The Rise and Fall of Toys R Us

Toys R Us, the company that has been in the news a lot lately for its shocking Chapter 11 filing and subsequent closures — but how shocking was it, really? In this article, I take a look at the history of TRU and what went wrong…

Charles Lazarus and The Baby Boom

The story of Toys R Us begins in 1948, when a man named Charles Lazarus, who served in World War II as an Army cryptographer, returned home to Washington: where he decided to get involved in his father’s bike shop. Accurately anticipating a postwar baby boom, Lazarus started selling cribs and cradles out of the shop — eventually completely changing their business model and taking over the entire store, which would be renamed to “Children’s Bargain Town”, flipping the middle ‘R’ to appeal to the family model (As we all know, this became an iconic symbol.) [1]

Toys ARE Us

Lazarus said in an interview that, “The toy business was kind of an accident,” he continues, “I started out selling a few baby toys and realized that customers didn’t buy another crib or another highchair or playpen as their family grew, but they did buy toys for each child.” [1] The store would be incorporated into Children’s Supermarket Inc, under which Lazarus would open a new store that sold toys only, which would open in Rockville, MD in 1957. The store would be named Toys R Us, which originated as a slogan for Bargain Town — keeping the signature childlike backward ‘R’, which kept the name neat, memorable, and short enough to fit on most signs. [1] The Toys R Us supermarket-inspired, big-box model, which featured long aisles and a large variety of products, would fit well into the economic boom that saw large commercial developments from the first indoor-shopping-malls to the superstore craze, with Target’s and Walmart’s cropping up around America in the following decade.

Interstate and The Late ’60s

By 1966, he had four DC-area Toys R Us units and profits into $12 million. However, perhaps expecting that the profits he saw were only temporary, Lazarus figured it was smart to sell off assets while the company was still doing well and sold Children’s Supermarket to the Interstate department store chain for $7.5 million the next year. [1] However, he stayed on with the company after the buyout to run the Toys R Us division. Interstate was known at the time for brands such as the Midwestern and eastern-based Topps Discount City, and the west coast White Front chain. [2]

The 1970s

Interstate would expand its operations aggressively, and Toys R Us would more than double in size, with 11 Toys R Us stores in DC, Baltimore, as well as Los Angeles. They would buy out another toy chain which was, oddly enough, also named Children’s Bargain Town, founded by Larry Hochberg in Chicago the same year that Toys R Us launched. Interstate would open 10 of these stores in the Chicago, Milwaukee, and Detroit areas. [2] “The expansion drive that proved to be beneficial for the toy store divisions turned out to be disastrous for Interstate’s discount stores…” Topps in particular. “…the overexpanded condition of those chains, hit and miss merchandising, the wobbly early ’70s economy and the overwhelming competitive presence of Kmart in their key markets forced Interstate into bankruptcy in May 1974.” [2]

Lazarus would step up as President and CEO of Interstate and would have all discount divisions scrapped altogether and the entire company re-branded to Toys R Us, Inc. The toy market became their only focus, and over the next 20 years, Toys R Us would grow at a rate of nearly 20 percent each year. [1] Toys R Us would go public in 1978.

Market Dominance

Toys R Us did toys like no one else did, elbowing out competition from big box stores in whatever areas they entered. Other chains like Kay-Bee Toys, Children’s Palace, and Circus World didn’t stand a chance. They had everything. When video games came along, Toys R Us carried all the consoles. Their iconic giraffe mascot Geoffrey, memorable “Toys R Us Kid” commercials, and early animated ads became iconic to American airwaves. They innovated in many ways that other companies wouldn’t even think of. Matched with their market presence and fair priced expansive selection of products, Toys R Us became a classic example of a category killer. Brand exclusivity came with this, with companies like Mattel coming to Toys R Us before most other chains when a new product would emerge.

