For a child, the Toys “R” Us store in Phillipsburg, N.J., is a wonderland.
Just browse the aisles — Transformer toys over here! A talking Elmo over
there! Charmin toilet paper! Dawn dishwashing liquid!
Hey, Toys “R” Us is starting to feel pretty grown up.
Sure, kids may not want to see this stuff at their favorite toy store. But
in this economy, Toys “R” Us is betting that Mom and Dad do. On Wednesday,
Toys “R” Us will announce the opening in 260 of its 585 stores a new
convenience section called the “R” Market, which will offer an assortment
of consumables and household items such as cereal, macaroni and cheese, canned food, granola bars, cleaning supplies, paper goods, hand soap, juice
boxes and nonperishable milk. The “R” Markets will also offer a wider
variety of diapers, baby food and other infant supplies for Toys “R” Us
consumers. The company will open “R” Markets in additional stores by
the end of the year.
These new stores-within-a-store aren’t a total snore for the toddler set.
“R” Markets will also sell decidedly nonessential, kid-friendly products
like Pez dispensers, gumball machines and a host of other candy brands that
will keep dentists employed for a millennium. Plus, most products have a
kid-friendly feel — Elmo and Grover on the juice boxes, food packaged as
“P’Sghettti Loops,” toddler toothbrushes and such. Still, the intent of the “R”
Market is clear. With nondiscretionary products like toys more vulnerable
to consumer-spending swings, Toys “R” Us needs to give parents more reasons
to shop at its stores. “Certainly, we believe this is right for the times, or
we wouldn’t be rolling it out,” says Gerald Storch, chairman and CEO of Toys
“R” Us, which was taken private, for $6.6 billion, in 2005. “This direction
is very consistent with economic trends, very consistent with the overall
recessionary environment.”
Storch is quick to point out that while the economy has heightened the
urgency of the “R” Market initiative, the company has been preparing for its
launch for the past few years. He emphasizes that Toys “R” Us isn’t
shifting its focus from the fun stuff. The percentage of square footage
dedicated to the “R” Markets will be in the “single digits,” according to
Storch. In the Phillipsburg Toys “R” Us, for example, manager Mark Schantz
estimated that the “R” Market took up just 1,300 of the store’s 30,000
square feet — that’s just 4.3%. Storch also insists that the company won’t
clear shelf space dedicated to toys in order to build these
mini-supermarkets. Instead, Toys “R” Us will cease selling clothes for kids
over the age of 4. The company will use that space for the “R” Markets
and realign aisles to sell even more toys. “It essentially
replaces an unproductive business,” Storch says. “We never want to lose our
way. This is an enhancement, as opposed to a strategic shift.”
To many retail analysts, the Toys “R” Us tweak makes a ton of sense. After
all, if Wal-Mart and the Targets of the world can sell toys, why shouldn’t
Toys “R” Us sell food and paper towels “Sometimes the fence swings both
ways,” says Marshall Cohen, an analyst at the NPD Group. Consumers are
willing to pay for convenience, say the experts, especially when grabbing
items that they really need. “Is it a good idea It’s the only idea,” says Howard Davidowitz,
chairman of Davidowitz & Associates, a retail consultancy and investment
bank. “Mothers are going to the store with their
children, and to the extent you give mothers another reason to shop, you
win. I compliment them for reacting. Doing nothing is not an acceptable
answer.”
Although the toy industry isn’t sinking as much as other businesses,
it’s not exactly fun these days. The company’s U.S. sales were essentially
flat in 2008. KB Toys, a tough competitor, was liquidated. Bottom line: all
retailers need some kind of response. “It’s nice to see someone try
something besides cutting prices,” says Sean McGowan, a retail analyst at
Needham & Co.
Over the past few weeks, Toys “R” Us has been quietly testing the “R” Market
in select stores across the country. Sales “are running ahead of where we
expected,” says Storch. However, customers at the Toys “R” Us in
Phillipsburg, a town that sits on the New Jersey–Pennsylvania border, were
for the most part unimpressed. Over the course of two hours on a Friday
afternoon, only a handful of customers even wandered over to the “R” Market, which had been open for about two weeks. Granted,
the store wasn’t exactly packed in the toy aisles either. And up till this
point, Toys “R” Us hasn’t publicized its new initiative, so some customers
might not even have been aware of it. Still, the new department was
visibly positioned at the front of this particular store. Any reasonable retailer could expect a few more visitors.
Why weren’t customers shopping for snacks at Toys “R” Us First of all, some
mothers simply refuse to torture their children. Think about it: you’re a
kid. You take a trip to heaven, a.k.a. Toys “R” Us, once every two months or
so. And with all those bikes, trains and video games
surrounding you, Mom brings you to the Clorox aisle Talk about temper-tantrum central. “As you can see, he doesn’t want to be here,” says Jennifer
Meade, whose 7-year-old son Logan is fiddling with a Nerf Blaster in a
shopping cart, looking like he’d rather be anywhere but the food aisle . The only reason Meade
was in the “R” Market, in fact, was that I asked her to check out the products. She didn’t anticipate coming back. Says another shopper,
Erin Miczulski, who was in the store to pick up some items for her niece and
nephew: “I just want to stay focused on the toys.”
The other major challenge facing the “R” Market: prices. Like many Toys “R” Us
stores, the Phillipsburg outlet is dangerously close to a Wal-Mart — in this
case, only a two-minute walk away, in the same shopping plaza. Sure, it’s convenient to one-stop shop at Toys “R” Us. But after glancing at the prices — the Stauffer’s Whales snacks,
juice boxes and bottled water are all cheaper at Wal-Mart — Meade said she’d get that
stuff there.
In Phillipsburg, Toys “R” Us is more price competitive with Wal-Mart on
diapers and baby formula. But an 8.9-oz. box of Cheerios at the
Phillipsburg Toys “R” Us cost $3.49. At the Phillipsburg Wal-Mart, you get
21.06 ounces for $3.98.
At Toys “R” Us, a 52-load container of Tide with Febreze costs $16.49. At
Wal-Mart, you get 78 loads for $19.97. Not a huge difference,
but cash-strapped consumers are searching for every kind of bargain these
days.
It’s not surprising that Wal-Mart offer lower prices than Toys “R” Us on
consumables, one of the retail giant’s core competencies. What should be
more disconcerting for Toys “R” Us is that Wal-Mart often beats the toy company at its
own game. For example, a
collectable Lighting McQueen, the main character in the hit Pixar movie
Cars, costs $2.97 at Wal-Mart. At Toys “R” Us, he and other key
characters go for $3.59. Monopoly is $10.44 at
Wal-Mart and $12.99 at Toys “R” Us. Here’s a real shocker: at Wal-Mart, a
“Surf’s Up” Barbie doll — basically, Barbie in a bathing suit — costs just
$5.44. The retail price at the Phillipsburg Toys “R” Us: $19.99.
Don’t dismiss the “R” Market’s potential, however. The company would never
have rolled it out if it hadn’t tested well. It should be a haven for
impulse purchases: “I want to get that Wiggles guitar for my son, but oh
yeah, I just remembered we’re out of toilet paper and toothpaste too.” The “R” Market offers far more toddler food and
snack options than typical supermarkets, and the presentation of the
Phillipsburg shop, for one, was neat, tight and bright. “I’ll definitely
use it,” says Jennifer Stroka, a veterinary technician and mother of a
4-year-old girl. “It’s like one-stop shopping. It looks great, and will
make my life easier.” If there are enough moms out there thinking like
Stroka, Toys “R” Us may be gift-wrapping itself the perfect present: profits.
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