Inside the plan to revive Toys 'R' Us
Saving the big-box store
Dave Brandon wasn’t inside a Toys ‘R’ Us in Secaucus, N.J., for more than five minutes before he spotted a problem. At the entrance, there was a display of small cardboard bins filled with $1 playthings that look messy, and even worse — cheap.
“It kind of reminds me of a garage sale,” said Brandon, who became CEO of the world’s biggest toy chain 14 months ago. “We’re not the dollar shop. We’re a toy store.”
In the Star Wars section nearby, a Chewbacca chair had tumbled over into the aisle. The 64-year-old CEO grabbed it and turned it right-side up. Dressed in black pants and a blue long-sleeve shirt — a deliberate attempt to connect with store workers by wearing their uniform — Brandon then walked through a display of Pokemon toys, snapping pictures of empty shelves with his iPhone that he’ll send to one of his executives.
It was Friday afternoon before the crucial weekend rush.
“This doesn’t make me happy,” said Brandon, who estimated he’d been to 200 stores since taking the reins in July 2015.
There hasn’t been much to smile about at Toys ‘R’ Us Inc. More than a decade after a $7.5 billion leveraged buyout by Bain Capital, KKR & Co. and Vornado Realty Trust, the retailer remains saddled with annual interest payments approaching $500 million and no clear path for its owners to exit the investment.
The company registered for an initial public offering in 2010, only to withdraw it a few years later. Since the buyout, Amazon.com, which once ran the Toys ‘R’ Us website, has become a powerful competitor.
And shoppers are abandoning the suburban malls that helped make the big-box pioneer one of the most dominant retailers of the 1980s and 1990s.
Brandon, who oversaw a turnaround at Domino’s Pizza last decade, knows he has no easy task. For years, the Wayne, N.J.-based toy chain has bought time by refinancing its debt, which now totals about $5 billion.
It did so again last month with a swap that pushed out maturities on notes due in 2017 and 2018 by five years.
While Brandon’s first year has brought signs of progress, with holiday sales gaining for the first time in four years, the deal wasn’t necessarily a full vote of confidence because many investors had bought the bonds at distressed levels and made a profit. But it did buy Brandon more time — probably the next two Christmas seasons — to turn the company around.
Back in the Secaucus store, Brandon was looking over several empty shelves. He ticks off a list of retail basics, such as improved inventory management, that are sorely needed. Then he boiled down the company’s woes to one fundamental problem: The experience needs to be more fun.
The big-box advantages of selection and price that made the format so successful have been obliterated by the web. There need to be more reasons for people to go to a store.
“The biggest change you are going to see over the next year is that we want to bring our toy stores to life,” Brandon said. “I want kids to be dragging their parents to our stores because they want to see what’s going on at Toys ‘R’ Us this weekend.”
How well Brandon’s strategy works may say a lot about the future of specialty retailing. If any big-box chain can transform itself into an experiential destination, it should be Toys ‘R’ Us. The retailer has a huge inherent advantage — children already love the place.
It will be a massive undertaking. The company has almost 600 stores in the United States and 700 more overseas. It still racks up almost $12 billion in annual sales — about 10 percent from the internet — and employs 62,000 workers.
The retailer generates more revenue than Under Armour, Lululemon Athletica and Chipotle Mexican Grill combined.
Brandon’s plan is already underway in the run-up to the holiday season, when the retailer generates 40 percent of its revenue and all its operating income. Whether it’s letting shoppers fly drones or take target practice with a Nerf blaster, all the changes Toys ‘R’ Us is implementing or considering recall an era when retail was more theater than science.
Apple is doing it well today, and Brandon says Toys ‘R’ Us can do the same.
The company is also testing video screens, sound effects and colorful motion-sensor lights, and unboxing more toys in play areas. It’s also hosting more events, such as Pokemon trading and birthday celebrations.
“I want kids to come in here and not know where to go next because there are so many things going on,” said Brandon, who has seven young grandchildren.