March 16, 2018 • Volume 7
An obituary for Toys “R” Us
It's all but official, Toys “R” Us is shutting down, honorably pursuing the opposite approach of Sears’ slow-motion train wreck strategy.
My childhood Sears memories are largely composed of my mother trying to wrangle me into Sears’ Toughskins private label jeans [definitely NOT a cool brand for a fifth grader]. Toys “R” Us, though, was a magical land of colorful plastic wonder, carrying anything that a young fifth grader could ever want. Aisles and aisles of games, bikes, Slinkys, skateboards and Frisbees stacked to the rafters.
Sears’ demise I get, but how could such an ignominious fate have befallen Toys “R” Us?
Before e-commerce was a thing that we had a name for, Walmart and Target were successfully picking off the hottest items and offering them at a lower price in the same store where we could also get the wrapping paper, a shovel, and toilet paper. To shop Toys “R” Us, we had to make a separate stop, but the breadth of selection still made them relevant.
Toys “R” Us thrived during the first wave of electronic games. The penned off section of the store with console video games was the most productive part of the store before broadband connections obviated the need for the store.
But Amazon was the final straw, with an endless assortment of toys at winning prices from the comfort of our sofas. Toys “R” Us, which outsourced its online toy business in 2000 to, Amazon, of all companies, was the last to understand the extent to which e-commerce was going to change the toy business - especially a retailer whose primary value proposition was breadth of selection.
By 2017, Toys “R” Us still hadn’t figured out how to make the Web work for them, with a paltry 3 percent share of toys sold online. The leader in online toys in 2017 was…drumroll…Amazon, with 70 percent share of toys sold online (including first and third party sales).
The toy industry is struggling, in some part because of Toys “R” Us’ struggles, but the bigger macro trend that consumed Toys “R” Us was the demise of the category killer business model. Building a chain of standalone 30,000+ square foot stores specializing in a single merchandise category just doesn’t work in an era where consumers have the world’s assortment at their fingertips online.
There are exceptions to this, of course, perhaps best exemplified by Ulta. Ulta, though, has the benefit of selling products that people want to sample before buying.The obvious move for Toys “R” Us would be to shut its stores and become an online-only entity, leveraging its well-earned brand equity. The irony of such a move, though, would be lost on none.
Preventing the obituary of brick and mortar grocery
Kroger’s stock took a big hit last week when it announced that, rather than converting all of its tax savings windfall into earnings, it would instead put a third into earnings, a third into compensating employees, and a third into investment. Wall Street undoubtedly wanted the whole bag to drop to the bottom line. Kroger, though, founded in 1883, is much more interested in the longevity of its business than the fickle concerns of shareholders investing against short time horizons, which is always nice to see.
Kroger absolutely did the right thing by giving a hunk of its tax windfall back to employees, in my opinion. However, I’d liked to have seen Kroger (and its competitors) plow as much of the money not earmarked for its employees back into the business.
The timing of this windfall couldn’t have been better. Nearly 20 years after the epic failure of Webvan, the online grocery playbook is finally becoming clear, and consumer expectations are getting locked.
Consumers expect that their grocer allows them to order online and pick up in store for free, and they expect delivery options. Consumers understand that they’re going to pay for delivery, whether through explicit shipping charges, higher prices, or their Prime (or Prime copycat) competitors. Like it or not, this is what consumers expect.
The consensus among forecasters is that e-commerce will account for 10-20 percent of U.S. grocery sales by 2025--up from roughly 2-4 percent today. 2025 is only seven years away! This means that it is virtually impossible for a grocer to grow without these bare minimum e-commerce capabilities, even if we come in on the short side of expectations.
In order to accomplish this, grocers need to refit their stores to make it easy for shoppers to grab their orders without getting out of the car (and without having to wait). It means that grocers need to get a handle on their in-stock inventory to ensure that consumers don’t get an ‘out of stock’ on an item that is critical to that evening’s dinner.
They need to train store employees and provide them with the tools that they need to effectively pick orders. They may need to allocate square footage in the back of stores for frequently ordered online items in order to speed picking times, potentially shrinking the selling floor.
And in case I didn’t mention it already, they need to get a handle on their in-store inventory [this one is so important, but has been even more elusive].
There are things that we don’t yet know: Is immediate delivery worth the incremental expense? Will click-and-carry or delivery become the dominant model? But enough is clear at a time that capital is suddenly available that it’s almost as if a higher being has decided to send up a flare telling grocers what they ought to be doing.
In case you’re wondering, the selection of a commentary about the demise of Toys “R” Us alongside a blurb about the future of the grocery industry is not a coincidence. The grocery store is the ultimate category killer and is susceptible to the same forces that killed Sports Authority, Circuit City and, Toys “R” Us.
Ken Cassar is vice president, principal analyst at Slice Intelligence, where he looks at trends in the e-commerce industry armed with Slice’s robust set of online sales data.
Ken brings a rich online retail background to Slice Intelligence. Most recently, Ken was SVP, Media Analytic Solutions at Nielsen, where he developed several innovative digital commerce measurement and advertising effectiveness solutions. Prior to Nielsen, Ken was an analyst at Jupiter Research, where he was an early thought leader, trusted adviser, and media source on e-commerce. His prescient outlook on fledgling e-commerce industry was a key contributor to Jupiter’s dominance as a digital media zeitgeist at the dawn of the Internet.
Ken has an MBA and Bachelors Degree in Political Science from the University of Connecticut. Ken aspires to stay technologically ahead of his teenage children, as evidenced by his ‘Gadget Geek’ Slice profile. He also has the appropriate jacket for every occasion.