Toys R Us and its viability for the future

prevere · March 2015

ACWWGal2011 said:

" While I think there are some very successful malls still out there, I think you have a lot of malls that are dead but just do not know it. (like you said about 1/3 full but not very busy, and barely holding on).
I have a few malls around me, but the only one I go to is 30 minutes out of my way because of the LEGO store, and I go to very very few of the other stores.
It is a bit sad, as it used to be the place to find almost anything. Unfortunately due to the internet, which is really a large mall and with cheaper prices, the physical malls are dying out."
Well, for me, malls aren't too useful for me but its not due to the internet. When I do get clothes and shoes, its from Walmart. When I do seek video games and I want to use a GS instead of online, I tend to use GS's way closer to us. There's ZERO lego stores in LA so its not like I can go hit a lego store in the malls around here so I have to rely on Walmart and target for a lot of my buying. If there's a book I want to find, I tend to either hit the library or keep an eye out at second hand places.

There are definitely a bunch of malls ready to go for the zombie apocalypse.

http://www.nytimes.com/2015/01/04/business/the-economics-and-nostalgia-of-dead-malls.html?_r=0

Image: https://us.v-cdn.net/5015319/uploads/editor/nn/bs2lodm6q5b4.jpg

Ronyar · March 2015

^ah, thanks.
Will not match: "Out of stock or limited quantity items"
Figured that had to be in there somewhere.

sash501 · March 2015

Why haven't we gotten deserted mall horror movies?

Back on topic, I went to a TRU the other day . . . My kids won't even know what TRU was . . . They'll be gone in 5 years if they stick with the current business model . . . Which they probably will.

Sethro3 · March 2015

^Deserted mall horror movies? Dawn of the Dead (and the remake) both play out in a deserted mall..

madforLEGO · March 2015

Sethro3 said:

^Deserted mall horror movies? Dawn of the Dead (and the remake) both play out in a deserted mall..

I think they mean a decapitated one that is long disused. Not one abandoned after a zombie outbreak.

TRU will likely still be around. I think everyone was forecasting they would be buried in 5 years ago 5 years ago. Likely will be bought by someone else though

Chubbles · March 2015

It's a fairly popular brand, I think it's far more likely to be sold and the business model changed than to be eradicated.

Xefan · March 2015

sash501 said:

Why haven't we gotten deserted mall horror movies?

Back on topic, I went to a TRU the other day . . . My kids won't even know what TRU was . . . They'll be gone in 5 years if they stick with the current business model . . . Which they probably will.

Can do better than that. In the UK there are a couple of abandoned malls you can go to for a zombie experience where you get chased round by people made up as convincing looking zombies all day. See here for example:

http://zombieexperiences.co.uk/encounters/reading-shopping-mall/

They recently made a reality TV show based on it, which is crap and ruined the concept though.

CCC · March 2015

Chubbles said:

It's a fairly popular brand, I think it's far more likely to be sold and the business model changed than to be eradicated.

Me too. I will be really surprised if TRU disappears completely. But not surprised if it changes hands and changes model.

In the UK, Woolworths went into administration in late 2008 / early 2009, the name was sold and re-appeared as an online only business. A fairly crap one no different to many other online entertainment businesses, but the name survives.

Billybrown · March 2015

Chubbles said:

It's a fairly popular brand, I think it's far more likely to be sold and the business model changed than to be eradicated.

Not sure if I'm missing something here, but there have been previous discussions over huge losses incurred. I can't see anyone buying it for even a £1, unless they have assets that outstrip debt.

To change their business model all they have to do is charge no more than RRP and discounts (when applied) to be around 27% - 33% from RRP (no more 50% off) with no restrictions on purchases, and look at the quality control aspect of despatching, simples ;-)
That way they attract collectors, and I think most importantly families and children, which is how I used to stereotype them years ago.

Chubbles · March 2015

^ well they can certainly liquidate some assets, roll back some expansion and limit the number of retail stores out there. There is real value in a popular brand name and it'll survive under the right leadership. Any business can be turned around. I don't see toy stores going the way of the music business which got wiped out by online sales and downloading songs. People still like to take their kids out and let them pick out a toy.

