Implementation, Strategic Controls, and Contingency Plans
Introduction
In 2014, a reduction in the demand for baby toys and video games that are the primary products in Toys R Us stores led to a 4.1% decline in the holiday quarter sales of our outlets. The company had also recorded sales worth $12.5 billion in 2013 that was equivalent to a 7.4% drop in sales from the previous year and was the least amount of sales since 2009. Profits had been on a downward spiral each of the prior three years from 2013. Discounts on unsold merchandise to clear the stock had contributed to a $1.04 billion loss. However, 98% of the stores in the United States and 94% of our stores are profitable (Cheng). This means that the operating costs of the business are higher than the profits. This disappointing performance of the retail store caused me to hold a meeting with the major stakeholders of the company to diagnose the performance.
Various external factors such as a decline in the birth rates in the United States that is our biggest market, stagnation of the toy sale industry, and increased online expenditure by consumers were cited as the primary reason affecting the company. However, we can have little or no effect on the external factors, hence; it is better to focus on the internal factors. The internal factors affecting our retail stores include the availability of fewer toy varieties compared to our competitors, high pricing, difficulty in navigating both online and physical stores, slow check-out, and stressing return policies.
My main plan was to increase revenue, by reducing costs and increasing sales. An increase in sales could be achieved by improving customer satisfaction through better shopping experience in both online and in stores easy, fun and fair. This could be done by making customers the focal point of all business operations at our Toys R Us stores. The unique needs of our buyers who are mostly new and expectant parents and gift-givers should be catered for at all cost.
Implementation Plan
Opportunities to cut cost were identified, although the closing of stores could not be an option at first since as we had seen earlier, over 95% of our stores both here in the United States and abroad are profitable. An update of our mobile apps and websites was done to make them easier to use and increase their speeds. Training of employees was increased with additional labor provided to critical areas of our stores. The growth of United States stores and focus on putting Toys R Us and Babies R Us side by side were no longer a priority. We used our customer loyalty program to send customized and targeted messages to the over 29 million Toys R Us reward members and 18 million Babies R Us registered members (Gomez). We integrated online and in-store sales to allow us to ship online orders from stores. Simple pricing and sale signs were used to fix the price perception that typically confuses many customers.
Objectives
The strategy in place had five objectives that it aimed to satisfy. The first goal was continued transformation of in-store and online customer services. This was done through maintenance and improvements of both interior and exterior improvements of all stores. These improvements included proper lighting and arrangement of the stores to ease movement and accessibility of products.
The optimization of our e-commerce business was also a major priority because 57% of all Toys R Us visits are online (Cheng). An advancement of our mobile network capabilities, enhanced better service delivery to the needs of our online customers.
We strived to grow the franchise internationally, especially in Southeast Asia and China. This would allow us to leverage our scale and global presence to deliver coordinated and strategic approaches that will drive category leadership and differentiation.
The use of process and operating model improvements to search for ways to substantial reduce the cost and working capital, and come up with the most efficient and streamlined organization were employed.
Our final objective as an organization was to ensure that the company does not make any losses so as to avoid any short-term debts. This is because we just finished financing a $1.4 billion debt with the next expected debt repayment due next year.
Functional Tactics
We employed various tactics in the quest to achieve the set objectives and ensure that the company’s strategic plan worked. To strengthen our position in the specialty of product diversification and service offering, we will focus more on the Babies R Us stores. Consumer insights coupled with our loyalty program will concentrate on driving all year-round visits by customers increasing services and sales.
The integration of in-store and online purchases significantly improved Toys R Us omnichannel capabilities. Functionalities like pick from store and ship from the store were added to the regular store operations especially during peak seasons. This enabled us to save distribution costs and even shut down the Nevada distribution center.
The operations, accounting and fixed assets functions of all the retail stores the United States and Canada to third party were outsourced to a third party. This made the company save the costs of hiring accountants at all the outlets in North America and also realize process improvements.
The stores in Europe were put under one central European Management Board rather than the usual decentralized leadership structure with each country having its leadership structure. The different countries had management boards to deal with the local issues of their respective markets and reported to the European Management Board. The European Management Board that was in charge of the overall business operations in the entire continent; this will increase harmonization and efficiency in across the stores in Europe.
Action Items
I analyzed all the stores in the United States and found new unexplored markets where new stores could be opened that could translate to the company making a profit. I found ten stores in America whose performances had been just above average with their leases about to expire. The China and Southeast Asia markets also had a lot of untapped potentials because most toy retailers had not ventured into this region. I closed down the average performing stores In America whose leases were about to expire and opened a few stores in the untapped Asian markets.
