Toys “R” Us Failed – Could A Great App Have Saved Them?

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Ollie Russell

Ollie Russell

Passionate about business and tech! I specialise in supporting organisations achieve and surpass their mobile related goals by leveraging innovative distribution. A Dyson of industry related content, lover of all things business and explorer of new ideas. Creative strategies, emerging markets and success stories are my thing.

Founded in 1948 by Charles Lazarus, Toys“R”Us became a global powerhouse in the retail industry. But what led to demise of this retail giant that recorded revenue of $11.5 billion last year? What mistakes were made along the way and could an app have been the answer to their problem?

Let’s jump into the big question; why did they go bust? Put simply, they had eye watering levels of debt and had no way to cover it. This debt fundamentally stems from the acquisition of Toys“R”Us Group in 2005 by a consortium of KKR, Bain Capital Partners LLC and Vornado Realty Trust. Whilst this group of companies thought that they had picked up a bargain, the servicing of the $5b debt (to the tune of over $250m p.a) stifled the chances of Toys“R”Us to truly compete with the likes of Walmart and Amazon.

On the subject of Amazon, the online behemoth has featured numerous times throughout the history of Toys“R”Us. It started with an ill-fated partnership deal that was signed in 2000, 2 years after Toys“R”Us had first dipped their toe into the world of e-commerce. Responding to the boom of online toy retailer eToys.com, (later acquired by Toys“R”Us), Toys“R”Us rushed into a 10 year contract that would see them become the sole vendor of toys on Amazon.com. Sounds like a sweet deal, right? Only if Amazon actually sticks to the contract…which they didn’t.

In 2004 Toys“R”Us took Amazon to court after the latter allowed third party sellers to list toys on their site, these sellers were in direct competition with Toys“R”Us. The case ended in settlement with Amazon shelling out $51 million in damages and the partnership being severed. This left Toys“R”Us way behind the e-commerce curve, their online presence was not even close to where it arguably should have been. The worst part…. they didn’t do enough to recover. The $100 million they invested over the next 3 years was a drop in the ocean when compared with the $2.5 billion per year that Target poured into their online efforts following the termination of a similar Amazon partnership.

Toys“R”Us could not compete. Amazon along with the ‘big box retailers’ were unrelenting in their pursuit of volume sales, often selling toys as a loss-leader to get people through the doors. With crippling levels of debt Toys“R”Us simply did not have the capital needed to go into battle with these giants of industry. The nail in the coffin; the media caught wind of Toys“R”Us’ decision to bring in ‘restructuring advisors’. In essence this was a big flashing sign to the market that Toys“R”Us could not make debt repayments and were considering bankruptcy. Within a week 40% of it’s suppliers had refused to ship products unless they received cash on arrival.

Boom, seemingly overnight it’s bye bye Toys“R”Us.

So, to the reason you’re reading this article – could a better app have saved this $31 billion (March ’17) company from going bust?

Since the explosion of e-commerce, the consumer experience has completely changed, a buyer generally knows exactly what they want before they walk through the doors of a physical store. 60% of the time they have seen a product online, checked the price and the decision to buy has been made. The buyer has all the power and retailers need to adapt to this. Creating and maintaining a strong bond with customers is now essential to staying at the top and that is where having an app comes in.

We use our mobile devices for absolutely everything, research suggests that consumers dedicated 5 hrs a day to their mobiles last year, with time spent in apps rising 69% year on year. I love a stat so here are some more:

The typical app visitor spends 201.8 minutes a month in retail apps while the typical mobile site visitor spends only 10.9 minutes on the site.

Mobile apps in the US account for 44% of the total digital time spent in the retail sector

Retail apps capture 42% of mobile revenue for the top 500 retailers

40.4% of respondents who had downloaded a retailer-branded app said that as a result, they bought more of the brand’s products and services and 45.9% said the app caused them to visit the store more often (ABI Research)

Apps now generate about half of all mobile sales for retailers who have made their app experience a priority

With all these stats revealing the importance of having an a app, could having a great one really have been the difference for Toys“R”Us?

We’ll never really know, Toys“R”Us didn’t release an app until 2017; it was called Play Chaser and utilised AR. The aim was to create a better in-store experience by bringing the virtual world into the everyday shopping environment. “With Play Chaser, we’re transforming shopping into something beyond just the toys and games we sell, bringing our stores to life with interactive, unique content that will resonate with customers and importantly the players – kids,” said Mike Coogan, UK marketing and e-commerce director.

However, by 2017 the writing was already on the wall for Toys“R”U. Their frankly stubborn approach to not adopting new technology contributed to their downfall. They could have been pioneered new shopping practices, transformed the way purchases are made and even brought the shopping experience back offline but ultimate they didn’t. They became a dinosaur in a robot age and shock horror Toys “R” Us have gone the same way.

This is, unfortunately not uncommon in the retail industry, appScatter CEO Philip Marcella said the following: “We’re seeing massive pressure on the traditional high street retailer, with many struggling to maintain their physical operations. Though there are many reasons for this, the switch consumers have made to online is widely agreed as a significant factor, especially their reliance on handheld devices. But having an app isn’t going to necessarily ease that pressure. Unless that app is part of a wider strategy to re-engage with consumers, it’s not going to be enough to turn the tide on its own.”

With that in mind, at present a retail app is fundamentally an additional tool to engage new customers and build on relationships with existing ones. To save a company of the magnitude of Toys“R”Us a complete change in strategy is needed, one that the aforementioned company left until it was too late. Let’s hope the rest of the retail industry take note.

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Ollie Russell

Ollie Russell

Passionate about business and tech! I specialise in supporting organisations achieve and surpass their mobile related goals by leveraging innovative distribution. A Dyson of industry related content, lover of all things business and explorer of new ideas. Creative strategies, emerging markets and success stories are my thing.

Toys “R” Us F…

by Ollie Russell time to read: 4 min
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