Xefan · March 2015

Billybrown said:

Chubbles said:

It's a fairly popular brand, I think it's far more likely to be sold and the business model changed than to be eradicated.

Not sure if I'm missing something here, but there have been previous discussions over huge losses incurred. I can't see anyone buying it for even a £1, unless they have assets that outstrip debt.

It really depends on what the administrators see as the best bet for investors recovering their cash when it goes into administration. If they think it's a genuinely lost cause, and that no one will buy it whole because there's no hope for pulling it away from being a loss making business long term, and because none of the investors are willing to offer it new terms on it's debts then they'll asset strip it. One of those assets is the brand - it's a global, well known brand, and that in itself is an asset that's worth money.

So for example, if a chain such as Smyths decides it wants to expand into the US, it may well consider that it's worth shelling out for the TRU brand and simply resurrecting that over their but using it's business model to back it than it is to grow awareness of it's own brand over there.

When you buy a brand like TRU you're basically buying the word of mouth advertising that has become entrenched in society for the brand - you're paying for the fact that when Mum A says to Mum B "Where can I get my kid a new Barbie Doll?" the answer has a reasonable chance of being "Have you tried Toys R Us?".

TheLoneTensor · March 2015

This is not unlike the Hostess (snack cakes) situation. It's an incredibly well-known brand, so even if the current owners of TRU's brand run it into the ground, it'll be picked up by somebody and revamped. TRU as a brand won't die, but it will likely go through some heavy changes in the coming years, one way or another.

Btw, Hostess is bouncing back nicely. In fact they just got their stock upgraded recently. Indeed there is good that can come from corporate realignment.

Billybrown · March 2015

TheLoneTensor said:

This is not unlike the Hostess (snack cakes) situation. It's an incredibly well-known brand, so even if the current owners of TRU's brand run it into the ground, it'll be picked up by somebody and revamped. TRU as a brand won't die, but it will likely go through some heavy changes in the coming years, one way or another.

Btw, Hostess is bouncing back nicely. In fact they just got their stock upgraded recently. Indeed there is good that can come from corporate realignment.

Hostess always had the potential to bounce back and I was amazed they wernt taken over sooner. There was evidence of good profits, however there was criminal activity going on behind the scenes whereby apparant pensions being stolen from honest work people. Those that got greedy literally skimmed the cream off. Whereas toys r us at this present moment in time don't have the profit margins in place at present. They can turn it around if they choose to, as yes the brand is big enough, but they need look at my business model first ;-) and make it a fun brand again, get the staff dressed in giraffe suits, bring the prices down to a more suitable level, educate the managers on what is good customer service, get everyone smiling again.

Get the managers out of their suits and offices onto that shop floor and get those customers back, moral boosting exercises, if moral is low look at ways in bringing that back up.

natro220 · March 2015

TheLoneTensor said:

This is not unlike the Hostess (snack cakes) situation. It's an incredibly well-known brand, so even if the current owners of TRU's brand run it into the ground, it'll be picked up by somebody and revamped. TRU as a brand won't die, but it will likely go through some heavy changes in the coming years, one way or another.

Btw, Hostess is bouncing back nicely. In fact they just got their stock upgraded recently. Indeed there is good that can come from corporate realignment.

Can't say I completely agree with your comparison. Hostess creates products others can only imitate, but which only Hostess can make - i.e. Twinkies, Wonder Bread, etc. They hold the recipe for their products, and the company that bought them was able to get those recipes and make the same products they always made.

TRU - other than the few in house products that can't be found elsewhere - largely just sells what you can buy elsewhere, whether at a more competively priced traditional retailer like Walmart/Target, or the slew of online competition they have had to deal with the past 15 years or so (Amazon). There is very little that makes them appealing to investor groups - nothing that makes them stand out. Yes, they have name recognition. But so did Circuit City and Radioshack. One completely bit the dust, the other is on the way there. I'd say they are a better comparison...as they are specialty retailers and not a producer of a product.

nolatron · March 2015

Just getting into lego building and collecting so I went over to the TRU that's a few blocks from the office today to maybe get a quick fix :) However, I found that nearly all the lego items I wanted to buy, TRU had them all priced *over* lego's retail price by at least $5-$10 or more.

I ended up buying everything online at lego.com to earn some double points.

