What the Toys“R”Us Bankruptcy Spells for Traditional Retailers

The most recent high-profile victim of the retail apocalypse is Toys“R”Us, which has filed for bankruptcy. Toys“R”Us is another stark warning to legacy retailers to adapt to the changing landscape in which e-commerce and experiential retail have the power to make or break a retail business.

Toys“R”Us’ decline is rooted in its continued reliance on a traditional brick-and mortar model that became outmoded. The toy retailer found itself squeezed between Amazon.com's discount pricing and e-commerce convenience on one side, and Wal-Mart and Target’s low-ball pricing on the other.

In filing for Chapter 11 bankruptcy, Toys“R”Us CEO David Brandon cited competition with Amazon, Target and Wal-Mart as the reason for the company’s troubles, saying he would have had to slash prices to maintain traffic into its stores, “decreasing its revenue and cash flows in an unrelenting race to the bottom."

Change or Die

Even though Toys“R”Us is saddled with an enormous $5 billion debt, its declining sales stem largely from its failure to adjust its strategy to embrace e-commerce and evolve its in-store experience. As analysts observed, the reasons for the downward spiral of the retailer included “lousy in-store customer service, a second-rate website and prices that are often higher than at many of its big-box competitors.”

The failure of Toys“R”Us to transform its customer experience is in line with Gartner analyst Augie Ray’s observations that the difference between major brands that survived disruption (Barnes & Noble, Fujifilm, Best Buy) vs. those that perished (Borders, Kodak, Circuit City) was the ability to evolve their customer experience to meet new customer expectations.

Only now is Toys“R”Us making moves to provide the type of modern, coordinated online and offline retail experience that's proving successful for brands like Sephora, Bonobos, Ulta and Apple.

Path Forward

Toys“R”Us has taken the first steps with some live in-store events, participation in outside events, some augmented reality features, in-store screen displays, and Toys“R”Us TV, which is a 24-hour video feed on its website. Play Labs are coming to 42 Toys“R”Us stores this fall to let parents test the appeal of games on their kids.

For Toys“R”Us to rebound, it needs to pull out all the stops to leverage its brand recognition and laser focus on toys to create more compelling user experiences, including a website that offers shoppers stunning product presentations, comprehensive information, easy ordering and attractive delivery options.

Toys are fun, and the formula for Toys“R”Us to flourish is to offer its customers a unique blend of enjoyable digital and digitally enhanced experiences, online and in-store. Videos of children and adults having fun experiences with the toys and games for sale, linked to promotions, can be targeted at Toys“R”Us buyer personas. A live streaming online gaming area with free games for all age groups also would be a natural attraction.

Deeper Engagement

Engagement and exceptional customer service are keys to stronger sales. In stores and online, investments should be made to give customer-facing assistants the tools they need to provide exceptional customer service, recommendations and well-informed toy consultations.

Besides providing engaging in-store activities, live streaming video could be employed for toy and game demos, contests, and gaming events. Surprise pop-up in-store and outside gaming events also could be staged, promoted and live streamed.

Mobile users now welcome in-store help in locating and researching products, as well as easy payment and checkout. Geo-location could be used to offer in-store shoppers coupons, incentives, spot promotions, treasure hunts and other fun activities.

The current Toys“R”Us website lacks a live chat feature. Deploying chatbots with unique Toys“R”Us personas would be an excellent way to engage shoppers, answer queries, make recommendations, provide customer service and guide the customer journey.

Holiday Readiness

Because the holiday season accounts for 40 percent of Toys“R”Us’ annual sales, special emphasis should be placed on optimizing holiday sales. Preparation should start with ensuring that all e-commerce and in-store teams are organized, coordinated, fully staffed and well rehearsed.

The possibilities for holiday-themed toy features and promotions are endless. Live streaming from Santa’s workshop or a trip back in time to a pilgrim’s landing for Thanksgiving could engage customers and boost sales.

For the holiday season, chatbot personas could be deployed to delight customers, make recommendations and steer shoppers to special promotions. A Santa-bot, for example, could be deployed to take Christmas wishes, which could be relayed to parents, friends and relatives.

Industry in Transition

While the retail apocalypse is very real to retailers like Toys“R”Us that are filing for bankruptcy, the industry as a whole is experiencing growth. In-store retail sales are projected to increase 2.8 percent this year, while e-commerce sales ares expected to increase 15.8 percent in 2017, exceeding last year's 11.7 percent growth.

What's happening is an industrywide shift in which outmoded retail models are being displaced by e-commerce, coupled with technology-driven experiential modes of selling. Wal-Mart just sent ripples through the retail industry by announcing it was scaling back on new stores and focusing on e-commerce.

Projections show that 41 percent of toys and games will be purchased online this year by U.S. shoppers. Toys“R”Us must elevate its e-commerce strategy to compete with the likes of Amazon and Wal-Mart going forward.

Meanwhile, a majority of in-store shoppers (62 percent) say the ability to see, touch, feel and try out items are the top reasons they choose to shop in physical stores vs. online, which should give Toys“R”Us an opportunity to shine by executing the right in-store experiential strategy.

Bart Mroz is the co-founder and CEO of SUMO Heavy, a digital commerce consulting and strategy firm.