Semi-OT: Analyzing the Mistakes of a Certain Toy Company, B-School Style

Submitted by stephenrjking on April 14th, 2017 at 1:51 PM

This is a tough topic to post about without it going the wrong way, but I actually find it fascinating. Brian linked a Wapo article describing the struggles of Toys R Us, currently run by you-know-who.

The purpose of this post isn't to laught that DB is doing badly: I want to know WHAT he is doing badly. I have some pretty good ideas, many of them gleaned from extensive exposure to Ross B-School students and graduates. 

The headline: "Why is Toys R Us Still Struggling - Even as the Wider Toy Industry Booms?"

Too lengthy to fisk the whole article (about which I have extensive thoughts) but I will point out one thing: DB handwaves a $200 mil decline in video game/electronic sales by saying that mobile gaming is growing. But Sony, the biggest fish in the pond, had a great year, including record PS4 sales and strong game sales as well. Seems problematic to just chalk up a big decline when your products are selling really well elsewhere.

We know DB is the problem. There are probably people on this board who would, literally, be a better CEO than DB; what would you guys address here?

Comments

Gucci Mane

April 14th, 2017 at 1:58 PM ^

I'm sure he is doing many things wrong. But his main problem is that he thinks he is always correct. He doesn't seem to value others opinions.

rainingmaize

April 14th, 2017 at 2:03 PM ^

In grad school, I had a class that was co-taught by a nationally recognized CEO. Every day, he talked about how it is important to surrond yourself with not just great employees, but that they can not be yes men. Yes men are they types that will fear calling out the CEO on bad ideas, and as a result bad ideas happen. To have success, you need to have higher ups that have a wide variety of ideas, perspectives, and the balls to say things as they are. If what we read about Dave Brandon in Endzone is true, Dave Brandon without a doubt is surrounding himself with yes men. I'm shocked he's had any kind of success as a CEO. 

BlueinLansing

April 14th, 2017 at 2:22 PM ^

is really his only "success" as a CEO and much of that was not reflected in the stock price unitl after his departure.

 

What is a succesfull CEO someone who actually leads a company to newer heights of profitibility or someone who makes a lot of money for himself and his executives.

RGard

April 14th, 2017 at 2:54 PM ^

I swear that Domino's pizza started tasting like garlic smeared cardboard soon after DB took over.

I know ingredients change over the years, but the Domino's we had delivered 1979 through 1983 tasted really good.

OldBlue78and81

April 14th, 2017 at 3:09 PM ^

I also had a lot of Domino's pizza right around this same time period (1975 to 1981) and thought it was delicious. I also had usually smoked a lot of weed just before ordering pizza during those years. When I had only smoked a little weed, I was able to walk over to Pizza Bob's.

mGrowOld

April 14th, 2017 at 2:40 PM ^

Nailed it.

I'm 57 and I can tell you that DB is EXACTLY like most of the CEOs I've worked directly for through the years.  I've a very nice living always being Tonto to somebody else's Lone Ranger (#2 guy in the last four companies I've worked for) and in each case the CEO was always 100% sure they were right on issues - even when presented wih mountains of evidence they were not.

In some ways that can help them - they dont duck and run easily - but in others it can be deadly.  Too much to write here (I"m actually going to write a book on it someday soon) but the very thing that fueled them to the top of the organization (being right more times than wrong) can be their undoing.

 

corundum

April 14th, 2017 at 2:02 PM ^

I think specialized big box stores will continue to struggle as Amazon and online ordering becomes more instantaneous. The Walmarts and other stores where people can go shopping for groceries or items not just restricted to toys will also continue to dominate a portion of the industry. I'm sure Dave Brandon is a less than ideal CEO, but stores like these have been inevitably fading into obsolescence for years.

Njia

April 14th, 2017 at 2:18 PM ^

"The Amazon Effect" is a real phenomenon. What is occurring at Toys R Us mirrors that of traditional, bricks-and-mortar, U.S. retailers more generally. Macy's, Kohls, Target, and others are seeing YOY declines in sales - while the National Retail Federation is reporting banner increases in overall revenues for retailers.

What DB *should* be doing right now is developing a new vision for the company to create in-store traffic and sales. Instead, the dull, uninspired interiors of the stores reflect the staid nature of the broader business model. What, at the end of the day, has really changed about the company since the 1970s?

