Tinkering with Toys

’Twas the night before Christmas, and Toys “R” Us had visions of sugarplums. And why not? Christmas is toy time, after all.

Black Friday 2006 had featured crowded aisles and long checkout lines. “Sales results look really good,” said the new ceo, Gerald Storch, reviewing early December reports from store managers around the country.

But the festive mood was tentative. The giant retailer was like a shopper trying to find a Wii. It hoped the mission would be successful. But it knew the shelf might also be empty. There have been many empty shelves for Toys “R” Us recently – disappointing Christmases, bumps and bruises and Wal-Mart tire marks all over it.

I’m writing this in early January. All the results aren’t in. But this wasn’t an ordinary season for Toys “R” Us. After new ownership and management changes, it became a year in which the retailer had to decide whether it can turn the corner or should pull the covers over its head. Storch, a Target veteran, has said, “ I am not a liquidator. The first choice is to make a lot of money by turning around the company.”

Who’d have thought, 15 years ago, we’d be talking about a turnaround strategy for the company that turned around the rules of retailing? In the 1950s, Charles Lazarus took a small Washington, D.C., babies’ furniture store, Children’s Bargain Town, and created a toy supermarket, the original big-box category-killer. It was the inspiration for Best Buy, Home Depot, Office Depot, Bed Bath & Beyond, Barnes & Noble and all the other big-boxes that followed.

But Toys “R” Us lost its single-minded discipline. In 1996, it separated the toy and childwear businesses. The new Babies “R” Us stores proved popular, but Toys “R” Us suffered a sharp drop in customer traffic – specifically new mothers, who tend to buy baby clothing once a month (as opposed to toy buyers, who shop only a few times a year).

By 1998, Wal-Mart had become the nation’s largest toy-seller, offering a wide-enough selection of merchandise but at the lowest prices around. Toys “R” Us, with even more merchandise, tried to battle on price instead of reinforcing its own identity. Bad idea – as others have found trying to go 10 rounds with Wal-Mart.

Storch says the current game plan for Toys “R” Us includes upgrading cluttered, poorly lit and dreary stores. He also will reunite Toys “R” Us and Babies “R” Us in a test he calls “side by side.” He has fused a Toys “R” Us and a Babies “R” Us in several locations, and will expand the format if the results are positive.

The ground is roiling for all retailers. Even kingpin Wal-Mart has struggled through a difficult year. Massive public relations efforts have turned sour. (Who could have anticipated spokesman Andrew Young, of all people, making racist comments?) During December, a faith-based coalition held a nationwide candlelight vigil to deplore Wal-Mart values and “anti-family practices.” Not exactly the Christmastime publicity a retailer would want.

Worst of all, November sales tanked and December was just as bad. Is Wal-Mart vulnerable? Well, $300 billion in annual sales gives it the capital to paint over a lot of mistakes. But Target, at $52 billion, seems to be making a lot fewer mistakes.

And then there are the department stores. Early Christmas returns showed them doing surprisingly well. Analysts pointed to the deep discounts department stores were offering on a wide variety of goods. Can it be? Selection and price. Department stores are emulating Wal-Mart. And Toys “R” Us, by rebundling various product categories, is emulating the department stores.

The beat goes on. Christmas is over. Now who will have a Happy New Year?