Christ­mas With­out Toys R Us: Who Will Fill Its Stock­ings?

Business a.m. - - MARKETING -

THIS YEAR WILL MARK the first hol­i­day shop­ping sea­son in decades with­out Toys R Us, the ven­er­ated toy store that shut­tered after mount­ing fi­nan­cial prob­lems and slid­ing sales. Ama­zon has al­ready made steps to­ward fill­ing the void, mail­ing glossy hol­i­day toy cat­a­logs — com­plete with QR codes for easy scan­ning — to mil­lions of its cus­tomers in an ef­fort to com­pete for shop­pers that could go to Wal­mart, Tar­get or other out­lets for gifts. But don’t com­pletely dis­count Toys R Us just yet: The brand, which de­cided in Oc­to­ber not to liq­ui­date all of its as­sets, has part­nered with Kroger to put sea­sonal mer­chan­dise in­side su­per­mar­kets in pop-up stores branded “Ge­of­frey’s Toy Box.”

Knowl­[email protected] in­vited two re­tail ex­perts to dis­cuss what the Christ­mas shop­ping sea­son will be like with­out Toys R Us: Wharton mar­ket­ing pro­fes­sor Barbara Kahn, au­thor of the book The Shop­ping Rev­o­lu­tion: How Suc­cess­ful Re­tail­ers Win Cus­tomers in an Era of End­less Dis­rup­tion, and Mark A. Co­hen, direc­tor of re­tail stud­ies at Columbia Busi­ness School and former chief ex­ec­u­tive of­fi­cer of Sears Canada. Fol­low­ing are key points from their con­ver­sa­tion.

A New Level of Com­pe­ti­tion

Although it was a long time in the mak­ing, the death of Toys R Us cre­ates a vac­uum of power in the toy busi­ness. So far, Ama­zon seems to be suck­ing up all the spoils.

“I think that Ama­zon is the big win­ner, although I’m sure the toy busi­ness will be good at Wal­mart and Tar­get,” Co­hen said. “At Kroger, these [Ge­of­frey’s Toy Box] pop­ups will in­vari­ably do more busi­ness than [Kroger has] ever done in the cat­e­gory. So, lit­tle Johnny and Mary are not go­ing to be with­out gifts for the hol­i­days. The ques­tion is, where will their par­ents or grand­par­ents — or who­ever is buy­ing their gifts — pur­chase them? It sounds like there’s go­ing to be a lot of choices.”

Kahn re­marked on how com­pet­i­tive the cat­e­gory has be­come, with all kinds of re­tail­ers try­ing to cash in. “I think of it as a ‘de­fender’ cat­e­gory,” she said. “If you’re a fam­ily – and that’s the kind of cus­tomer a lot of re­tail­ers want – then you have to buy your kids’ toys some­where. So you’re see­ing toys show­ing up in in­ter­est­ing [places].” Even elec­tron­ics pur­veyor Best Buy is of­fer­ing toys this year, Kahn noted. “You go into the store to buy toys, and while you’re in there you are buy­ing in other cat­e­gories. I think that’s one of the rea­sons why it’s a re­ally com­pet­i­tive area right now.”

Con­sumer habits have also changed the game. Sales of phys­i­cal toys such as dolls and race cars have been flat to down for years as kids have shifted to play­ing with dig­i­tal prod­ucts. Apps, smart­phones, gam­ing con­soles and other elec­tron­ics are vi­able all year round and not sub­ject to the whims of sea­sonal sales, Kahn and Co­hen pointed out.

“The fact of the mat­ter is that Toys R Us had this ter­ri­ble prob­lem where this space, this enor­mous amount of square footage, was ex­tremely pro­duc­tive for about five, six, seven weeks and then fell off a cliff,” Co­hen said. “They held the in­ven­tory and waited un­til the sea­son came around the next year.”

That strat­egy wasn’t helped by trends, Kahn noted, be­cause that left­over in­ven­tory may not be the hot seller next Christ­mas.

Co­hen agreed. “They never had enough of the hot toys be­cause they had com­pe­ti­tion from Wal­mart and Tar­get and Ama­zon, who got their share, in some cases, ahead of Toys R Us. Whereas in the past, Toys R Us just named their quan­ti­ties and the in­dus­try just com­plied,” he said.

