Tuesday, Oct 24, 2017
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Retail

Toys R Us struggling as industry does well

Big retailer made tactical errors

Last year was a good one for the toy business: With the help of tiny collectibles such as Shopkins, slapstick games like Pie Face, and the merchandising juggernaut that is Star Wars, the industry saw a robust 5 percent increase in sales.

And yet, big-box behemoth Toys R Us struggled to cash in on your children’s playtime.

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Dave Brandon, chief executive officer of Toys R Us, walks an aisle in Secaucus, N.J. The company is still struggling despite a good year for the toy industry.

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The company reported last week that sales sank 1.4 percent last year at its Toys R Us and Babies R Us stores open more than a year. 

It posted a loss of $36 million — an improvement over last year’s $130 million loss, but nonetheless a sign that the retailer still is in turnaround mode.

Dave Brandon, the chief executive of Toys R Us, laid out the problems during a conference call with investors. Some of it was fueled by big-picture cultural shifts: As video gaming increasingly moves to apps, the retailer’s video games and electronics business slowed down dramatically. In fact, Mr. Brandon said sales in this area were $200 million short of what they were in the previous year. 

That’s a meaningful hit for company that saw $11.5 billion in sales overall in 2016.

But there were some tactical errors, too. During the holiday rush, the toy chain saw its rivals go on a discounting spree — moves Toys R Us suspects were aimed at dumping inventory that simply wasn’t selling that well.

Toys R Us, determined to protect its profit margin, decided not to get into the deals fray, which Mr. Brandon called “a race to the bottom.” But that likely cost the chain some sales, and left it with a fresh problem: It now has an excess of inventory that it has to figure out how to unload.

Toys R Us says it plans to try to reinvigorate its stores by making them into more of a hangout: It wants to hold more in-store events for the community, and it wants to present more “shop-in-shop” experiences like the American Girl one it began presenting last year.

Other forces, too, could give Toys R Us a tailwind: Industry analysts say that Hollywood’s 2017 box office line-up could shape up to be a bonanza for toyland. 

Some 20 movies are being released this year that will come with major licensing programs, including Spider-Man, Wonder Woman, and the Beauty and the Beast live action musical from Disney that has already rung up $1 billion in ticket sales. That’s an unusually large number, so it gives Toys R Us that many more hooks to lure shoppers back to its stores.

Mr. Brandon said that the retailer plans to try to capitalize on this schedule with sections at the front of stores that are dedicated to the latest movie gear. 

Executives hope that will allow them to swap out merchandise quickly without having to constantly reset other departments. The first several months of the year will likely be “a reset quarter,” with improvement to come further down the line, he said.

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