The 1980s

Through the ’70s and ’80s, Toys R Us would see massive growth. They would open their first overseas store outside of London, which was a major success, and they would open another in Frankfurt, Germany, and throughout Europe until Toys R Us had a strong international presence as well as a growing fleet back home. [3] Lazarus applied the toy strategy to clothing and launched Kids R Us in 1983. By 1989, Toys R Us had 350 units, with 55 in other countries, and generated $4 billion in sales and a quarter of a billion in profits. Lazarus understood how to control size, and Toys R Us was one of those companies that were always well-prepared when expanding — that same year, they were getting ready to open 5 new units in France with a warehouse that was well equipped to supply 20. [3] Lazarus had since become the country’s best-paid executive and earned more than $60 million that year. [1]

Babies R Us and Trouble in Paradise

In 1994, Charles Lazarus would step down as President and CEO and, later, Chairman as well. He would be succeeded by Michael Goldstein and, in 1996, the company would launch Babies R Us, which carried baby products such as diapers, cribs, and car seats. In 1998, Wal-Mart would surpass Toys R Us as the largest toy seller in the United States, after which, Goldstein would resign — which would set off a long chain of management changes over the next 20 years. Wal-Mart would continue to attract shoppers from the company with their competitive discount pricing and, over the next decade, the rise of online retailing and changing taste would lessen the company’s market share as well. 1998 would also mark Amazon going public.

Amazon “R” Us

Christmas 1999 would show how dated company operations had become, with orders through ToysRUs.com becoming so backed up that they had failed to get intended gifts to customers by the shipping date and would receive a $350,000 fine from the FTC. Toys R Us took a long time to take online retail seriously. A year later, this would result in a 10-year-long agreement where they would allow Amazon to sell their toys online, with the ToysRUs.com web-domain redirecting to Amazon.com. Under the terms, Toys R Us would stock some of its most popular toys on Amazon’s site, in exchange that they would be Amazon’s exclusive toy and baby product seller. They would pay Amazon $50 million a year as well as a percentage of the Amazon sales, however, Amazon would state that they had quote, “…effectively ceded control of the toy and baby stores to [Toys R Us]…” By spring 2003, other companies began selling toy and baby products on Amazon’s site, with CEO Jeff Bezos stepping up to meet with Toys R Us executives on the need for more variety of products provided.

When more competitor products and ads began to appear on the site, breaking their contract, Toys R Us sued Amazon…and would come out on top — the courts would allow them to terminate the 10-year contract and Amazon would later pay $51 million in the settlement, but this mishap would leave Toys R Us damaged financially and way behind in the dot-com world — and the brand exclusivity that had characterized Toys R Us’ relationship with the toy industry, would leave them for Amazon and other companies that were staying relevant.

The 21st Century and the Vornado Consortium

This same year, Toys R Us had opened its Times Square store, with a three-story Ferris wheel and awesome 20-foot high animatronic T-Rex. The CEO at this time was John Eyler, who held the same position at FAO Schwartz for 8 years, and with the May Company before that. [8] He was launching a plan to remodel and re-launch Toys R Us, in an attempt to regain business from Wal-Mart. While Eyler efficiently reordered the company, the plan wasn’t working. Wal-Mart could order what Toys R Us did and offered it at a much cheaper price, even if it meant they lost money. Toys R Us would start to slash prices and would close Kids R Us after its 20-year existence, which had continually lost money during the last three years, some being converted to Babies R Us. With these closures, three distribution centers joined the list. At this time, they had 1,629 stores and 65,000 employees. [4]

On March 17, 2005, a consortium led by companies that included Vornado Realty announced a $6.6 billion leveraged buyout of the company, privatizing it. [5] The plan was to boost sales and position the company to let investors cash out with a stock offering. This failed horribly and the Toys R Us stores became increasingly dated. At this time, they would buy out KB Toys and FAO Schwartz, as well as Etoys.com and Toys.com.

Toys R Us began to dial back items the stores would carry and lowered prices even further to undercut the competition, and these decisions ended up digging an even deeper hole. [6] In fact, Babies R Us had become the backbone of the company, while revenue from the other stores declined.