Chubbles · March 2015

Only buy at toys r us when there's a sale or a good price match opportunity

nolatron · March 2015

Yeah, I never knew they had a price match policy crazily until I was reading some previous posts here.

I'll have to take advantage of that next time I'm there. Thanks!

LadyDJTV · March 2015

Price match is nice. I never go into TRU without my smart phone and a bevy of bookmarked retailers pulled up. It's easy to just plug in "Lego KIT#" and get results. Living in a smallish town like ours, sometimes the selection can be sparse from place to place and TRU may be the only brick and mortar with it in stock. We do have a LEGO store about an hour away in Charlotte but I can't always drop everything and drive up there. Plus, sometimes you just want instant gratification.

PS - New Twinkies still don't taste quite the same :(

ryjay · March 2015

Toys R Us, as well as many other retailers that sell us things we actually dont need to have to live our lives, will continue to face difficult times. Not with just the on-line existence of low cost competition to battle, but often times these store are not competing with the manufactures they had once viewed as partners. Now these "partners" are direct competition. They didnt have this to worry about 10-15 years ago.

In the coming years, I expect UPS/FedEX and even the USPS....if still around...will become huge return distribution/processing centers for manufactueres. If those 3 miss this opportunity, we will see a new business filling this void as the return center for online purchasing.

BTW, if you have been seeing any of the new UPS commercials, they are setting the groundwork for that right now.

minicoopers11 · March 2015

I would not be surprised to see TRU scale back their store presence with a bunch of closings, but highly doubt they'll completely fail.

TheLoneTensor · March 2015

natro220 said:

TheLoneTensor said:

This is not unlike the Hostess (snack cakes) situation. It's an incredibly well-known brand, so even if the current owners of TRU's brand run it into the ground, it'll be picked up by somebody and revamped. TRU as a brand won't die, but it will likely go through some heavy changes in the coming years, one way or another.

Btw, Hostess is bouncing back nicely. In fact they just got their stock upgraded recently. Indeed there is good that can come from corporate realignment.

Can't say I completely agree with your comparison. Hostess creates products others can only imitate, but which only Hostess can make - i.e. Twinkies, Wonder Bread, etc. They hold the recipe for their products, and the company that bought them was able to get those recipes and make the same products they always made.

TRU - other than the few in house products that can't be found elsewhere - largely just sells what you can buy elsewhere, whether at a more competively priced traditional retailer like Walmart/Target, or the slew of online competition they have had to deal with the past 15 years or so (Amazon). There is very little that makes them appealing to investor groups - nothing that makes them stand out. Yes, they have name recognition. But so did Circuit City and Radioshack. One completely bit the dust, the other is on the way there. I'd say they are a better comparison...as they are specialty retailers and not a producer of a product.

The comparison was nothing more than illuminating the value of a brand. TRU may be just another seller of toys, but their brand is incredibly powerful, and they do offer something most others do not, an entire B&M store full of toys.

And, before you think "B&M? Pshaw, online is clearly the future," consider this...

madforLEGO · March 2015

B&M stores will always be popular as I think many people will want their kids to see the actual toys and not just a graphical representation or even a picture of them.
Same with other stores, many people want to see what they are buying before buying it.
So I can see TRU being around, but I would like the next owners to try to actually make the brand to like it was in the 80's. Move the stores back into a traditional set up like the old days and bring the toys back down to the actual RRP instead of their inflated pricing. For me when I was a kid going to TRU was not just about getting a toy but seeing EVERYTHING that was available at the time and choosing the one I wanted at that moment. To me shopping online is more of a calculated action on my part.

novicebuilder101 · March 2015

Interesting presentation from Galloway. I'm also wondering how long Amazon can hemorrhage capital before investors start their mass exodus. That graphic about their transportation costs was enlightening as they are currently subsidizing over 3 billion dollars in shipping costs per year. Recently, I ordered a box of cheez its along with another 50 dollars worth of items. I was shocked to see three separate shipments sent out from their various warehouses. When I opened a two day air shipment for my $2 box of crackers, I was embarrassed for myself and Amazon. What a waste.

Anyways, if tru can fix their pricing and make their website better, they have a chance.as it is now, I can't take their site seriously. Too many items out of stock, overpriced, and not working in unison with their brick and mortar stores.

