store was playing; I could spend hours with my brother over there. Last time I went into one of their stores, like 2 or 3 years ago, it was almost empty. Trends are changing and kids like different things; most of them want video games; they do not play outside like we used to do. So, I beleieve that their inability to meet the new trends it was has brough them to that situation; not the incability of planning inventory for the last year. Many companies have that problem and don´t end up in bankruptcy. In order to get there are many problems in the company.
    https://retail-index.emarketer.com/company/data/5374f24d4d4afd2bb444660e/5374f2a34d4afd824cc15d33/lfy/false/toys-r-us-store-productivity

    • March 28, 2018 at 4:27 pm
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      I agree with Carmen that Toys R Us was not brought to bankruptcy solely by a problem in forecasting. We discussed Toys R Us a couple times in my corporate finance class and my professor said that she would take her kids to Toys R Us to look at the toys then would go buy them on Amazon or somewhere else online. I think that they failed to take into account how much the presence of major companies online and in store like Walmart and Target cut into their sales. Interestingly enough, Target is now bidding on some of Toys R Us Stores (https://www.cnbc.com/2018/03/28/toys-r-us-stores-set-to-be-bid-on-by-target-big-lots-and-aldi.html).

  • March 27, 2018 at 9:23 pm
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    From my understanding, the toy industry is very volatile; there are many uncertainties with in the business. The obvious factor is that forecasting demand relies on the desires of young children, who often times are unsure of what they want. Over the years toys have become more and more intricate and complex, this opened the door for more toy producers to enter the market. It became difficult for Toys “R” Us to manage its inventory, because they had to carry such a wide range of products. Certain toys fly off the shelves while others collect dust, it can be very difficult to project which products will have increased demand. The only true way to correct this would be to do extensive market research before deciding the inventory amount that Toys “R” Us would carry on their shelves. This wide range of inventory created the lack luster experience of shopping in a warehouse full of toys. By the time Toys “R” Us realized they were falling behind, other companies were already in control of online toy sales. I have very young cousins, and when shopping for their Christmas presents I found that Toys “R” Us had by far the most difficult online system to use. Many are using Toys “R” Us’s bankruptcy to knock today’s children for being so electronically consumed. When actually, the growth in the toy industry made it near impossible for toy-only companies to accurately manage their supply chain inventory.

  • March 28, 2018 at 4:32 pm
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    I think it’s interesting that this blog acknowledges both the monetary aspect of being a successful store as well as the customer experience. Personally, I think the experience carries more weight in the Toys “R” Us found itself in. In terms of my own experience, my mom always dreaded trips to Toys “R” Us because of the loud kids, the unorganized aisles. Most of all, she was faced with the challenge of keeping my siblings and me in line. Making us focus on getting the one item we actually needed instead of the countless other plastic, colorful things we could see was enough to make her avoid the store all together. Especially when ordering online eliminated this challenge, the brick and mortar Toys “R” Us struggled to stay part of my mom’s routine. I can assume parents across the nation experienced something similar, since the stores are no longer successful. The article I linked below also highlighted an appeal to parents entire shopping trip, instead of just a stop at the toy store. Since prices for toys at Walmart and Target were lower, and made the errands simpler with one stop instead of two, Toys “R” Us was no longer a unique place to go.

    https://www.fool.com/investing/2017/09/22/what-went-wrong-with-toys-r-us.aspx

  • March 28, 2018 at 4:36 pm
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    I agree that forecasting demand could be one of major hurdles faced by Toys “R” Us. However, it seems to me that Toys “R” Us was unable to keep up with the changes in the market such as the rise of e-commerce. No business can survive in a vacuum. Factors such as increased use and availability of technology have an impact on the performance of a business. Trying to maintain each store to live up to the expectations of one of a kind experience was practically not possible for Toys “R” Us, especially when it was competing with online stores that barely had any rental costs or massive inventory costs. Some companies, like Reebok (http://www.reebok.com/us/women-training-shoes) , have designed their website in such a way so that the online purchase itself is an experience for the customers. By providing customers the option to design their own shoes, Reebok keeps the customers engaged throughout the online ordering process. If Toys “R” Us had tried to keep up with the growing trend of e-commerce, it could have marketed its websites as providing similar online shopping experiences as its stores and slowly switched over to online selling only. Therefore, I think inventory mismanagement was not as important an issue for the company as trying to keep up with changing trends in the market.

  • March 28, 2018 at 6:38 pm
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    It is interesting, and I believe this topic came up in a previous blog post, but the toy industry has almost become directly tied to Hollywood and the film industry. And for this reason, I feel that, although their bankruptcy may have been inevitable to some extent due to online shopping, Toys R Us certainly could have taken some measures at the very least to adapt to this shift, and prolong their operations continuing. Looking at a Bloomberg article from the beginning of last year, they noted that there was an “unprecedented” 25 blockbuster movies coming out with toy tie-ins, compared to the usual seven or eight. It is somewhat surprising then, that a toy company would go out of business after such a seemingly monumental year for toys. Yes, it would seem that the notion of scoping out toys at the store and then purchasing them from Amazon became more prevalent. Nonetheless, the expectations from last year show it wasn’t simply technology that was Toys R Us’ downfall, but rather poor supply chain and inventory management, as many others have stated.

