March 17, 2018

How Toys 'R' Us went from big kid on the block to bust

For years, Toys "R" Us was an American success story.

Now the discount toy retailer is in its final chapter. The company filed for bankruptcy in September. On Wednesday, Toys "R" Us told employees that it would close or sell all its stores in the United States.

It's an ignominious end for the company that was once the toy industry's powerhouse. In the second half of the 20th century, just after the Baby Boom, Toys "R" Us grew into a dominant retail chain thanks to its low prices and a knack for keeping the nation's hottest toys in stock.

"Toys 'R' Us, Big Kid on the Block, Won't Stop Growing," a Wall Street Journal headline blared in 1988.

It all started in 1948, when Charles Lazarus, age 25, opened a baby furniture store called Children's Bargain Town in Washington, D.C. He knew Americans returning from World War II were starting families and needed somewhere to stock up on nursery decor.

But before long, Lazarus discovered that the real money was not in cribs, but in toys.

Toys break, or go out of fashion - which means parents need to go to the store more often, Toys "R" Us explains in its online company history.

In 1957, Lazarus opened his first store stocked only with toys. It was modeled after a supermarket, with items stocked high on shelves and a wide assortment of choices. He named it Toys "R" Us - with a backwards "R" in the logo that was supposed to look it it was drawn by a kid.

The mainstays of the iconic Toys "R" Us marketing campaigns emerged over the next two decade. Dr. G. Raffe, which had been used to advertise Children's Bargain Town, became "Geoffrey."

In a Washington Post ad from 1970, an eager Geoffrey touted "super giraffic selections" inside "super giraffic stores!" Geoffrey made his first TV appearance in 1973. The "I don't want to grow up" jingle made its debut in the early 1980s.

In the meantime, Toys "R" Us was booming.

The company went public in 1978 after the bankruptcy of onetime parent Interstate Stores. It quickly became a Wall Street favorite. In 1980, the Los Angeles Times called Toys 'R' Us "one of the New York Stock Exchange's hottest stocks."

"What we are is a supermarket for toys," Lazarus told the Washington Post in 1981. "We don't have a competitor in variety. There is none."

The Washington Post story favorably compared Toys "R" Us to another American giant: McDonald's.

"Like McDonald's, with its regimented service and standardized burgers and fries, Toys 'R' Us has become an American institution," the article said.

Toys 'R' Us was also known in the corporate world for its sophisticated use of computers.

"One thing that sets the Toys 'R' Us operation apart is that Mr. Lazarus knows precisely what his customers are buying," a 1985 Wall Street Journal article said. "Each product is tracked by computer, and that helps the chain spot hot-selling items weeks before most competitors do."

Lazarus also kept his stores stocked with a variety of baby products, like diapers and formula, so shoppers would have a reason to shop year-round.

Things started to go awry in the 1990s. In 1994, Lazarus stepped down as CEO. But the biggest change came when Walmart started offering lower prices on diapers, according to toy industry analyst Jim Silver.

While Toys "R" Us remained a destination during the holidays, it lost regular shoppers during the rest of the year.

"That changed everything," Silver said.

In 2001, Toys "R" Us opened a flagship store in Times Square, complete with a 60-foot Ferris wheel and a life-size Barbie dollhouse, in order to juice enthusiasm. But the costs were "astronomical," Silver said.

On shaky ground, Toys "R" Us was taken private by a group of private equity firms in 2005. Bain Capital, Kohlberg Kravis Roberts & Co. and Vornado Realty Trust bought the company for $6.6 billion.

Saddled with debt, the store was not able to pour enough money into necessary, innovative changes. By the time Amazon ruled the online shopping ecosystem, Toys "R" Us was lightyears behind - despite an early partnership with Amazon in 2000. The agreement to jointly sell toys online ultimately went sour and ended after a court fight.

"Walmart had a better online experience. Target had a better online experience," Silver said. "They lost online and they didn't adapt."

In 2015, Toys "R" Us closed its Times Square mega-store. It was the beginning of the end.

A dismal 2017 holiday season was the death knell. Toys "R" Us will run out of cash in the United States in May 2018, according to a recent bankruptcy filing.

"Everything is up for sale," Toys "R" Us CEO David Brandon told employees on a conference call earlier this week.

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