“I Don’t Wanna Grow Up…”

After the unsuccessful buyout, the company was left with a debt of $5.6 billion, secured by assets, and the chain would never really recover. Much of the chain’s resources were devoted to paying off that massive debt load rather than staying competitive and investing in their own stores. Of course, the rise of their former partner Amazon didn’t help — the site offered cheaper prices and quick shipping. Dave Brandon would step up as the fourth CEO in the last 16 years and would attempt to turn the company around again, closing the Times Square flagship store and the Fifth Avenue FAO Schwartz store, before the company would be bought from Toys R Us by ThreeSixty Brands.

In 2017, they would hire a law firm that would help them restructure the company, however, they would file for Chapter 11 bankruptcy. Toys R Us had 1,697 stores, more than they ever had in their history, with 105 in the UK. After dragging their feet with the refusal to close stores so long, they revealed that they still had a debt of around $5 billion, and they were spending $400 million a year just to service that debt. [7]

In 2018, they announced plans to shutter 182 US stores. In the UK, the company did much of the same and announced the closure of its last 75 stores in the country. Then, in March, Toys R Us announced the closure of all US operations. Australia would follow, and operations in countries like Canada and parts of Europe would be eventually sold off to third-parties. The company would continue to operate simply to license the brand. Ironically the big-box culture they helped to create ended up being their killer.

TRU Kids and What’s on the Horizon

Lenders joined up with former executives and employees to re-brand and relaunch Toys R Us under the name TRU Kids, of which there were 2 locations open in the US. They closed during the COVID-19 pandemic. While a full Toys R Us return won’t realistically ever happen, we may just see that iconic “R” back in retail soon.

Citations

[1] Harrison Smith, Ellie Silverman. “Charles Lazarus, Who Turned a Washington Bike Business into Toys R Us, Dies at 94.” The Washington Post, WP Company, 22 Mar. 2018, www.washingtonpost.com/local/obituaries/charles-lazarus-founder-of-toys-r-us-dies-at-94/2018/03/22/26d797ec-2e06-11e8-8688-e053ba58f1e4_story.html.

[2] “Bargain Town Is Now Toys ‘R’ Us!” Bargain Town Is Now Toys “R” Us!, http://pleasantfamilyshopping.blogspot.com/2008/06/bargain-town-is-now-toys-r-us.html.

[3] Toys R Us Special: Sunday Today – NBC: https://www.youtube.com/watch?v=Zkkjt0Rz7xg

[4] “Toys R Us to Close Apparel Chain.” Los Angeles Times, Los Angeles Times, 18 Nov. 2003, www.latimes.com/archives/la-xpm-2003-nov-18-fi-toys18-story.html

[5] Bhatnagar, Parija (March 17, 2005). “Group to buy Toys ‘R’ Us for $6.6B”. CNN Money. Retrieved March 16, 2018.

[6] Blakemore, Erin. “Inside the Rise and Fall of Toys ‘R’ Us.” History.com, A&E Television Networks, 19 Mar. 2018, www.history.com/news/toys-r-us-closing-legacy.

[7] “Amazon Didn’t Kill Toys ‘R’ Us. Here’s What Did.” CNNMoney, Cable News Network, money.cnn.com/2018/03/15/news/companies/toys-r-us-closing-blame/index.html.

[8] Verdon, Joan. “Toys R Us Timeline: History of the Nation’s Top Toy Chain.” USA Today, Gannett Satellite Information Network, 15 Mar. 2018, www.usatoday.com/story/money/business/2018/03/09/toys-r-us-timeline-history-nations-top-toy-chain/409230002/.

[9] “John H. Eyler Jr. 1948–.” Reference for Business, www.referenceforbusiness.com/biography/A-E/Eyler-John-H-Jr-1948.html.

[10] Griswold, Alison. “A Dot-Com Era Deal with Amazon Marked the Beginning of the End for Toys R Us.” Quartz, Quartz, 19 Sept. 2017, qz.com/1080389/a-dot-com-era-deal-with-amazon-marked-the-beginning-of-the-end-for-toys-r-us/.

Alex Nuelle, 2020

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