President Donald J. Trump’s inauguration heralded a new age for businesses in the United States and allowed many such businesses to find profitability and to compete in the international market again for the first time since George W. Bush left office. However, for some businesses, such as Toys R Us, the pro-business change came too late.
Years of poor store performance, combined with a refusal to modernize and stiff competition from Amazon, Wal-Mart, and Target have made it impossible for Toys R Us to continue to operate as they once did. In hopes of staving off disaster and insolvency, Toys R US has made the decision to close 20% of its stores. As Toys R Us operates around 900 stores in the United States, that means shutting down a whopping 180 stores.
Toys R Us hasn’t had much cause to celebrate in recent years. In 2005, it was bought out by private-equity firms, including Bain Capital, but its weak performance in the market did not provide the corporation with the money they needed to update their stores, invest in their business, and compete with others operating in the same market.
Around two years ago, Toys R Us was forced to close down their flagship location in New York City, which was located on Times Square. The store was not only a tourist destination, it was also an immense toy store that offered almost any toy conceivable and even had rides. However, the cost of operating the store became too much for Toys R Us, and they had to close their flagship location to cut their losses.
Last year, Toys R Us filed for bankruptcy, seeking relief from over $5 billion in debt. They filed for chapter 11 bankruptcy, which allows them to attempt to reconfigure their business in hopes that it can recover. Closing a fifth of the stores that they currently operate is a good step toward stemming the loss of money for the business, but they will still need the approval of the court they filed their bankruptcy with.
Toys R Us CEO Dave Brandon on Wednesday said that he could not say how many jobs will be cut with the closing, though he did say that some employees would be able to transfer and work at other nearby stores. He also said that those employees who cannot be moved to other stores will get some sort of severance package, the CEO declined to mention what that package would consist of.
Many customers lamented the death of Toys R Us, saying that they will miss the experience that Toys R Us has offered for generations. Indeed, many have experienced Toys R Us, walking the aisles, playing with toys or looking at them before buying them, and going to the cage in the electronics section to purchase video games. But that’s part of the problem.
Wal-Mart and Target have continuously evolved how they do business, spending money to better be able to appeal to customers and to lure them into stores. Target, in particular, has completely revamped how they do business, offering Starbucks coffee, ‘healthy’ snacks, and more amenities to shoppers while also expanding their electronic, video game, and toy offerings.
The fact that Toys R Us has made little change to the way it operates is what makes it impossible for them to compete. Plenty of people who are now parents remember walking through their local Toys R Us, hand-in-hand with their parents, but those millennial parents are not likely to take their children to Toys R Us. They’re shopping on Amazon and getting toys delivered, often cheaper than Toys R Us sells them for.
The 180 stores listed by Toys R Us for closure will begin to shut down starting in February, and the last one will be closed by the middle of April, according to Toys R Us’ statement. However, if Toys R Us continues to perform so poorly, this is not likely to be the last round of store closures.
Toys R Us was a great store, but its unwillingness to change with the times has put the business in a terrible position. Without taking extreme measures, Toys R Us is likely to face the same fate as K-Mart, KB Toys, Borders Books, and Circuit City. While this would sadden some, the reality is that Target and Amazon are already prepared to take over Toys R Us’ 20% market share.