Despite Changes, Toy Stores are Still Thriving

On Sept. 18, Toys “R” Us, Inc. filed for bankruptcy. Many people reading or listening to reports about the struggling toy retailer with about 1,600 stores, about 850 in the United States, probably came to what seems like an inescapable conclusion — toy stores are struggling because it’s now so easy to shop online.

The conclusion is completely logical — but it’s also completely wrong. In fact, toy stores throughout the U.S. are thriving. The problems of Toys “R” Us were caused completely by its own decisions, namely its failure to adapt to a changing culture. In short, children today want to play with toys at stores, and are less impressed than children of the past by aisles upon aisles of available toys.

Adapting to the Times: Too Little, Too Late?

Toys “R” Us is so aware of its mistakes that it has formulated a plan to replicate what neighborhood toy stores around the U.S. have done for several years — create de-facto playgrounds inside their stores. By Oct. 21, all of its American stores will have what its executives call “augmented reality” (AR) activities at 13 stations inside each store. Later this fall, 42 of its stores will have playrooms where “children can try out games and gadgets,” USA Today reports.

“(The changes are) going to transform the experience of coming into a Toys ‘R’ Us bricks and mortar store and turn it into something that’s quite different and a lot more fun,” Dave Brandon, the CEO of the Wayne, N.J.-based company, told USA Today.

Toys “R” Us has paid dearly for its procrastination in making its stores more of a playground and less of a retail warehouse, several industry analysts told USA Today, The Washington Post, the Chicago Tribune, and other newspapers in articles that Wealth Authority found. Sales at existing stores fell 1.4 percent in 2016 while it continued to sustain losses. The company lost $166 million in 2015 and 2016, The Washington Post article “Why Toys “R” Us is still struggling — even as the wider toy industry booms” reported.

At the same time, toy sales in 2015 in the U.S. increased 7 percent in 2015, the biggest increase since 1999 according to a Chicago Tribune article that based its estimation on figures provided by the market research firm NPD Group, and another 6 percent in 2016.

“Toys “R” Us, which had basically devolved into a warehouse, did not have the vision or the money to give its customers a great experience,” retail consultant Howard Davidowitz told The Washington Post in a second Post article entitled “Why neighborhood toy stores are thriving while Toys “R” Us goes bankrupt.”

Fun At Neighborhood Stores

Neighborhood toy stores struggled for decades because they were unable to offer the quality and quantity of products that Toys “R” Us was once famous for, and were often unable to compete on price as well. The advent of online shopping, though, changed the toy retail industry permanently.

“For a toy store to survive, they’ve got to create the kind of fun that Amazon can’t,” Davidowitz said.

Neighborhood toy stores certainly have an opportunity to grow their business. According to the article “Biggest U.S. Toy Retailers,” only three companies have more than a 3.5 percent share of the retail toy market — Walmart (just under 30 percent), Toys “R” Us (just over 18 percent), and Target Corporation (just under 17 percent).

The neighborhood toy stores have taken advantage of their opportunities in recent years by emphasizing service and fun. In the words of the Harvard Business Review article “Toys “R” Us Might Be Dying, but Physical Retail Isn’t,” they have gone high-touch via “shoppable showrooms” while Toys “R” Us has gone high-tech.

The “Why neighborhood toy stores are thriving” article details what some toy stores in the Washington, D.C., area are doing to attract — and entertain — children. The article emphasizes that many of these stores have large areas for children to play, have many interactive activities that allow children to play a game after making a choice via a technological device, and consult child development experts as they decide what toys to display and sell.

“Need to work on your toddler’s finger strength?” the article reports as it explains how toys can help children. “Employees might recommend Play-Doh. Have a child who has trouble losing? Cooperative games such as Forbidden Island or Mole Rats in Space may be the ticket.”

In addition, children today are more apt to consider mobile devices and other electronic gadgets as toys than children of the past.

Happy Kids=Profits

The key to a successful toy store today is often making it a hangout for children to play with each other as well as the site of children’s and community events.

Chiming in on the subject, Buzzfeed listed 17 toy stores that kids want to go to and “will change your kids’ lives.” A store in Minnesota, for example, has a carousel and a miniature golf course. A store in Chicago has a photo studio where kids can pose with their dolls. A store in New York City has game consoles children can play.

For years, Toys “R” Us executives made decisions that conveyed the impression that they believed analysts’ “toys stores should be fun, not retail warehouses” conclusion was wrong. Now, they apparently believe the analysts were right.

The augmented reality activities at the retail chain’s American stores will give children an opportunity to bring an activity or toy on a computer screen “to life” by pointing their smartphone or tablet at a sign on a shelf, the USA Today article reports. They can, for example, change the diaper of a virtual baby doll and play basketball with and against their friends via a computer screen. The activities are set up so children can win “stars” and play more games by accumulating stars.

Will Toys “R” Us revive its fortunes with its new strategy? Children can probably answer this question more accurately than business analysts.

“Bringing our stores to life and creating engaging experiences for our customers is a business strategy,” Brandon added.


Ethan Warrick
Wealth Authority