Saving the Big Box: Inside the plan to revive Toys ‘R’ Us
DAVE Brandon has been inside a Toys “R” Us in Secaucus, New Jersey, for all of five minutes before he spots a problem. At the entrance, there’s a display of small cardboard bins filled with US$1 playthings that look messy, and even worse – cheap.
“It kind of reminds me of a garage sale,” says Brandon, who became chief executive officer of the world’s biggest toy chain 14 months ago. “We’re not the dollar shop. We’re a toy store.”
In the Star Wars section nearby, a Chewbacca chair has tumbled over into the aisle. The 64-year- old CEO grabs it and turns it right- side up. Dressed in black pants and a blue longsleeve shirt –a deliberate attempt to connect with store workers by wearing their uniform – Brandon then walks through a display of Pokemon toys, snapping pictures of empty shelves with his iPhone that he’ll send to one of his executives. It’s Friday afternoon before the crucial weekend rush.
“This doesn’t make me happy,” says Brandon, who estimates that he’s been to 200 stores since taking the reins in July 2015.
There hasn’t been much to smile about at Toys “R” Us Inc. More than a decade after a US$ 7.5 billion leveraged buyout by Bain Capital, KKR & Co. and Vornado Realty Trust, the retailer remains saddled with annual interest payments approaching US$ 500 million and no clear path for its owners to exit the investment.
The company registered for an initial public offering in 2010, only to withdraw it a few years later. Since the buyout, Amazon.com, which once ran the Toys “R” Us website, has become a powerful competitor. And shoppers are abandoning the suburban malls that helped make the big-box pioneer one of the most dominant retailers of the 1980s and 1990s.
Brandon, who oversaw a turnaround at Domino’s Pizza last decade, knows he has no easy task. For years, the Wayne, New Jersey-based toy chain has bought time by refinancing its debt, which now totals about US$ 5 billion. It did so again last month with a swap that pushed out maturities on notes due in 2017 and 2018 by five years. While Brandon’s first year has brought signs of progress, with holiday sales gaining for the first time in four years, the deal wasn’t necessarily a full vote of confidence because many investors had bought the bonds at distressed levels and made a profit. But it did buy Brandon more time – probably the next two Christmas seasons – to turn the company around.
Back in the Secaucus store, Brandon is looking over several empty shelves. He ticks off a list of retail basics, such as improved inventory management, that are sorely needed. Then he boils down the company’s woes to one fundamental problem: The experience needs to be more fun. The big-box advantages of selection and price that made the format so successful have been obliterated by the web. There needs to be more reasons for people to go to a store. — WPBloomberg