What are the apostrophes around the R supposed to signify? The company doesn't do that.
Posted on 11/30/2003 3:53:43 PM PST by Pikamax
Monday, Dec. 08, 2003 Will Wal-Mart Steal Christmas? As the retail king slashes prices on toys, its rivals are dreaming up new ways to compete By DAREN FONDA They may not realize it, but the good folks of Fond du Lac, Wis., are participating in a high-stakes shopping experiment courtesy of Toys "R" Us. The $11 billion toy chain selected this lakeside resort town surrounded by dairy farms to test a radical departure from its traditional Toys "R" Us stores, which typically feature row upon row of shelves crammed with toys and little else. The new shop, Geoffrey, named for the company's mascot giraffe, is a multihued, airy warehouse that's part playpen, part kids' mall and part toy store. Accompanied by the sound of peppy music, children carouse on the store's indoor jungle gym, do arts and crafts in a supervised area and play free video and arcade games. The store also sells toys, apparel and baby furniture, hosts parties, offers haircuts, takes kids' photos and runs summer activities like water-pistol fights.
Geoffrey may seem like an extravagant, larky enterprise dreamed up by Willy Wonka, but Toys "R" Us badly needs it to work if the firm is to break out of its deep slump. Wal-Mart and other big discount chains like Target have eroded the company's sales in recent years, and now it looks as if Wal-Mart is circling for the kill, escalating a price war that may eat up whatever profit margin Toys "R" Us has left. Despite rising consumer confidence and blistering U.S. economic growth of 8.2% in the third quarter, analysts expect sales at Toys "R" Us to drop from $7 billion in 2000 to $6.5 billion this year. And the company dealt investors a yuletide lump of coal when it announced that it had lost $38 million in the third quarter and was closing all its 146 Kids "R" Us stores plus 36 Imaginarium smart-toy stores, both of which were bleeding cash. Toys "R" Us stock now hovers around $11.75, down from a peak of nearly $43 in 1993.
Should Geoffrey catch on, it would bolster the conviction of Toys "R" Us CEO John Eyler that it's still possible to combat the low-cost threat posed by Wal-Mart and Target. Geoffrey "is potentially a $1.5 billion business," he says. "The Geoffrey stores are flat-out fun — and it's not clear if going to Wal-Mart or Target is fun." So far, the concept seems to be working. Since Geoffrey opened 14 months ago, Wisconsinites appear to have embraced it, showing up in large numbers and steadily boosting sales, the firm says. Maintenance technician Lonnie Roeder, 34, goes twice a week with his daughter Savanna, 4, mainly to play, although on occasion he buys something. "We come so she can have fun," he says. The company is testing the concept in three other locales — Abilene, Texas; Jacksonville, N.C.; and Meridian, Miss.--and Eyler says he may open four to six more Geoffrey stores next year.
Putting the fun back in toy shopping — not least as a way of enticing customers to stores all year round — is critical if Toys "R" Us is to survive the toy wars, which look particularly brutal this season. In late September, Wal-Mart lobbed an ominous warning shot by discounting a basket of popular toys several weeks earlier than in past years. "We're going to be the low-price leader, and that will include holiday toys," declares Wal-Mart spokeswoman Karen Burk. To its rivals, the depth of its price cuts has come as a shock. The company put the popular Hokey Pokey Elmo on sale at $19.46, 30% less than the list price and reportedly below even the wholesale cost. "Did it catch us by surprise? Yeah," Eyler admits. Still, he adds, since early November "we've been price competitive." That's good news for consumers, the prime beneficiaries of such skirmishing. Target last week reduced the price of its Bratz disco-doll set from $100 to $65, challenging rivals to follow suit. Wal-Mart matched the price, while Toys "R" Us sells the set for $100 in stores and $80 on Amazon.com, its online partner.
As successful mass merchandisers, Wal-Mart and Target can more easily afford a price war than Toys "R" Us and other toy specialists. Wal-Mart's sales of high-margin items like flat-screen TVs can make up for losses on low-margin toys. It's a classic loss-leader attack. Wal-Mart figures that supercheap toys will lure customers to the store, where they might buy pricier items. That puts the squeeze on toy specialists, which must either follow suit and risk losses or try to hold their prices and bet that their superior customer service and selection will enable them to compete.
Some analysts say because Wal-Mart started discounting so early and so deeply, it may already be experiencing shortages. A pre-Thanksgiving survey of several Wal-Mart stores, conducted by investment firm Harris Nesbitt Gerard, showed the retailer has been "chronically out of key items," including Bratz dolls, Hot Wheels TWrecks and Hulk Hands. Toys "R" Us, which has nearly matched Wal-Mart's prices on many of those hot items, has so far remained better stocked, though the crucial test will come in mid-December when last-minute shoppers scramble to find the toy their kid must have.
Longer term, there's little question that Wal-Mart has gained an edge. Its share of the $25 billion traditional toy business has grown from 10.8% in 1993 to 21% today (and some analysts estimate it's more like 25%). Toys "R" Us, KB Toys and smaller toy chains, meanwhile, have either lost share, quit the business or struggled to hold ground. Says analyst Todd Kuhrt of Midwest Research, "It's clear that consumers are voting with their wallets for Wal-Mart and Target."
