Introduction
Toys R Us was founded in 1948 in Washington, D.C and was originally just a baby furniture store. Since that time, the store has grown into a world-leading toys, video games, and baby products retailer. The company now owns over 863 stores in different locations across the U.S and 755 stores in 38 other countries (‘About us - toys“R”us corporate’, n.d.). The Corporation also recognized the value of e-commerce and launched online retail shops called Toysrus.com and Babiesrus.com that are two of the most visited websites in the online toy and baby products shopping categories. The company employs about 66,000 employees worldwide and is committed to serving communities through programs dedicated to protecting kids and helping them during needy times.
External Environmental Factors
The term toy is no longer used to describe simple objects like buttons and hooks but refers to all children’s play things. This together with various remote, industry and external environmental factors has made the industry highly competitive.
Social Environment
The availability of the internet and high technology gadgets have made children who are the primary target of Toy R Us to spend more and more time social media sites and the internet. Research done by the Kaiser Family Foundation in 2010 showed that teenagers between eight and eighteen years spend an average of seven hours and thirty-eight minutes daily on entertainment media (Kaiser Family Foundation, 2010). The study further states that during this period, the teens consume multiple media and end up packing more than ten and a half hours of media content. This leaves them with no time to play with traditional toys.
Another societal issue that is of concern to the companies in the toy industry is the global child populations. Europe and the U.S have been recording fluctuating children numbers while child populations in China have diminished immensely due to the one-child policy adopted by the Chinese government and rising cost of living.
Legal Environment
China offers considerable multiple advantages as a manufacturing destination such as good workmanship, infrastructure and low production costs that make it the go to outsourcing destination for most toy companies (Wahba, 2011). However, the country also has loose factory safety standards that caused the recall of over 10 million toys in 2007. The toys contained harmful chemicals and materials such as unsafe lead levels and tiny magnets that could cause health hazards or even death if swallowed. The recall cost most companies that have manufacturing plants in China millions of dollars in losses and also severely damaged their reputation of both the companies and retailers stocking their products.
The firms in the industry are also very strict concerning their copyrights and patents. This is to keep rival companies from making imitations of their original products and getting a share of the businesses’ target market that is a typical scenario in the toy industry. Firms that duplicate copyrights may get sued by owners of the copyrighted item. The patent and copyright cases are normally very long and expensive too. Examples of such cases include; the 2008 case where Mattel sued their former toy designer Carter Bryant for selling a doll design known as Bratz to their rival company MGA. In another case, Hasbro filed a lawsuit to stop Buzz Bee Toys Company and Lanyard Toys Company from infringing on Nerf and Super Soaker patents. Retailers found to be knowingly stocking copyright infringed goods can also subject to the lawsuits (Cumming, 2014).
Substitute Products
As the prices of high-tech electronic gadgets such as phones and tablets continue to decrease, younger and younger children learn to use them. Most of the devices offer games and other forms of entertainment at little or no cost causing the kids to pay less attention to traditional toys and games. To compete with such devices, toy companies have to design and produce new high-tech toys to capture and fascinate the kids. The cost of inventing and manufacturing such toys is significantly higher. This results in slimmer profit margins with toy retailers being forced to sell much more units to realize a profit.
Toys R Us Internal Strength and Weaknesses
Understanding an organization’s internal strength and weakness gives the organization the ability to try and turn the identified weaknesses into strength. The main purpose of understanding these two categories an enterprise is to retain customers, recruit new customers and extend the company’s products to new customer segments.
Strengths
Toys R Us has over 1,500 stores worldwide and an extensive distribution network with advanced administrative systems. Although toys are the primary business of the company, the store also has 200 Babies R Us outlets that sell babies’ products. This provides the company’s stores with huge shelf space gives the retailer high bargaining power regarding purchasing prices from the manufacturer.
The corporation also ventured into the e-commerce business with its websites Toyrus.com and Babiesrus.com. Toysrus.com ranked number 29th on the Internet retailer top 500 list. In 2010, Internet sales improved from 5.6% to 7.2% yet stores sales declined by 1.7% (Brohan, 2012). This made the company purchase other e-commerce companies that include; eToys.com, BabyUniverse.com, and FAO.com. The CEO of the company expects online sales to reach $1.6 billion a year by 2017.