Ama­zon’s Bril­liant Mar­ket­ing Move

Ama­zon’s de­ci­sion to mail a cat­a­log to shop­pers this year is sup­ported by stud­ies that show cat­a­logs still drive sales in the cat­e­gory, Kahn noted. Ama­zon sent cat­a­logs specif­i­cally to cus­tomers who have chil­dren or a shop­ping his­tory of buy­ing chil­dren’s items.

“A lot of toy [sales are] driven by emo­tion, and there are stud­ies that show the emo­tion and the brand­ing are bet­ter served in a phys­i­cal cat­a­log, be­cause that’s bet­ter for sto­ry­telling,” Kahn said. “I imag­ine that well-tar­geted, smart cat­a­log mail­ing that can help cap­ture this emo­tion will help draw more toy busi­ness for Ama­zon. I think it’s a good move. Con­ve­nient and emo­tional and sto­ry­telling – that’s what’s nice about it.”

Toys R Us used to dis­trib­ute a Christ­mas cat­a­log, too. But it had an un­in­tended neg­a­tive con­se­quence for the chain, ac­cord­ing to Co­hen. It served as a show­room, giv­ing shop­pers a sense of what was out there to buy, then driv­ing them to the com­pe­ti­tion, in­clud­ing Ama­zon, in search of bet­ter prices or more con­ve­nience.

Still, cat­a­logs are com­pelling. Par­ents share them with their kids, and kids use them to make a wish list for gifts they covet. Al­ways the dis­rup­tor, Ama­zon found a way to el­e­vate the or­di­nary.

“The Ama­zon cat­a­log is a whole lot bet­ter look­ing than the Toys R Us cat­a­log,” Co­hen said. “It’s got much more pro­duc­tion value, it’s laid out in a much more ap­peal­ing way, and the QR code con­nec­tion is just bril­liant.”

He de­scribed the cat­a­log as an en­gag­ing, high-qual­ity pitch de­signed to ap­peal to both adults and kids. It’s also no­tice­ably ab­sent of ven­dor lo­gos, which means Ama­zon prob­a­bly pro­duced it in­de­pen­dently.

“They took a con­sumer’s view of the cat­e­gory, and I think they’re go­ing to reap an enor­mous ben­e­fit for it,” Co­hen said.

Wal­mart and Tar­get Will Give Ama­zon a Run for the Money

Whether or not Tar­get and Wal­mart come out with a Christ­mas cat­a­log that ri­vals Ama­zon’s, both om­nichan­nel re­tail­ers will un­doubt­edly cash in on the sea­son. Kahn pointed to Tar­get’s ap­peal­ing in-store de­sign that draws in shop­pers and Wal­mart’s ef­fort to part­ner with other brands to bring in ad­di­tional mer­chan­dise.

“I think both Wal­mart and Tar­get are def­i­nitely re­tail­ers to watch,” she said. “They are do­ing re­ally in­ter­est­ing things.”

But Co­hen said brickand-mor­tar re­tail­ers such as Wal­mart and Tar­get still have the same in­ven­tory prob­lem that af­flicted Toys R Us. In ad­di­tion, shop­pers tend to think that what­ever is ad­ver­tised on the web­sites should also be avail­able in the stores, which of­ten is not the case. That’s where Ama­zon holds the trans­ac­tional ad­van­tage.

“It’s al­most im­pos­si­ble to pro­tect the in-stock po­si­tion of a cat­e­gory like toys on spe­cific SKUs right through the teeth of the hol­i­day. The only way to do that is to have an enor­mous amount of ex­cess in­ven­tory after the hol­i­day, which is some­thing Toys R Us typ­i­cally had to their detri­ment, and Wal­mart and Tar­get def­i­nitely don’t want to have. Nor does Kroger, for ex­am­ple,” he said. “Again, the big win­ner, the re­tailer that’s knocked the cover off the ball and the ball’s sail­ing into the far reaches of the park­ing lot, is go­ing to be Ama­zon.”

