What We Can Learn From The Downfall Of Toys ‘R’ Us

By ALEX MOORE

Running a successful company isn’t an easy endeavour. You can’t just sit back and wait for things to unfold in a desirable manner.

Every employee, from the top to the bottom of the hierarchy, must put in their due effort if triumph is to follow. Sadly, not everyone can take pride in that game today.

Failure is common among young businesses, or start-ups. However, when a company with a 70-year long legacy such as Toys “R” Us files for bankruptcy and later dissolves, questions arise.

What led to it? Could it have been avoided? More importantly, what can the rest of us learn from such events?

Missing your childhood in a physical brick-and-mortar toy store?

The rise and fall of a toy empire

To assess what happened to Toys “R” Us, a quick timeline of the company’s history needs to be presented.

It was set up 70 years ago when Charles P Lazarus opened a baby furniture store in Washington DC called Children’s Bargain Town. Nine years later, in 1957, the first official Toys “R” Us store opened.

Its official website was launched in 1998. By that time, both the Kids “R” Us and Babies “R” Us sub-brands were up and running. While the former was dissolved in 2003, the latter survived.

As of 2017, it had 200 functional stores. The company went private in 2005 when it was purchased by three equity firms.

Fast forward to 2015, the iconic flagship store in Times Square, New York closed down. The store was formerly known as FAO Schwarz, and it is the real-life location of the fictional Duncan’s Toy Chest, a central plot point in the 1992 film Home Alone 2: Lost in New York. Toys “R” Us had bought it in 2007. When it closed down, it had been running for 153 years.

As 2017 rolled around, the company had filed for bankruptcy protection. It had not racked up an annual profit since 2013. On Mar 15, 2018, Toys “R” Us officially liquidated its business in the United States (US).

According to its website, its Canadian unit is up for sale, along with its operations in Asia and Central Europe, including Germany, Austria and Switzerland.

Was it an untimely demise?

One can’t help but wonder what exactly brought upon this unfortunate fate on the franchise.

While some blamed the brand’s leadership, others criticised their poor financial management decisions or their inability to adapt to the digital era. In reality, the cause of the matter is a perfect storm of all the aforementioned aspects, and then some.

According to the New York Times, the titan’s demise stemmed from its inability to conquer bankruptcy. Agreeing to a caveat in the form of a buyout is a dangerous solution, with more firms disintegrating after taking this road. In this Amazon-dominated era, equity is simply not a viable solution anymore.

The toys and games industry (or any other businesses for that matter) isn’t what it once was. The digital era is upon us, and this means that consumer needs and behaviours have changed tremendously.

 
Read also: Failure: The Key To Success
 

To be successful, a company needs to keep up with that unpredictable business environment, as traditional retail simply won’t work anymore. Surprisingly (or not), many once-prominent retail giants are experiencing the retail apocalypse in the US.

And when they specialise solely in this field, without solid business strategy to keep reinventing themselves or diversifying their business, the results will be more than telling.

Also, with the debt being too much to bear in Sep 2017, Toys “R” Us would have benefitted greatly from support in the midst of its suppliers and lenders.

In this case, instead of delivering better results, they became skittish and tried to back out of fear. This weakened the company in the long run.

The snowball effect

Needless to say, the liquidation had a massive ripple effect on the job market. Not only did it put an end to a chain where generations of parents and children alike remembered fondly, but it also affected over 30,000 jobs. The obvious casualties were toy makers, but the damage doesn’t end there.

The company had over 740 American locations, which means that many landlords will be left scrambling for alternatives. The disappearance of such an extensive and historical franchise doesn’t affect just its primary field. Its consequences are ever-present, and they will stay this way for some time to follow.

Key takeaways

What can we all learn from this? The most important lesson is that it’s important to keep up with the times.

Instead of remaining status quo in the face of digital transformation and innovation, it’s essential to embrace the future to stay relevant. Unfortunately, the company lacked the funds to take this route when the opportunity was presented to them.

 
This might interest you: Why You Need To Diversify Your Business To Accelerate Growth
 

From the standpoint of an in-depth financial analysis, disaster was imminent ever since Toys “R” Us was privatised in 2005 on borrowed money.

Instead of relying on one burden-laden business deal after another, brands should start taking better, wiser decisions, instead of jumping on a bandwagon and hoping for the best.

Regrettably, irresponsible borrowing is becoming a big challenge in business nowadays. And when it is combined with vulnerable, uncertain, complex and ambiguous (or VUCA) future brought upon by tech advantage shaping the mind of the masses, catastrophic consequences are bound to ensue.

In a way, Toys “R” Us sealed its own fate.

Conclusion

The fall of Toys “R” Us was one long in the making. From a thorough business case study, we can learn to adapt better to the times to help us make certain radical decisions and plan better to stay in the game.

This should be possible as long as strong leadership is maintained. Then again, who can know what tomorrow will bring?

Alex Moore is a psychology undergraduate and human resource consultant with an interest in business psychology and its applications – to people and companies alike. To share your thoughts on this business case study, drop us an email at editor@leaderonomics.com.