Closing their Doors
After existing for many decades, the large toy company “Toys-R-Us” is closing its doors. This leaves over 31,000 employees without jobs, and many older generations feeling the pain of a nostalgic icon becoming no more. But where did all of this come from? While they did mention closing one-fifth of their stores back in January, it didn’t seem like their situation was that dire. What really went on? And what sort of factors played a part in the closure of this mega toy chain?
Toys-R-Us had an issue with debt for years it seems. As far back as January 2005, Toys R Us had a hard time managing their monetary resources. This isn’t a new story. After all, many companies have gotten into debt at around this time period.
But, it seemed every effort they made into paying off that debt only made things worse. According to one article in Forbes.com “In 2005 KKR and Bain Capital (which included former Presidential candidate Mitt Romney) bought Toys R Us for about $6.6billion, plus assuming just under $1B of debt, for a total valuation of $7.5billion. But the private equity guys didn’t buy the company with equity. They only put in $1.3billion and used the company’s assets to raise $5.3billion in additional debt, making total debt a whopping $6.2B. ”
Any money that was acquired from then on went towards paying the debt and only the debt, which left stores untended to and staff members underpaid and overworked. This invoked a chain reaction of shoppers not being pleased with the environment, hurting the revenue of the business, and repeating the never-ending cycle of debt all over again.
In 2017, they tried declaring bankruptcy to consolidate the resources they had and use them to reinvest in the company. However, it was too late. They owed too much money and had to liquidate all assets.
Competition in the marketplace is a good thing. It provides customers a way to exercise their freedoms through choosing what to purchase or where to purchase an item. The unfortunate downside for companies when it comes to competition, however, is that there is always a loser involved. Some companies will last because they can adapt, while others will become a casualty of the rat race. Toys R Us became the loser in a competing market.
When Walmart and Target started to grow in popularity, Hasbro and Mattel had sold just as much product to them, as they did to the Toys-R-Us chain. Also, Walmart/Target both had the advantage of placement. They had their toys in the same place that mothers would buy groceries and home appliances. All they had to do was add competitive pricing to blow away the competition.
Then the rise of Amazon came. With people willing to pay a little more for shipping in order to shop conveniently at home in their pajamas, Toys R US lost even more of their market share to the competition.
Between those three giants, they would net big losses on top of the debt they were in, and the lack of revenue from customers who weren’t thrilled with a dingy warehouse-setting and overworked staff.
Lack of Brand Awareness
Do me a favor, and think real hard. When was the last time that you have seen a Toy’s R Us commercial? Because I think maybe I remember seeing one at around Christmas time in 2008.And even then I was shocked that they were playing an out of date commercial. Sure, kids of yesteryear remember the store chain, it was a huge part of their childhood. But what do the kids today know of that brand? Do they even know what a Toys -R-Us is? Or that its mascot is a giraffe? What about the jingle? Sure, Toys R Us does technically have a website but I didn’t know about it until I checked to see if there was a .com attached to that web address. This is proof of another one of the contributions to their downfall, the fact that there is no brand awareness of their company at all.
They have not actively stated who they were or what they did to the up and coming generation, literally leaving the kids clueless about the fact that their toy store company existed in the first place.
They say in the business world that it is better for people to hate your business than for them to be indifferent to it. That’s because indifference means that no one cares enough to even bother with your business in the first place.
It is no good for a brand to simply exist. If it exists with no marketing strategy then it will die a slow and painful death from a lack of public awareness, just like Toys R Us.