Eight-year-old Angie Rojas pressed her face against a showcase in the Rockville Toys R Us and cupped her hands for a closer look. "Wow," she said, endorsing the toy set up inside, a $60 Bratz doll Chillout Ski Lounge, complete with a hot tub and leather couch.
"I've never seen the inside of this one before," said Rojas, a self-described Bratz doll fanatic.
Before this holiday season, neither had any other shoppers browsing a Toys R Us store. In 2003, the Bratz line of play sets sat on a shelf too high for most kids to see. So this year, the chain rolled out dozens of kids'-eye-level display cases at every store.
It's a small change, with a big goal. Despite the dominance of discounters like Wal-Mart and Target, Toys R Us Inc. is betting its survival on the proposition that not all consumers are happy fending for themselves amid a glut of stuff and that when it comes to toys, even diehard bargain hunters want the right item, not just the cheapest one.
Drawing on that theory, and some hard-nosed retail tactics, Toys R Us has spent the past year systematically changing just about everything it does. The company is coaching employees to spend more time with customers, making toys easier to find with bigger displays and color-coded store maps, and even pressing manufacturers for exclusive rights to hot items such as the Barbie Fantasy Tales collection -- which it got.
"To succeed, we have to bring more to the party than low prices," said Toys R Us vice president of in-store marketing Greg Ahearn.
Competing with Wal-Mart
When Toys R Us opens its 685 U.S. stores this morning, on one of the biggest shopping days of the year, the experiment will be closely watched for clues about the future of American retailing. This may represent the last chance to get it right for Toys R Us, and if the company succeeds, it could provide a model for other retailers trying to compete with Wal-Mart's buying power and high-tech efficiency.
Toys R Us revolutionized the industry more than four decades ago with its big-box, low-price stores but in 1998 was dethroned by Wal-Mart as the country's No. 1 toy retailer. Toys R Us already plans to split off a separate Babies R Us furniture and clothing chain in 2005 and says it may get out of the toy business altogether after this holiday shopping season. In the past year, two other industry mainstays, KB Toys Inc. and FAO Schwartz owner FAO Inc., have filed for bankruptcy protection, blaming intense competition from discounters and online sites.
The Toys R Us strategy, company executives said, is to combine the service and product display techniques of high-end boutiques with the competitive prices of discounters.
"We have to do the things Wal-Mart and Target won't do, or can't do," Ahearn said.
'Spearhunters' vs. 'browsers'
Take the toy display cases, which allow kids and their parents to see about 40 different toys, such as completed Lego sets, out of the box before they buy them. Toys R Us, which devotes an average of 30,000 square feet to toys, has space for the cases. Wal-Mart, whose toy sections are about 5,000 square feet, does not, toy industry analysts said.
In their research for this holiday season, Toys R Us executives divided their shoppers into two categories: "spearhunters," who know what they are looking for when they enter the store, find it and leave, and "browsers," who have not figured out what toy to buy and may know little about the store.
Much of this year's strategy is focused on browsers, such as Hilda Alcalde of Fort Washington, who walked into a Clinton Toys R Us looking for a gift for a neighbor's granddaughter.
In their review of operations, Toys R Us executives discovered the Alcaldes of the world found their stores hard to navigate and the staff at times unhelpful.
So a new training program, deployed across the chain this year, instructs employees to approach and then quiz browsers to figure out what kind of product they are looking for and, if it is a gift, to determine the occasion. In the past, employees generally asked shoppers if they needed any help finding a product. If the answer was no, "that was the end of the interaction," and the consumer walked away, said Toys R Us official Beth Swanson.
To make it easier for browsers to zero in on a product, the chain has created color-coded store directories distributed at the front of the store in kiosks and slipped inside shopping carts. The maps divide the store into nearly a dozen toy categories, such as dolls, games, stuffed animals and action figures.
When Alcalde, the browser, entered the Clinton Toys R Us, a store employee greeted her at the door, handed her a store map and a guide that breaks down gifts by age, and then asked her what she was looking for. "It's a nice touch," Alcalde said as she pushed a shopping cart into the educational toy section of the store.
Customer service focus
In the Rockville Toys R Us, an employee is stationed at the front of the checkout section this year, guiding customers to open registers and asking shoppers if they found everything they wanted -- a question repeated a few second later by a cashier.
Grisel Agusti, a Rockville resident, called the service "a big improvement" over last year, when employees did not monitor the lines, creating congestion and frayed nerves at the cash registers. Plus, she added, "everyone is really nice this year."
In a new strategy to win over customers who shop at its competitors, Toys R Us asked manufacturers to sell dozens of toys to the chain exclusively. The toymakers offered Toys R Us 21 exclusives, splitting the bill for TV advertisements for each. Among the exclusives: Mattel's Hokey Pokey Elmo and the Hasbro's Incredobile, a toy car tied to the movie "The Incredibles," Ahearn said.
By contrast, in 2003 Toys R Us paid to advertise two exclusive toys and manufacturers paid for none, Ahearn said. "It's a big coup," said Jim Silver, publisher of the Toy Report, an industry trade publication. "If kids want those toys, parents have to come to Toys R Us," he said.
It is also evidence of just how badly toy manufacturers want Toys R Us to succeed. If Toys R Us is sold off, toymakers could face an industry dominated by Wal-Mart, which devotes less space to toys and tries to negotiate the absolute lowest product prices, toymakers say.
Price war
Even with the exclusive toys and improvements to the stores' appearance, the decision to shop at Toys R Us will still turn on product price, toy industry analysts said. In 2003, Wal-Mart dramatically reduced toy prices early on in the holiday shopping season, a move that proved disastrous for Toys R Us. The company's profit fell 62 percent last year, to $88 million.
Ahearn said the chain "took it on the chin" in 2003 when it came to consumer perceptions of price. "This year, we are going to compete in a way we haven't for years," he said.
In a surprise offensive, Toys R Us has met, and in some cases, beaten Wal-Mart on toy prices. In its latest survey, the brokerage house Oppenheimer & Co. found a shopping cart filled with 57 toys cost 2 percent more at Wal-Mart than at Toys R Us.
Another brokerage, Harris Nesbitt Corp., said Toys R Us tied Wal-Mart on price for a shopping cart filled with 75 toys. At Toys R Us, it found, the biggest savings came on large toys, such as the Play TV EA Madden Interactive Football Game -- $39.99 at Toys R Us, and $46.73 at Wal-Mart.
Sean P. McGowan, a toy industry analyst at Harris Nesbitt, said that while it took Toys R Us weeks to respond to Wal-Mart price changes in 2003, "this year, they are responding instantly."
Shoppers, such as Bratz collector Angie Rojas's mother, have noticed the shift. Jessica Rojas says she has popped into Wal-Mart, Target and Costco to hunt for bargains. "Toys R Us is cheaper," she said.
After comparing prices for the new Speedeez Hummer H2 Speed City, Silver Spring resident Cynthia Riddick darted to the Rockville Toys R Us. At Wal-Mart, the toy is $23.97. At Toys R Us, it is $19.19. "I've watched the prices come down, and now Toys R Us is very competitive," she said.
But analysts see a paradox in the new Toys R Us strategy. The chain is trying to compete with Wal-Mart on price, a hard enough task on its own. But at the same time, it is trying to improve services and store appearance, which raise costs.
"That may ultimately prove to be a hard balance to maintain," McGowan said.
Toys R Us thinks the strategy "is meeting a customer need out there," Ahearn said. "At the end of the day I think we will see real positive results."