Kahn cred­ited Ama­zon for its cus­tomer-cen­tric mar­ket­ing, in­clud­ing its re­cently opened 4-star stores that fea­ture best-sell­ing mer­chan­dise. Rather than chose the prod­ucts to push on shop­pers, the re­tailer is let­ting the cus­tomer do the talk­ing, she said. “That’s a very cus­tomer­fo­cused ap­proach that re­ally – shock­ingly, in my opin­ion — hasn’t been shown be­fore. Ama­zon kind of in­vented that no­tion — let’s lead with what [items] are sell­ing best, with what peo­ple like.”

Ama­zon has a dis­tinct ad­van­tage in that area be­cause of its un­par­al­leled amount of cus­tomer data, Co­hen pointed out. “It’s a sim­ple idea but very dif­fi­cult to ex­e­cute be­cause it in­volves the anal­y­sis of data in a very ac­cu­rate and care­ful way. Ama­zon has been in­vest­ing in the tech­niques that en­able them to present cus­tomer pref­er­ences for many, many years.”

Will Pop-up Stores Work?

While it’s not un­usual for su­per­mar­kets to fea­ture sea­sonal mer­chan­dise at the front of the store or down the cen­ter aisle, the move by Kroger to host a Toys R Us pop-up store is an un­con­ven­tional ap­proach. Kahn and Co­hen said it shows that re­tail­ers across all seg­ments are un­der­stand­ing the need to di­ver­sify.

“Kroger is def­i­nitely try­ing to keep up,” Kahn said. “I saw a lot of stud­ies that show they’re mak­ing in­vest­ments in cat­e­gories and busi­nesses that they just hadn’t his­tor­i­cally done, and they rec­og­nize a lot of these plays [by com­peti­tors]. Kroger needs to go into a lot of these other cat­e­gories to com­pete be­cause peo­ple are used to one-stop shop­ping now.”

Co­hen agreed, say­ing even drug­store chains such as CVS and Wal­greens are get­ting deeper into prod­uct cat­e­gories they once ig­nored. “There’s a tremen­dous scram­ble go­ing on to re­main rel­e­vant, and that means pro­vid­ing the cus­tomer with more things they might choose to shop for in a more con­ve­nient and more com­pelling way,” he noted. “The ul­ti­mate dis­rup­tor, of course, is Ama­zon, which has got this creep­ing mar­ket share strat­egy all across the board. The win­ner is the con­sumer, who gets more and more ac­cess to more and more things at lower and lower prices.”

How­ever, the two ex­perts didn’t agree on whether Kroger’s “Ge­of­frey’s Toy Box” pop-up will be suc­cess­ful. Co­hen said he’ll take a wai­t­and-see ap­proach. But Kahn said she thinks it’s a sound idea that of­fers flex­i­bil­ity. “It makes sense to have a pop-up store rather than a 12-month store for some­thing that is so sea­sonal. I think that re­ally is a move in the right di­rec­tion.”

A Bright Sea­son for Some, but Dim for Oth­ers

There’s a gen­eral op­ti­mism about re­tail this hol­i­day sea­son, with most pre­dic­tions call­ing for ro­bust sales driven by a strong econ­omy that’s giv­ing Amer­i­cans more dis­cre­tionary spend­ing power. Re­tail­ers who have been do­ing well all year long are likely to con­tinue in the black for the fi­nal quar­ter, Kahn and Co­hen noted. How­ever, a big hol­i­day still won’t be enough to save re­tail­ers who are in trou­ble.

“Wal­mart will con­tinue to do well; Tar­get is likely to con­tinue to well. But then there’s Sears” Co­hen said, re­fer­ring to the chain’s de­ci­sion to file for bank­ruptcy and close dozens of stores. “And J.C. Pen­ney is cir­cling the drain with them.”

Re­cent head­lines in­di­cate that Macy’s, which has also been strug­gling with too many stores and de­clin­ing sales, is do­ing bet­ter.

But Co­hen thinks it’s a mi­rage: The legacy re­tailer still hasn’t fig­ured out its fo­cus, he said.

Re­gard­less, this hol­i­day sea­son is def­i­nitely one to watch, Kahn noted. “In gen­eral, I think peo­ple are pre­dict­ing a pretty healthy hol­i­day sea­son. Peo­ple are cau­tiously op­ti­mistic that it will be a good one.”

Ama­zon kind of in­vented that no­tion — let’s lead with what [items] are sell­ing best, with what peo­ple like

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