    Source: https://www.bloomberg.com/news/articles/2017-03-02/movies-make-the-20-billion-toy-industry-go-round

  • March 28, 2018 at 10:08 pm
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    After reading some of these articles it seems like Toy R Us went for the we have everything so come find it strategy. I know when I was a kid I would spend hours looking through the shelves and discovering stores I didn’t even know I wanted and that was one of the best parts about Toy R Us, but it doesn’t seem like they have moved past that strategy. These days customers are extremely informed about the options that are available to them. Online catalogs are extensive and if they don’t buy something online then if they do come to the store they will likely have a good idea of what they are looking for. Toys R Us didn’t seem to use any new data to realize that just having a toy doesn’t mean it will sell, and that they need to shelve toys in high demand. A lack of proper forecasting and complacency seems to be at fault. They continued their previously profitable method of sales that were popular before the online sales boom when people would spend a long time browsing stores instead of browsing online. It seems like this is just another company that got complacent in their business method and didn’t properly adapt.

  • March 28, 2018 at 10:59 pm
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    Although the demise of Toys R Us is sad, because of the many childhood feelings of nostalgia that go along with it, I’m not surprised. I truly believe that the company did not adapt to meets its audience’s changing desires, which was ultimately fatal. As you mentioned Brianna, Toy R Us was not able to adapt to the changing market of instant-gratification and experiential entertainment. From monthly forecasting, the executive teams should have examined inputs such as current and new customers, competition, and new products in order to create outputs that forecast demand and are realistic. This process could have folded supply planning strategies for anticipation inventory and labor options for seasonality.

  • March 29, 2018 at 8:27 am
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    Toys R Us filing for bankruptcy is a great example of how hard and important it is for a company to properly manage their inventory. This is no easy task, and it led to the downfall of one of my favorite stores growing up. In addition, Toys R Us bankruptcy filing highlights the future of retail; it shows how e-commerce is killing traditional retail at brick and mortar stores. Constantly, year over year, more and more of the population of customers are becoming more attractive to online shopping over the internet (e-commerce), rather than going in person to brick and mortar stores. I believe that Toys R Us’s bankruptcy is an example of darwinism; if you cannot adapt and advance, you will die off. In other words, Toys R Us was unable to change and form to the new market. Therefore, they could not compete with e-commerce sights for toy sales, so they are now filing for bankruptcy. Below is an article that talks more about the changing retail market:

    https://www.nasdaq.com/article/e-commerce-is-killing-traditional-retail-cm758038

  • March 29, 2018 at 8:27 am
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    Toy’s R Us was placed into a difficult market as a brick and mortar toy retailer. With demand for Toys fluctuating wildly with the newest crazes and fashions it is difficult to properly manage your inventory in order to best meet changing market demands. Being a seasonal business, with the majority of their sales coming around the holidays, it makes it difficult to effectively utilize their whole inventory effectively and accurately predict market trends for November and December. Other online retailers have been able to provide a better service as most people know what the newest latest and greatest toy their kids are talking about and desire. They are able to get the best price online and can even have it delivered, which provides a much better experience than wandering the large aisles of Toy’s R Us. They could have tried to turn a profit by creating an online prescence, made their stores into more of an experience for people to attend, and have practiced better inventory management. Finally they could have held sales to remove old inventory from their warehouses to remove those larger holding costs from their books in order to streamline their operation.

  • March 29, 2018 at 8:49 am
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    My strategic management class recently discussed the failure of Circuit City in 2009 and how Toys “R” Us failed to learned from the Circuit City’s major mistakes. For context, between 2003 and 2007, Circuit City had been playing desperately and defensively against their competitors like Best Buy and had tried to satisfy their stockholders. Unfortunately, trying to please their stockholders only led to them lacking cash in a state of financial turmoil and thus leading to some serious inventory issues. Many suppliers would not let Circuit City pay for their goods during that time because their credit line was incredibly poor. Thus, many shelves were completely empty or improperly forecasted for and demand for Circuit City had gone completely.

    Obviously Toys “R” Us has a different situation at hand with changing trends and different competitors, but there is a lesson in Circuit City’s case that they needed to consider – stick to your strengths internally and focus on the core competencies that make you really good. As a retailer, Toys “R” Us created an wide selection of toys and products for babies and children alike that could not be matched by other companies like Amazon and Wal-mart. The issue is, like you mentioned, they could not adapt to the trends at hand such as forecasting demand for inventory. They could have utilized new technologies and big data through artificial intelligence, but based on where the company is at now it does not seem like they did that successfully.

    I am interested, personally, to see what company is next to fall with changing technological trends. Many companies fail to make big plays or often make big mistakes in the operations. Many mistakes in operating tasks like supply chain management can ruin a company, and they really should look to Circuit City and Toys R Us to learn from them and adapt.

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