Toys ‘R’ Us posts Q4 loss; store updates part of new ‘transformation’ strategy
New York — Coming off a disappointing 2013, Toys “R” Us unveiled a strategic plan to position the company for profitable growth in the future. The plan includes improving its in-store and online shopping experience, simplifying promotions, cutting costs, more disciplined inventory management, and more omni-channel integration with stores. Significantly, it not include closing stores apart from those involving standard lease expirations, top company executives said during a media presentation on Tuesday at the chain’s flagship in Times Square.
“Reports of us closing a large number of our stores in the United States are not accurate,” said Antonio Urcelay, chairman and CEO, Toys “R” Us, who added that the majority of the chain’s U.S. store fleet is “very profitable.”
Toys "R" Us disclosed its new strategy on the heels of posting a loss of $210 million for its fiscal fourth quarter ended Feb. 1, compared with a profit of $239 million in the year-ago period. Net sales fell 8.7% to $5.27 billion (the year-ago period benefited from an additional week). Same-store U.S. sales fell 4.1%; international comp-sales fell 2.2%. The company posted a loss of $1 billion for the year, which it attributed mainly to two significant non-cash charges (excluding the items, it would have had a net loss of $312 million).
Urcelay, a 17-year company veteran who was named CEO in October, said the company’s “transformation strategy” is based on extensive customer research and customer insights.
The plan will focus on several key priorities, with the foremost being improving the customer experience in-store and online.
“Customers feel our stores need a better execution,” Urcelay said.
Toys “R” Us is updating its existing stores to make them easier to shop, focusing on everything from the restrooms and lighting to the flooring and signage. It also is committed to reducing in-store clutter, and improving in-stocks and checkout speed (slow checkouts registered as a big customer complaint in its research.
“We are also developing a store of the future,” said Hank Mullany, president, Toys “R” Us U.S., with a prototype unveiling likely in late 2014.
The chain also plans to identify and test future store concepts. It also will no longer focus on putting its Toys “R” Us and Babies “R” Us stores side by side.
“We completed the planned rollout of the side-by-side stores,” Mullany said. He added that the chain learned that Babies “R” Us customers do not like the side-by-side environment as much as they do the standalone concept.
On the online side, Toys “R” Us said it is improving navigation on its website and will update its mobile apps and website speed. It is optimizing its e-commerce experience with improved inventory accuracy and order status communication, along with improved ship from store execution. It also will continue to improve its in-store pick up integration.
“We started last year to transform some of this, and are starting to see results,” Urcelay said.
Poor inventory management and excessive promotional activity have put pressure on the company’s U.S. margins, the CEO said. The chain has already started to implement new processes to improve its store level and fulfillment center in-stocks.
“We want to make sure our inventory is fresh and that we have the items customers want,” Mullany said.
The executives said the chain suffered from a “price perception” problem among consumers. To correct it, the retailer plans to better communicate its ‘price match’ guarantee and simplify its pricing messages and “exclusive” promotions.
“Our prices are seen as too complex and too confusing by customers,” said Mullany. “We are developing a clear pricing strategy and simplifying our promotional offers. We have to make it simpler for our customers. We are putting them at the center of everything we do.”
Another priority of the chain’s new strategy involves a ‘right-size’ of its cost structure to determine where greater efficiencies can be created. The retailer has cut 500 jobs globally, including 100 in its Wayne, N.J., headquarters. It is closing a distribution center in Storey Country, Nevada, as it continues to integrate online and in-store operations and expand its ability to ship online orders from stores and distribution centers that serve stores.
Moving forward, the company will also better utilize its 18 million members strong Toys “R” Us loyalty program with more targeted and customized messages.
Urcelay emphasized the financial health of the company, which he said has no significant near-term debt maturities. It recently completed the successful refinancing of its $1.8 billion debt.
“We also have very strong liquidity,” Urcelay said. “We have a couple of years to get this business right.”
Mullany said that 2014 will lay the foundation for the company to grow in 2015 and beyond.
In an encouraging sign, the current year is off to a good start, with a 3.5% rise in same-store sales in Toys “R” Us U.S. stores and a 0.2% rise internationally.
Toys’R’Us outlines TRU Transformation strategy
Following a disappointing fourth quarter and fiscal year ended Feb. 1, Toys “R” Us hosted investors, industry analysts and the media and outlined its strategy for improving its operational performance and driving profitable growth in the future.
The company had a challenging year, with declines in its domestic and international segments. The U.S. business experienced the more significant downturn, primarily due to a decrease in net sales, margin pressure and one-time items, including the write-down of excess and obsolete inventory. As a result, chairman and CEO Antonio Urcelay and Hank Mullany, president, Toys "R" Us, U.S., presented the company’s TRU Transformation strategy to achieve sustainable business growth.