LadyDJTV · March 2015

novicebuilder101 said:

Anyways, if tru can fix their pricing and make their website better, they have a chance.as it is now, I can't take their site seriously. Too many items out of stock, overpriced, and not working in unison with their brick and mortar stores.

Today I finally gave up. Have been sitting on $150 of TRU gift cards waiting on one of several HTF's to return to stock. Slowly one by one they've dissappeared from the site entirely. I just went to the local B&M and bought a $150 Visa GC with my TRU GC's. Cost me another $5 out of pocket but now I can go to the LEGO store about an hour away and buy whatever the heck I want. I think I'm done w/ TRU.

ryjay · March 2015

It's interesting...we complain about TRU selling above MSRP, but we dont complain about Lego Stores selling at MSRP.....shouldn't they actually be cheaper, they have cut out the middle man after all? Their return, I'm sure, is greater then TRU on each lego set sold.

Shib · March 2015

^This is often bought up and ultimately no they are not cutting out the middle man. When selling to retailers they sell massive volume that means they can discount it for the retailer compared to running a shop, or an online shop which needs warehousing and people to deal with orders/purchases they suddenly have all the same overheads as the middle man.
Plus if they were always selling their product cheaper than they recommended retailers sell it the retailers would get annoyed at having to discount to match and negate the value of their bulk deal.

LadyDJTV · March 2015

Lego often does freebie promotions. Personally I think that helps take the sting out of paying MSRP there all the time. Also VIP isn't too bad. Combine those things with the quality service they provide (my local Lego has great staffing) and I'm more motivated to shop there than elsewhere. Not to mention it's rare that they are out of stock for very long on a particular product.

charlatan13 · March 2015

^^^sadly I'm surprised when I get good customer service at TRU (it happens occasionally but more often the employees are rude, unhelpful or both). At the same time I expect good customer service at the Lego store and I'm rarely disappointed.

dougts · March 2015

Shib said:

^This is often bought up and ultimately no they are not cutting out the middle man. When selling to retailers they sell massive volume that means they can discount it for the retailer compared to running a shop, or an online shop which needs warehousing and people to deal with orders/purchases they suddenly have all the same overheads as the middle man.
Plus if they were always selling their product cheaper than they recommended retailers sell it the retailers would get annoyed at having to discount to match and negate the value of their bulk deal.

this. I actually wouldn't be surprised if their bottom line net net profit on sales from LEGO brand stores is actually less than their comparable net net on wholesaling. There is a lot of overhead involved in running those retail stores in expensive rent malls

Billybrown · March 2015

minicoopers11 said:

I would not be surprised to see TRU scale back their store presence with a bunch of closings, but highly doubt they'll completely fail.

Its looking that way. There was one in Carlisle (UK) that was closing (its now an asdas store) and I remember the store manager saying to me at the time I could clear them out and that she had put everything aside in the store room, no restrictions, Queen Annes revenge was around £60 and they had a dozen of them. So the story goes I've set aside 5k ready to pick up in ,van only for someone else to phone me and say the whole lot had gone and no longer available. 2 weeks later the Carlisle store had closed for good.

madforLEGO · April 2015

dougts said:

Shib said:

^This is often bought up and ultimately no they are not cutting out the middle man. When selling to retailers they sell massive volume that means they can discount it for the retailer compared to running a shop, or an online shop which needs warehousing and people to deal with orders/purchases they suddenly have all the same overheads as the middle man.
Plus if they were always selling their product cheaper than they recommended retailers sell it the retailers would get annoyed at having to discount to match and negate the value of their bulk deal.

this. I actually wouldn't be surprised if their bottom line net net profit on sales from LEGO brand stores is actually less than their comparable net net on wholesaling. There is a lot of overhead involved in running those retail stores in expensive rent malls

Speaking of Malls, I think TRU also looked pretty inept putting TRU express stores (I think that is what they are called) in rather expensive malls. They were consistently over RRP for LEGO for example, when a LEGO store was literally 4 or 5 stores over in the mall that I frequent.
Not sure if the store outright closed, or relocated in the mall but a footlocker store is in its place now

ryjay · April 2015

Shib said:

^This is often bought up and ultimately no they are not cutting out the middle man. When selling to retailers they sell massive volume that means they can discount it for the retailer compared to running a shop, or an online shop which needs warehousing and people to deal with orders/purchases they suddenly have all the same overheads as the middle man.
Plus if they were always selling their product cheaper than they recommended retailers sell it the retailers would get annoyed at having to discount to match and negate the value of their bulk deal.