One potential casualty: FAO Schwarz. The upscale chain, whose flagship Fifth Avenue store in New York City was immortalized by Tom Hanks in Big, has been losing sales to big-box retailers all year, and the chain is said to be facing a cash crunch heading into the holiday season. Parent company FAO Inc. is in default on its lending terms, creditors have signaled that they won't provide more loans, and analysts say the firm may seek bankruptcy protection before Christmas. That would mark a dismal end for FAO Inc., whose holdings include the Zany Brainy and Right Start chains. The firm emerged only in April from a previous stint under bankruptcy protection.
The trouble is FAO's high-end focus no longer appears to be paying off. "FAO's pricing is out of line," carps Ken Kasarjian, who was checking out the goods at a Toys "R" Us store in Manhattan's Times Square last week with his twin 9-year-old sons. But Kasarjian was not particularly impressed with the prices at Toys "R" Us either. For now, he's planning to place some orders online and buy some other toys at Wal-Mart. His shopping habits aren't unusual, and that's troubling for toy retailers, who must compete for business with not just Wal-Mart but also drugstores, discount Web sellers and auction sites like eBay.
Still, Eyler isn't about to admit defeat. Since the former FAO chief executive took the helm in 2000, he has aggressively restructured Toys "R" Us. He shuttered dozens of stores, consolidated support centers and freshened up the company image with a remodeling of 75% of its 680 flagship shops. The firm spent millions to improve customer service. It cut inventory from 14,000 to 9,000 items to focus on more profitable lines. And in a bid to differentiate its wares from Wal-Mart's — whose selection is limited despite expansions of toy shelf space around the holidays — it bolstered its exclusive merchandise and brands, adding lines like Animal Alley stuffed animals and Super Slicks radio-controlled cars. Selling more of its own brands should enable Toys "R" Us to cut costs because it can source the merchandise directly from contract factories in countries like China rather than buy from higher-priced manufacturers like Hasbro. Eyler says exclusive products account for 20% of the firm's merchandise mix, up from just 5% in 2000, and adds, "We will migrate it to 25% in the next few years."
Eyler also deserves credit for expanding in other areas. Revenues at Toys "R" Us shops overseas have risen 28% since 2000 and are expected to hit $2.4 billion this year. Meanwhile, the partnership with Amazon.com is on track to break even for the first time in 2004, after several years of losses. And sales at Babies "R" Us apparel stores are up 61% since 2000, to $1.8 billion.
But the real challenge for the company is to boost profitability in the face of relentless pricing pressure. Profit margins at Toys "R" Us stores fell from 5.7% in 1999 to just 3.2% this year, according to Jefferies & Co. Eyler knows he can't back down by letting the behemoths undercut his prices. "We won't allow [Wal-Mart] to distance itself," he vows. Geoffrey, he hopes, will prove that price isn't everything, that shoppers will warm to the charms of brightly colored jungle gyms and playpens. And he can take comfort in this: you can't find those services at Wal-Mart. Yet.
Several friends have told me that Walmart will never notice my boycott, which I'm sure is true...but it makes me feel better.
Good for you, Amelia. America will be a better place for your decision. ;-)
I put up with awful service for cheap prices but I am not putting up with awful service for high prices.
I suspect it's rather like sticking one's hand in the proverbial bucket and pulling it out again...but it makes me feel better to know they won't get any more of my money.
Tell that to Walmart. They won't honor my gift cards any more.
The big print says they never expire. The fine print says that after 24 months, they take out $1 per month as a "handling fee."
I bought several gift cards in relatively small amounts - $10-$15 - as gifts for the nieces and nephews several years ago. Before I'd given them all away, we moved, twice. It's a long story, but much of our "stuff" stayed in storage longer than we'd anticipated, and the gift cards ended up among the things in storage.
When I found them again, they were worthless, and Walmart refuses to refund the balance that should be on them, even though they have gotten the use of the money on the cards for over three years now.
Yes, your best bet is to just not deal at all with a bunch like this. As we speak, they are probably concocting some new scheme to perpetrate on new victims.
Same here. I don't shout it from the roof tops or try to sway others, but I have made my decision, for my reasons.
Could be, but I won't be one of them! ;-)
With a name like Geoffrey this business is DOA. DUMB DUMB DUMB...
I want everyone to know about their deceptive practices, and that they aren't receptive to their customers.
The thing is, if they'd refunded my gift cards, they'd still have been ahead financially (just not as much) and they'd have built goodwill.
I guess they're big enough now they don't have to worry about goodwill.
Yeah, but you gotta admire them for sticking their neck out! ;)
I remember 20 years ago when my kids were little, and TRU used to be the "discount" store. Now, its not anymore. What's the big difference between them, Target, and Wally's World? They all get toys that are practically 100% made by slave labor in Communist China. You have to go to a mom-and-pop toy store (if you can find one, good luck coming up with one in suburbia) to find toys that are made by people with our values.
I agree, but not just because of the name.
When they were coming up with names for this venture I would hope they ventured outside their own experience. "Geoffrey" seems like an obvious choice, but the while the character was once warm and cuddly - a cartoon rendering - his latest incarnation is a 'realistic' 3D or live action creature that's frankly sort of frightening.
The Geoffrey brand is recognizable but it's blurry in the marketplace. How can they make 'Geoffrey' a destination it's indistinct and leans toward 'scary' (my kids' definition)
Equally troubling in conjunction with this 'icon' is their attempt to run a high-overhead store in an era of cost-cutting.
Sure, it's a great idea and it works in Fondue, Wisconsin, but where I live there's a ton of more 'legitimate' culture than there is in that BFE town.
I'd give it two weeks here.
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