Unfortunately for the company, its shareholders, and employees, DB is precisely the last guy you'd want to have at the helm if you were trying to inspire a shared vision and optimism for the future.

rainingmaize

April 14th, 2017 at 2:40 PM ^

What Toys R Us has that Amazon does not however is the ability to test out, play, and physically hold the toy. Thats what Toy R Us needs to focus on. They need to make visiting Toys R Us an expereince. They need to redo all the stores so that they become large play areas. In addition, they should be hosting video game tournaments, board game clubs, one week toy rental services ect. 

SeattleWolverine

April 14th, 2017 at 3:28 PM ^

That makes some sense. My question then is, what's the risk that customers go there for activities but don't open their wallets for products? Because then you're Chuckie Cheese. Take Best Buy, a lot of people use it as a glorified showroom to ogle tech products and then use QR readers or their phones to just buy online anyway from the cheapest vendor. Now, total $ cost of toys is usually less than electronics so total savings online is often less and so less incentive to postpone in the moment. Also, kids, toys, now! I mean, I think you're on the right track, but it is definitely a tricky challenge to manage when online wins (or is perceived to win) on price. 

alum96

April 14th, 2017 at 4:23 PM ^

Because if you don't you are dead anyhow.

And if any customer on Earth is an immediate demand customer it's a 6 yr old you tear away from a toy in a store while saying "we will get it later .". Chuck E cheese doesn't have oodles of merchandise to purchase. That is 95% experience. So yes Best Buy is sort of a model but toys can be far more immersive than a USB port.

WestQuad

April 14th, 2017 at 3:30 PM ^

I went to my local dying mall a month or so ago and everything in there was an experience.

MMA fighting

Softball/Baseball training area (full baseball fields in the mall!)

Massages

Nail Salons

Rocky's (Dave & Busters type place)

Cafes and a Food Court

Boy Scout pine wood derby event, weekly calendar of kid events.

A Gym

etc.

Toys R Us needs to do the same types of things to get people in the door.   I've worked at a couple of toy companies and my former President was the CEO of Toys R Us before Brandon and the water cooler analysts said the same thing when he took the job. (Cool story bro.)  Walmart, Target and Toys R Us used to be the big three in the toys industry with TRU a distant third.  I've been out of it for a few years, but Amazon/online is definitely killing the brick and mortars. 

alum96

April 14th, 2017 at 4:19 PM ^

These 3 guys have it. The stock prices of almost every brick & mortar specialty company have been crushed in past few yrs as ppl see writing on wall. Many will die, some will survive in shrunken form but almost no one established is expanding. DB or not.

You have to turn your store into an experience / destination like Apple does. Dave should be busy "breaking it" but these CEOs make so much cash doing status quo it goes against grain.

MGoViso

April 14th, 2017 at 4:37 PM ^

I would also consider an exclusive partnership with a highly desired toymaker.

This example is a little far-fetched, but imagine if you could only buy Legos from Toys-R-Us - they would do business hand-over-fist.

I think the best way to do this would be to look actively for the next hit and offer this (still small) toymaker awesome distribution/visibility/promotion.

Whole Milk

April 14th, 2017 at 2:05 PM ^

The video game point is interesting. I know Sony had a fantastic year, but something to consider is the amount of games that are purchased via their online store, there is becoming no need to go buy a hard copy anymore.

Also, I imagine the people who would be buying video games from Toys R Us are more likely to be the casual video gamer instead of the hard core gamer who would probably stick to specialty stores. WIth this being the case, I think a lot of casual video game fans have stopped purchasing since they can have their basic desire to play video games filled with online stuff or apps. I don't have statisitcs to back these up, but I am not at all surprised to see a store like Toys R Us fall in video game sales.

Rabbit21

April 14th, 2017 at 2:11 PM ^

A brick and mortar retail chain is having trouble?

Shocking.

There's nothing really he's doing wrong to cause the decline IMO(merely being Dave Brandon isn't enough to prove he's doing something wrong, but I concede it's a good start) it's a tough environment for just about any brick and mortar store and strong toy sales don't necessarily translate into strong toy store sales.  

However, not discounting at the same time as his competitiors was a big mistake and TBH, I am not sure what the hell he was thinking there.  If the market isn't doing what you want it to do, not adapting to it is not going to magically make the market do what you want it to do.