Weaknesses
The company does not have any sustainable competitive advantage and has lost its number one spot as toy retailer to Wal-Mart in the U.S which is its stronghold. Being large does not give the store any benefit over competitors, especially when the rival also stocks similar or more variety of the goods found at the store and at a lower price.
The company also largely depends on seasonal sales especially during the last quarter of the year. This is not unique to the retailer alone but to all retailers in Western society. This is because toys are a popular Christmas present and the store makes much of its profit during this time.
Toys R Us Competitive Position
The size of the toy industry has expanded tremendously with an estimated net size of $84 billion in the year 2012, with the U.S market contributing $20 billion. Toys R Us enjoys 20.8% of the U.S market that is second after Wall-Mart that has 22.5% of the country’s toy market share. The toy sales contribute to 61% of the overall company’s revenue (Muller, 2014).
Graph showing percentage market shares of biggest U.S Toy Retailers. Retrieved from http://static.cdn-seekingalpha.com/uploads/2014/4/435974_13989005332501_3.png
On the online toy sales category, the company beat is Amazon. Amazon has on average about twice as much variety of toy selections as Toys R Us. Also, Amazon prices were found to be much lower than Toy R Us on two separate occasions. It was only recently that Toy R Us prices were found to be more competitive than Amazon’s after the company reviewed its prices.
Graph showing the variety of toys available in Amazon and Toys R Us. Retrieved from http://static.cdn-seekingalpha.com/uploads/2014/4/435974_13989005332501_4.png
Graph comparing best selling toy prices between Amazon and Toys R Us. Retrieved from http://static.cdn-seekingalpha.com/uploads/2014/4/435974_13989005332501_5.png
The company can regain its previous top position as the best toy retailer in the United States by adding more toy varieties in its stores and adjusting its prices so as to be more competitive with other toy retailers.
Structure of the Organization and Effects on Performance
. The company is headed by a CEO, who is responsible for making all decisions regarding the company’s operation and oversees all department of the corporation. The CEO is then followed by executive vice-presidents, each heading a different department and tasked with various responsibilities. The Chief Financial Officer runs the finance and treasury department and is in charge of all financial transactions in the company. The General Counsel VP handles all legal issues affecting the business and provides legal counsel. The Human Resource VP takes care of all employee issue such as hiring and firing. The Operations VP ensures that the company is run efficiently and monitors all logistics, distribution and supply chain activities.
This type of structure improves organizational performance since there is specialization and division of labor with every person assigned to their area of expertise. This ensures that each and every department is under close supervision by able people who can make prompt decisions to solve problems as they arise. Decision making is also made easier since consultations can be done with the departmental heads who have a better understanding of their section before conclusion are made.
Conclusions
Toys R Us is one of the leading retailer stores in the world and deals with toys, video games and baby products. The biggest contributor to the company’s revenue is toy sales and was once was the top-most toy seller in the United States that is its biggest market. However, various external and internal factors made it lose its position to Wall-Mart. However, with the strategies such as stocking and pricing, the company can become competitive once again and retain its top spot in the market.
References
About us - toys‘R’us corporate. Retrieved February 3, 2016, from http://www.toysrusinc.com/about-us/
Brohan, M. (2012, March 22). Toys ‘R’ Us hits $1 billion in annual web sales. Retrieved February 4, 2016, from Internet Retailer, https://www.internetretailer.com/2012/03/22/toys-r-us-hits-1-billion-annual-web-sales
Cumming, R. (2014, January 3). Can retailers avoid liability for selling copyright infringing goods?. Retrieved February 4, 2016, from Word Press, https://robertwcumming.wordpress.com/2014/01/03/can-retailers-avoid-liability-for-selling-copyright-infringing-goods/
Kaiser Family Foundation. (2010, January). Generation M2: Media in the lives of 8- to 18-Year-Olds. Retrieved from http://kff.org/other/event/generation-m2-media-in-the-lives-of/
Muller, L. (2014, April 30). Toys ‘R’ Us Has Major Problems. Retrieved February 3, 2016, from Nasdaq, http://www.nasdaq.com/article/toys-r-us-has-major-problems-cm349057
Wahba, P. (2011). China to remain world’s toymaker despite costs. Retrieved February 4, 2016, from Reuters, http://www.reuters.com/article/us-retail-summit-china-idUSTRE75S4BO20110629
