Why did Toys R Us fail?

Funded in 1948 the giant private retailer with more than 1600 stores worldwide & over 64,000 employees, the iconic American retailer ,Toys R us filed for bankruptcy which has roiled the toy industry. Another victim slaughtered by Online shopping!

I strongly believe that this is the beginning of a larger trend of failure which will be the retail apocalypse if they do not adapt. It is clear that over the last decade that customer behavior is changing and they are shifting to buy more stuff online rather using traditional ways like before.

So if this was so obvious, why didn’t multi-billion dollar revenue company leaders do something about it? Earlier, somehow they managed to sustain a crushing debt load for more than a decade after its 2005 buyout but they made several key mistakes again & some were fatal, that led to a death spiral.

Here are the key mistakes:

• They lost online market share and ignored the change in consumer behavior & shifting in digital space. Although the invested in digital space, but I think they didn’t take it seriously, the website and e-commerce proposition were below par & it was not as much appealing as compared to Amazon or Walmart or other competitors.
• Old assumptions which were a fatal mistake. Markets will change dramatically and old assets could lose their value really fast, the stability of business model is longer true.Evey day newer technology will create new ways to sell with lower cost.Customer loyalty, and market share stability in no more, if it was Nokia would still be dominating the Telecom world.
• Spending too much on the physical retail channel.Now days focusing on having so many stores is a big mistake as stores are getting more expensive which will increase the cost of operation and it is not a productive and efficient way to sustain and expand. They had more than 800 stores only n US and they should spend more on e-commerce.

The result of bad decisions and ignoring the signals from the market, led to borrow more than $2 billion to start paying suppliers & filling for bankruptcy.

This story isn’t only about debt or cash flow issues, it is about realizing that the bad decisions & ignoring the change will doom your organization no matter how great is your vision or how great is your ideas to compete and dominate. Old business models are condemned to downfall & the collapse will come and eventually, the bankruptcy will become a self-fulfilling prophecy!

Cheers

Iman Soltani