Going forward, the digital and web presence revamp seems to have an extended timeline and given the current competitive landscape, I'd get that rolled out faster.   

stephenrjking

April 14th, 2017 at 2:15 PM ^

Serious question for those who know: How successful are these web rollouts by brick-and-mortar chains? My experience is that if I want to shop online I will probably shop on Amazon unless it is a category that they do not sell effectively. A place like Sears (whose owner makes DB look like Steve Jobs) can invest all it wants online, but they offer nothing that I can't get from somewhere else online easier and cheaper.

I actually think DB's idea of increasing "hangout" potential is good, because they need to draw people to the physical stores and Toys R Us sells the kinds of products that could do that. He'll probably muff it, but the idea is promising.

Njia

April 14th, 2017 at 2:24 PM ^

Mixed. The most successful start with a broader vision for the company, its values, and what distinguishes its place in the market. From there, the strategy for physical stores, the web, and other, so-called "Omni-channel" distribution models follows as a cohesive, integrated whole.

Unfortunately, most retailers are too focused on what Amazon is *doing* (drones, etc.), and trying to duplicate it without a compelling reason why they should.

MI Expat NY

April 14th, 2017 at 3:11 PM ^

I know some people that do a lot of ordering from target.com, so there is at least some room for success for internet sites of brick and mortar shops.  

There's also a couple advantages of the internet/brick and mortar hybrid.  First, same day in-store pickup.  If you know what you want and want it that day, placing an order and picking it up when you walk in the store can be easier and cheaper than ordering from amazon or picking it out at the store itself (an added bonus is that you know the stocking situation before you order).  The second advantage is in the exchange/returns for online shopping.  Yes, it's not terribly taxing to return online purchases.  But, having the option to take it back to a store and get an immediate replacement has advantages.  Best Buy is a big box store that has recovered from its own death spiral by optimizing to the new internet world, so it is certainly possible for other stores to do the same.

 

Rabbit21

April 14th, 2017 at 3:35 PM ^

You have to blend it in with what the stores are doing and provide a reason to go there instead of Amazon, I don't like Amazon for a multitude of reasons but since I have a kindle I am somewhat of a "trapped" customer in that regard.

My point was having the revamp sit in the hangar for a grand unveiling is probably buying a delay Toys r' Us cannot afford. They need to be more flexible and get the digital strategy going, if for no other reason than to iterate if things aren't working as well as they would like.

True Blue Grit

April 14th, 2017 at 2:08 PM ^

and neither does he I'd guess.  So, it's hard to say what the problems are with ToysRUs.  But one of his modus operandi in the past has been cutting costs and quality to benefit the bottom line.  The Domino's pizza quality got really bad before the new guy came in and fixed it.  Is he doing something similar?  Hard to say from the article.  Gucci's statement is most likely at the crux of the problem - not listening to people in his business that know a lot about toys and going in the wrong direction marketing-wise.

Everyone Murders

April 14th, 2017 at 2:19 PM ^

The problem is that the time and place for Toys "R" Us passed and is not coming back.  What made TRU successful was that it provided one-stop shopping for toys, in a very spartan environment.  You might take the kids in to kill some time, but the experience itself was painful.  Ugly store, crammed aisles, usually dirty, and employees who mostly were there for a paycheck - not because they loved selling Hasbro crap.  And the customers were there to get toys as cheaply as possible.  They didn't mind the crappy environment because they were getting their Super Soaker cheaper there than anywhere else.

Nearly every bit of that functionality is now covered by the internet, and without having to go into a dreary (on a good day) or nasty (on most days) box store.

Dave Brandon is a tremendously flawed person, and his arrogance makes him worthy of derision.  Camp David fergodsakes!  There are plenty of reasons to mock him, but I think the Toys "R" Us brand is one of crappy toys, and there are other places to get crappy toys these days.  This one's not Brandon's fault.

Njia

April 14th, 2017 at 2:31 PM ^

But they are. They think they exist to sell toys on the cheap. But they *should* be in the business of delighting children of any age. That was the essence of the TRU jingle and advertising campaign - they got away from it (and probably never understood its real meaning and why it resonated with the consumer).

And that attitude fits DB to a tee.

Everyone Murders

April 14th, 2017 at 2:44 PM ^

The problem is that TRU's brand is "toys cheaper than you can get them at a nicer store" - a brand they cemented for decades.  It's interesting to me that FAO Schwartz, IIRC, is an affiliate of TRU.  FAO's brand is exactly what you describe.

They way out for TRU would be to convert every remaining outlet to an FAO, albeit somewhat less posh. 

It reminds me of when I was working during college and a guy asked me how he should ask a certain waitress out.  He was a good guy, and I told him "really, just be yourself".  A squirrely busboy was listening in, and asked hey, expert, how should I ask this other waitress out.