"Toys"R"Us is one of the most recognized brands in the world with a strong international presence and a large and loyal customer base," said Urcelay. "Our global network of stores generates strong profitability, and together with our $1.2 billion global e-commerce business, is integral to our growing omnichannel capabilities. And, as the world’s leading dedicated toy and juvenile products retailer, we have well-established relationships with our manufacturing partners, and can provide them with a year-round distribution outlet that showcases the broadest selection of their products in 36 countries around the world."
Urcelay explained the the company’s disappointing performance in 2013 was partly driven by macro conditions, such as the decline in birth rates since 2007, which he said contributed to stagnating overall toy and baby industry sales, and the rapid growth of online shopping. He added, however, that several execution issues also affected the company’s financial results.
“Over the past several months, we have undertaken a comprehensive analysis and diagnosis of the business, and believe we have four main issues to resolve — improve the customer experience in-store and online, make progress on changing price perception, put disciplines back into inventory management and right-size our cost structure on a global basis,” he added. “We are encouraged that all of these foundational issues are firmly within our own control to fix, and our strategy will address these to improve the business over the short-term and put the company on track for the future."
Mullany noted that the TRU Transformation’ strategy is grounded in consumer research and customer insights, and is anchored by three guiding principles: Easy, Expert, Fair.
“Among our highest priorities will be to deepen our focus on the customer, build meaningful relationships through loyalty and targeted marketing programs and improve the shopping experience both in-store and online,” said Mullany. “This will include putting more emphasis on the distinct needs of our customer base of new and expectant parents and gift-givers. We are committed to delivering on our mission to bring joy into the lives of our customers by being the toy and juvenile products authority and definitive destination for kid fun, gift-giving solutions and parenting services."
For 2014, the objective of TRU Transformation will be to slow the company’s sales decline, stabilize cash flow and improve EBITDA to effectively position the business to grow revenue and profits in 2015 and beyond.
The company will be focusing on a few initiatives, including transforming the shopping experience in-store and online. To improve the customer experience in-store and online and become a customer-centric business, the company has already begun to implement initiatives, such as cleaning up existing stores and improving in-store execution; improving out-of-stocks and the speed of checkout; solidifying customer relationships through strengthened loyalty and targeted marketing programs; improving price perception by developing a clear pricing strategy and simplifying promotional offers; and optimizing the e-commerce experience by capitalizing on the online shopping growth and omnichannel integration with stores.
The company also plans to close some stores during the year primarily due to lease expirations, but added that at this time it has no plans to close a significant number of them.
It does plan to close the McCarran Distribution Center in Storey County, Nev., June 1. During the past few years, the company has expanded its omnichannel capabilities as well as its ability to ship online orders from stores and distribution centers that serve stores, resulting in the ability to flex inventory more efficiently, leverage underutilized space and ship from points closer to customers. The company will continue to open stores and expand fulfillment capabilities in markets where it makes the most sense, including in China where growth has accelerated.
Comparable store net sales for the quarter were down 4.1% in the domestic segment and 2.2% in the international segment. The overall decrease in comparable-store net sales resulted primarily from decreases in the entertainment (which includes electronics, video game hardware and software), learning and juvenile (including baby) categories. Net sales for the quarter were $5.3 billion, a decrease of 8.7% compared to the prior year.
So far, the company is off to a good start in fiscal 2014 with a 3.5% comparable store net sales increase in the U.S. and a 0.2% comparable store net sales increase in its international segment through the first seven fiscal weeks. The U.S. comparable store net sales results are largely attributable to the learning, juvenile and entertainment categories, which were affected by strong sales of movie-related products, both in-store and online and an enhanced e-commerce shipping offer.
Millennials: Social media crucial; Instagram is ‘must-have’ app
New York — Social media delivers more than wish-list window shopping — it is, essentially, a social-purchasing path for young women that leverages each platform’s strength and point of engagement to enhance the shopping process, according to a survey by Teen Vogue. And according to respondents, the future belongs to Instagram. It is the platform most cited as the one that "everyone will be talking about next year," and the clear must-have app this year.
The “Seeing Social" survey reveals that for Millennials, social media is a path within a path to buy — the multichannel shopper now uses social media to do more than just share. She actively participates in the content created not just by peers but also by marketers to inform her purchasing decisions.
Eighty-five percent of respondents have been driven to purchase something after seeing it on a social media network — but the storefront of a posting is just the beginning. Young women take a three-part path on social before transaction:
1. See It: Instagram is the number one platform that inspires respondents to purchase.
2. Search It: When respondents find a fashion or beauty brand they like on social media, they search YouTube videos of how best to wear or apply the product (52%).
3. Shop It: Before purchase, they engage in "comparison shopping" on social media platforms. By platform, top behaviors include the following:
• Find additional product images: Pinterest (48%)
• Read reviews and recommendations: YouTube (43%)
• Seek out sales/deals: Facebook (36%)