This was a big week for Toys R Us. Jerry Storch, CEO of the company, defended big box retailing; the company announced a new hot toy reservation policy and it debuted its new “tabeo” tablet for children. All of these deserve closer examination so this week I am going to take a look at each of these events in three separate postings. Let’s start with Jerry Storch’s defense of big box retailing.
The first thing to note is that Mr. Storch felt compelled to defend big box retailing. That in itself demonstrates the impact that ecommerce has had on the perception of bricks and mortar commerce as a business model in decline. A MarketWatch article, “Toys “R” Us defends its big-box position,” quotes Storch as saying “’I’m frustrated’ when people said the Internet is going to write off the need for big-box retailers such as Toys “R” Us and that the future belongs to the Internet space only’, he said. “Internet changes everything, but it doesn’t replace everything,’ he added.”
Is he right; I think he is about Toys R Us specifically but not about big box retailing in general. The latter is in big trouble.
Remember, the Internet has to take just enough of a chain’s business so that it can no longer support its costs. A 100,000 square foot store needs to generate a certain amount of revenue and profit to justify its size. What it declines below that figure the store needs to either reduce its size or close.
Amazon and other ecommerce providers are steadily eating away at the brick and mortar market share and there is more bad news on the horizon. As I have noted in earlier articles, this rising generation of adults has lost its romance for the road. Teens put off getting drivers licenses and adults in their 20’s and 30’s drive less than their older motorists. In fact, according to a New York Times article by Amy Chozick, “As Young Lose Interest in Cars, G.M. Turns to MTV for Help;” “forty-six percent of drivers aged 18 to 24 said they would choose Internet access over owning a car…” (See “General Motors, MTV and the Drive to Get More Kids to Drive”).
Bottom line: Those who don’t drive don’t go to bricks and mortar retailers. Why do that when they can order from the comfort of their own home?
Wal-Mart, Kmart and many other big box chains are particularly vulnerable as much of what they
Toys R Us, on the other hand, has a broad array of products, many of which are going to be a surprise to those who visit the stores. Why, because many of these companies do not have the resources to promote them through television and other mass market media.
I would love to see Toys R Us continue to expand its selection to include an even broader array of products. By offering the consumer the experience of seeing a toy or gadget they never expected to see Toys R Us will have made the trip worthwhile. Provide a big enough selection and they will offer the consumers the greatest feeling of all, that sense of anticipation that comes when one thinks to themselves, “I am about to see something that I don’t expect.” Believe me; you don’t get that feeling at Wal-Mart.
In my next article, we look at “tabeo.”