Not being one to turn down an alley-oop, I took the bait.  I told him "be someone else".  That's the way out for TRU - be someone else.  (And they have a good alter-ego right at their disposal.)

MI Expat NY

April 14th, 2017 at 3:28 PM ^

But FAO failed.  A couple of times.  They are part of TRU now (relatively recent), but I don't believe there are any stand-alone stores left.  It's hard to advise a company to model themselves after a company that has failed multiple times.  Not to mention that TRU's own version of FAO in Times Square recently closed due to cost.

The problem with your idea would be that it would be extremely expensive.  You would have to recreate the stores so they aren't just rows and rows of shelves.  You would have to increase staff spending, both because you would need more staff to consistently delight children, but also because you would have to pay more for people that would treat it as more than a shitty retail job.  So how do you pay for re-doing the stores, the advertising campaign to highlight the change, and the higher than typical staffing costs while still matching the price of Amazon?  I don't think you can, and that's the problem, because if you don't match costs people will ultimately use the shop to browse and then buy off Amazon. 

I think just like how TRU and the likes largely drove independent toy stores out of business, TRU is ultimately going to be driven out of business by Amazon and other online retailers.  Kids want what they see on TV or what their friends have.  Parents can make that happen without themisery of going to TRU.  For nostalgia's sake, I hope I'm wrong.  Maybe they figure something out that gets people in stores without driving up prices.  It's just hard to see it at this point.  

WestQuad

April 14th, 2017 at 3:39 PM ^

The other problem is that Barnes and Noble has beaten Toys R Us to the punch.  They have a large toy section and puzzles section.  A parent can drop their kids in a section and get a coffee or browse books while their child picks out a book, toy or puzzle.  Unless you're buying a bike or swingset there is no reason to go there. 

What Toys R Us needs is Jim Hackett. ; )

LSAClassOf2000

April 14th, 2017 at 5:03 PM ^

We took the kids to the Barnes And Noble in Allen Park (closest one to us) and as I had not been in a book store that wasn't a rare / used place in a while thanks to Amazon, I was pretty impressed with the fact that half the place is kids or kid-geared with games and puzzles. 

That alone will help them stay in business. I still miss the flagship Borders though - many, many hours in that place. 

Coach Carr Camp

April 14th, 2017 at 2:51 PM ^

I think the sucess of Toys R US was actually mainly because they sold the cheapest diapers and then stuck them way back in the store. Parents came in with their kids and didn't have to worry about them making a mess, and naturally ended up buying the kid 1 toy before leaving. Obviously parents can now pick up cheap diapers online and keep the kids in the house basically makes the store useless other than its an easy place to take a kid and let him/her get a toy.   

rainingmaize

April 14th, 2017 at 2:53 PM ^

Toys R Us should trasition from being a cold, sterile, boring bix box store to essentially a giant playground. The store should be fun, colorful, and be set up so that their are huge spaces to physically play with new toys. That way you customers can have fun while testing the product, (and as a possible result, moms reluctantly buying a toy as their kid starts screaming for it while playing with it) They also should be putting on free events to the public such as board game clubs. Basically they need to do everything that a big box is not, while focusing on it's advantages over online retail. 

 

IMB87

April 14th, 2017 at 10:57 PM ^

Think about the kids section at Barnes and Noble.  They usually have a Thomas the Tank Engine train set up for the kids to play with.  Having more toys out so that kids could try them out more would be in that spirit.  Like what you can do at Lego stores.

But DB might try to charge admission then.

MGoBlue24

April 15th, 2017 at 11:23 AM ^

The problem is that TRU probably won't cede the retail area. They'd have potential as a hands-on environment that also price matches, but that would also slim the bottom line, and everyone wants to maximize profit margins.

mexwolv

April 14th, 2017 at 2:51 PM ^

They need to dramatically change their in-store experience and diversify themselves. Easier said than done.  One thing I think they lack is international growth  I think their model might still work in other countries like Mexico.  Web sales are still far from what they are in developed countries. They could also look into joint ventures with other companies such as Chuck & Cheese, they target the same market segments.  Just my 2 cents worth.

BeatOSU52

April 14th, 2017 at 3:10 PM ^

Somebody post the clip of DB ranting on twitter like a baby last the summer the day after a player on Hardknocks just said how he wants to play football so he doesn't have to work at Toys R Us.