Milestones and Deadlines
The decision to cut operational costs and develop a more streamlined organization across all the Toys R Us stores worldwide is known as the Fit for Growth initiative. The initiative identified ways to save between $150 - 200 million in the United States and a further $50 – 75 million in the stores abroad. Successful implementation of Fit for Growth initiative is meant to achieve these cost savings by the end of the 2016 fiscal year (Gomez).
Tasks and Tasks Ownership
Different tasks were assigned to different people for efficient implementation of the strategic plan. New management boards were formed and assigned the duties of the daily routine running of the stores in their respective countries in Europe. A European Management Board was also established to lead the business operations of the whole European continent. The management boards of the country report to the European Management Board. The president of Toys R Us domestic business had the responsibility of developing simpler prices and sale signs that would not confuse customers. The accounting operations and all fixed assets functions of all stores in America were also outsourced to a third party provider of the services.
Resource Allocation
Most resources were directed to improving the in-stores and online services, improving customer satisfaction, the opening of new stores in Southeast Asia and China, and the popularization of Babies R Us stores.
The mobile platform and the Toy R Us websites were updated to increase their speeds and shopping experience provided to the customer. More money was spent to increase the personalized offers and frequency of events available to the over 47 million loyal members. The stores also were renovated to make them more appealing to customers. We also intended to focus more on the Babies R Us stores to allow for diversification of the standard products that contribute the majority of the store sales. For this to happen, all Babies R Us employees underwent training to learn more about the products to be able to answer customer’s questions. Finally, I dedicated vast amounts of resources to open new stores to serve the Asian market.
Organizational Change Management Strategies
I let go of 500 employees worldwide from our organization with 100 of them from the headquarters in New Jersey (Gomez). As we saw earlier, the accounting services of all the stores in North America were outsourced to a third party. The management of stores in Europe was also changed from the normal decentralized nation-to-nation leadership to the centralized type of leadership with one management board running the whole continent. New and more qualified leaders were also hired to replace the old Vice President Chief Supply Chain Officer, Vice President Human Resource, and Vice President Store Operations (Toys R Us).
Key Success Factors, Budget and Forecasted Financials
The end of the 2015 fiscal year saw the Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) improve by $ 43 million that was more than double the previous year. The cost cutting measures and streamlined organization resulted in a significant reduction in the Selling, General, and Administrative expenses. The domestic operation earnings improved by $ 61 million dollars that was a $ 40 million dollar increase. The international stores net sales grew for the fifth consecutive quarter with particular strength being observed in the Southeast Asia and China stores.
$ 43 million were invested to enhance our Information Technology, maintain stores, and improve distribution centers in the first quarter of the 2015 fiscal year compared to $ 39 the previous year period. We expect an increase of $75 million realized from the restructuring efforts that will lead to further spending cuts (Toys R Us).
Risk Management Plan
The company faces a lot of risks and uncertainties because of the seasonality associated with the business, general economic factors in the United States and other countries where the company has stores, competition in the industry and other external factors. Since the company cannot control external factors that affect it, it is only reasonable that the company tries to predict the future changes and make proper changes when they occur to survive through the period.
Conclusion
Toy R Us went through tough times due to various external and internal factors that lead to the company recording losses year after year. Since the company could not control the external factors, we chose to focus on the internal factors. A diagnosis done by the company showed that the most of the most of the company’s retail stores were still profitable although the company recorded losses. This meant that the company’s operating costs were too high and needed to be cut. We came up with a strategy that would reduce costs, focus on customers, change some leaders and leadership structures, and explore untapped markets with potential for making profits. The implementation of the strategy went well with all our objectives being met and has translated in the company slowly returning to profit making.
Works cited
Cheng, Andria. “New toys ‘R’ us CEO’s strategy to reverse declining sales: ‘Be realistic’.” Market Watch. Marketwatch, 26 Mar. 2014. Web. 18 Feb. 2016.
Gomez, Vivian. “Toys’R’Us outlines TRU transformation strategy.” Retailing Today. 26 Mar. 2014. Web. 18 Feb. 2016.
Toys R Us. “TOYS“R”US, INC. REPORTS RESULTS FOR FIRST QUARTER 2015 - press releases - toys“R”us corporate.” Toysrusinc. 2015. Web. 18 Feb. 2016.
Toys R Us. “TOYS“R”US, INC. STRENGTHENS LEADERSHIP TEAM TO DRIVE “TRU TRANSFORMATION” STRATEGY - press releases - toys“R”us corporate.” Toysrusinc. 2014. Web. 18 Feb. 2016.