The second part of what you said is very, very true....Lego's big retailers woud go crazy if the lego store dropped their in store prices below MSRP. But all things being equal, they have cut out the middle man's profit, and Lego's cost of goods are significantly less, regardless of the "massive volume" sold to retailers then any retailer cogs. I'd be surprised if Lego's cost of goods aren't 40-50% less. So from a fixed cost stance they may have somewhat equal costs, but not from a margin standpoint by any means.

Plus, again, as I said...we defend the Lego store and their prices, and complain about TRU.
I do complain about prices, too, but I do it at both stores, TRU price matches & the Lego store gives me free shipping coupons which works well since I live 1-1/2 from any Lego Store.

goshe7 · April 2015

madforLEGO said:
Speaking of Malls, I think TRU also looked pretty inept putting TRU express stores (I think that is what they are called) in rather expensive malls. They were consistently over RRP for LEGO for example, when a LEGO store was literally 4 or 5 stores over in the mall that I frequent.
Not sure if the store outright closed, or relocated in the mall but a footlocker store is in its place now

I thought TRU Express were generally set up only for the holiday season. All the ones near me spring up in the fall and disappear in January. I can understand the premise of that business model as most TRU B&M near me are not in close proximity to the retail stores most frequented during the holiday season. Make a seasonal presence where the people are actually shopping. Since the death of KB Toys, malls generally only have focused toy stores (learning, LEGO, etc.) if they have any at all. So there is a product void as well.

Unfortunately, they don't execute well on that plan. The transient nature results in the TRU Express shopping experience feeling more cluttered, unorganized, and cheap than a Wal*Mart shopping experience.

I could be wrong, but they typically don't clearance those stores when they close them either. Just transfer the stock back to their regular B&M locations.

madforLEGO · April 2015

goshe7 said:

madforLEGO said:
Speaking of Malls, I think TRU also looked pretty inept putting TRU express stores (I think that is what they are called) in rather expensive malls. They were consistently over RRP for LEGO for example, when a LEGO store was literally 4 or 5 stores over in the mall that I frequent.
Not sure if the store outright closed, or relocated in the mall but a footlocker store is in its place now

I thought TRU Express were generally set up only for the holiday season. All the ones near me spring up in the fall and disappear in January. I can understand the premise of that business model as most TRU B&M near me are not in close proximity to the retail stores most frequented during the holiday season. Make a seasonal presence where the people are actually shopping. Since the death of KB Toys, malls generally only have focused toy stores (learning, LEGO, etc.) if they have any at all. So there is a product void as well.

Unfortunately, they don't execute well on that plan. The transient nature results in the TRU Express shopping experience feeling more cluttered, unorganized, and cheap than a Wal*Mart shopping experience.

I could be wrong, but they typically don't clearance those stores when they close them either. Just transfer the stock back to their regular B&M locations.

Pretty sure there was an TRU express at the mall that opened at least last spring, so I do not think it is a Christmas or seasonal thing. There was also a TRU Express near a strip mall near me (also over priced) I think TRU was rolling the ice on these and they came up 'snake eyes'

CCC · April 2015

ryjay said:

But all things being equal, they have cut out the middle man's profit, and Lego's cost of goods are significantly less, regardless of the "massive volume" sold to retailers then any retailer cogs. I'd be surprised if Lego's cost of goods aren't 40-50% less. So from a fixed cost stance they may have somewhat equal costs, but not from a margin standpoint by any means.

40-50% less than what? RRP or the prices paid by TRU to LEGO for their stock?

ryjay · April 2015

I'm thinking a $29.99 set cost lego $10, they wholesale for $20.00, then final resale at the $29.99. So Lego's cost ($10.00) is 50% of the wholesale cost ($20.00). Both parties margin $10. I'm just guessing....& I wouldn't be surprised if Lego's cost per set was even less.

Toys R Us and its viability for the future

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