Toys “R” Us in Japan?
The first TRU store was opened in Washington, D.C. in 1957 by Charles Lazarus. Three
stores opened over the next 10 years and Lazarus sold his ownership stake for $7.5
million to Interstate Stores in 1966. When problems with other Interstate divisions drove
the corporation into bankruptcy proceedings, Lazarus regained control in 1978 through a
management-led buyout.
The TRU strategy is based upon price, selection, and keeping stores in-stock. As
Lazarus explained, “When a customer walks through our doors with a shopping list, we
better have 95 percent of what’s on her list or we’re in trouble.” 3 The EDLP (every day
low prices) strategy and in-stock image stimulates purchasing year-round instead of
primarily during the Christmas season. Baby diapers and formula are sold at or below
cost, in hopes of winning over new parents and keeping them as customers as their
children mature. This strategy has won TRU a steadily increasing share of the retail toy
market, rising to about 22 percent in 1995.
TRU shifted its goals for expansion dramatically in 1983. The firm entered the children’s
clothing market with Kids “R” Us and established the International Division. Joseph
Baczko was recruited from his job as chief executive of the European operations of Max
Factor to lead international expansion. Baczko perceived that there were increasing
global opportunities in the toy business. In an article in 1986 for the industry trade
magazine, Playthings, he noted that customers overseas had higher disposable income,
were more educated, and had more free time. Moreover, these
buyers were more price conscious and tended to prefer specialty retailers, factors that
favored the international expansion of TRU.4
The first international store opened in 1984 in Canada. In 1986, TRU struck joint venture
deals in Singapore and Hong Kong. The company next expanded to the United
Kingdom in 1987, into Germany in 1988, and into France and Taiwan in 1989. By 1994,
TRU had penetrated the Nordic countries and developed new franchise relationships
with Top-Toy A/S, the leading Scandinavian toy retailer. The franchise division also led
to the entry of TRU to Israel, Saudi Arabia, and the United Arab Emirates, markets
which would otherwise be prohibitive because of both cultural differences and restrictive
laws.
TRU learned to adapt to the different competitive retail situations in each country that it
entered. Different countries can have drastically different competitive environments. For
example, supermarket toy sales as a percentage of all toy sales range from about 4% in
the United Kingdom to 48% in France. High costs in land, labor, and distribution created
problems in maintaining the TRU price and selection strategy. Low-cost retail sites
proved difficult to find in England, leading TRU to try smaller store formats. In Germany,
competing retailers initially pressured vendors to not sell to TRU.
Nevertheless, sales increased and store expansion was rapid. Even in England, where
British parents spend less on toys, the number of shoppers per store was very high.
New store openings attracted 40,000 shoppers in Hong Kong and 20,000 to
a one acre site in Frankfurt. International sales grew to about one-quarter of company
revenues by 1994.
Customer preferences can vary enormously among countries, hence TRU had to
carefully control its product mix. Porcelain dolls are carried in Japan, while Germans
prefer wooden ones. TRU sells a version of Monopoly in Hong Kong that replaces
“Boardwalk” and “Park Place” with “Sheko” and “Repulse Bay,” and those in France
stock scale models of the French high speed train. While about 70% to 80% of its
European toy sales are the same items as those in America, in Japan, this number is
only about 30% to 40%.
TRU has constantly worked to refine the warehouse toy store concept in its home
market. To better service customers, TRU linked store managers’ pay to customer
service activities and tried “store within a store” or “boutique” concepts. These included
Lego shops, “plush” or Stuffed Animal shops, Learning Centers, and entertainment
software sections. The most successful of these was the book department, called
“Books ‘R’ Us,” a joint effort with Western Publishing that requires special chairs, lights,
carpets, and tables. Though it may not have as wide a selection of books as bookstores,
the book department enables TRU to pick up sales from parents supplementing a toy
purchase with a book having better “educational” value.
As a specialty store “category killer,” TRU competes across retail categories, not just
with toy stores. To better compete with discounters, in 1994 TRU developed coupon
books to offer deeper price savings. A “Big Toy Book Catalogue,” a “Video Game &
Electronic Toys Catalogue,” and an Internet connection were introduced as shopping
aids.
Additionally, the “Toy Guide for Differently Abled Kids” offers professional evaluations of
toys for families of disabled children; this complements the TRU corporate giving
program which focuses on improving the health care needs of children.
Japan was a particularly attractive target for TRU for several reasons. Japan was the
second largest toy market in the world. By the 1980s, Japan had developed a
particularly high per capita income and toys sales had been growing despite the low
birth rate. Spending on children was particularly high, particularly in the early years of
childhood, yet toy shops in Japan tended to have small selections and high prices. Is
there an opportunity for Toys R Us success in Japan?
Assignment:
1. Conduct a SWOT analysis based on the information given in the case, any
business insights you might already have, as well as your own imagination.
2. Make an executive business decision: Should Toy R Us make the move to
Japan?