Business commenters generally blame massive debt pushing Toys R Us into bankruptcy, but the real reason, or at least a major reason, for toy retailer’s bankruptcy was its inability to transition to digital marketing. Toys R Us, as you probably know, is filing for bankruptcy protection. Its stores will remain open as it restructures its finances.
The chain committed the cardinal marketing error of misunderstanding how its target audience – in its case mothers of young children – shops. Plenty of research shows that younger mons like to research products and shop online, often on their smartphones.
A quarter of U.S. millennial moms do half or more of their shopping online, according to the BabyCenter. They want a smooth shopping process, whether it’s in-store or online.
“Toys R Us has lost out in the digital space,” Neil Saunders, managing director at research firm GlobalData Retail, wrote in a note to clients, according to Business Insider. The retailer’s website and ecommerce experience were below average and fell short of customer expectations. Its physical stores drained its resources.
“Toys R Us has large, expensive stores,” Saunders wrote. “These are increasingly unsuited to what consumers want and expect, and they are steadily becoming less productive and efficient.”
Too Far Behind Online to Catch up Quickly
The company realized it needed to emphasize digital marketing ecommerce. It updated its website this summer, but it was too late to catch up to retailers with well-established ecommerce platforms like Amazon, Walmart and Target.
“The website really represents the front door of our brand,” Lance Wills, Toys R Us’ first global chief technology officer, told USA Today earlier this year. “In a year to two years, we have to catch up on 10 years of innovation and that’s no small feat.” More than 60 percent of the company’s customers visit its website before deciding to go to one of its physical stores, Wills said.
Toys R Us also hired a new chief marketing officer, Carla Hassan, previously with PepsiCo, this summer.
“It seems like a big change, but it’s not really — I’ve been around kids and parents my entire career,” Hassan said about her new job in an Ad Age interview. Hassan talked about how the store planned to use data to drive growth and inspire creativity.
“If you’re a marketer today and not thinking about how to make those marketing dollars work differently for you from a content, partnership and media perspective, I don’t know how you survive,” she said.
End of the Big Box Era
Toys R Us could not keep up with the rapidly changing retail landscape, writes consultant Greg Satell in the Harvard Business Review. It thrived in an era of big box retailers that offered massive selection and low prices. “Cash registers were plentiful and easy to find, and success was measured with metrics like sales per square foot and average size of transaction,” Satell writes. Today, massive selections and instant purchases are available online.
Physical retail stores will change but won’t disappear. They’ll also serve as pick-up stations for products ordered online. They’ll offer limited selection of products and few sales. Well-trained staff (actual human beings) will showcase products, answer customer questions and offer advice, he says. Apple stores offer the prime example of the new retail model.
Bottom Line: Toys R Us was slow to embrace digital marketing and ecommerce, a sluggishness that contributed to its bankruptcy. The company’s troubles demonstrate what can happen when marketing practices don’t keep pace with consumers’ changing shopping habits. The brand may still survive, however. It’s now emphasizing digital marketing and ecommerce and has brought in a new CMO.