Playing Hardball

Toys “R” Us is playing hard one year after a reorganization that closed 27 U.S. stores (and finished remodeling the other 674), cut 1,900 jobs and centralized operations. Total Toys “R” Us Inc. sales rose three percent for the first nine months of 2002, and holiday sales were flat at $4.4 billion for nine weeks ended Jan. 4. (Same-store sales fell one percent for the year; online sales rose 24 percent to $263 million for 2002.)

TRU began its marketing makeover in 1999, beefing up its budget and leaning on promotions to woo families in the face of increased competition from mass-merchandisers (April 2000 PROMO). Its strategy now: Bring properties to life, inside the store and out.

“Toy shopping became about finding one item as cheaply as possible,” says TRU Chief Marketing Officer Warren Kornblum. “If Mom is just on the hunt for a commodity, that doesn’t bode well for a specialist. She’s in Wal-Mart and Target much more frequently than she’s in Toys “R” Us. We have to give her good reason to set out on a toy-purchase trip. Our challenge is not getting our name out there, it’s bringing the Toys “R” Us experience to life.”

Stores house boutique-like departments that group toys by type — The R Zone for videogames, Animal Alley for plush. (Manufacturers helped foot the hefty remodeling bill by paying for some fixtures in exchange for better display.) Some areas showcase entertainment properties like E.T. and Cabbage Patch, both exclusive deals for TRU. Movie tie-ins (think The Hulk, out this year) get store-within-a-store treatment. “We’re the only entertainment-industry partner with these huge stores dedicated to selling toys, so we’re the ones that can bring their properties to life,” says Kornblum. Merchandising suits shoppers, not studios: “Our decisions aren’t dictated by selling space in the store.”

The selling space itself is being redefined. TRU began testing branded departments in Ahold and Giant supermarkets last year, tapping grocers’ family traffic and lending toy expertise so both grocers and TRU can better compete with mass merchandisers. Called Toy Box, the departments carry the most popular toys in about 30 supermarkets across the country, and may expand this year. A handful of Jewel Stores in Chicago added Toy Box in November. The deal began as TRU mulled new channels at the same time that Ahold sought to serve moms better.

TRU’s supermarket stretch carries “a risk of cannibalism, but it’s more likely they’ll hurt another retailer instead,” says Sean McGowan, analyst with Gerard Klauer Mattison, New York City. “Toys “R” Us isn’t a place [shoppers] need to be every week, and Wal-Mart is.”

Paramus, NJ-based TRU competes hard with Wal-Mart, whose 20-percent market share overshadows TRU’s 17-percent share of the $30 billion toy business. (Add another $10 billion to include videogames.) Target has an eight-percent share, with Kmart at six percent and K-B at five percent, per McGowan.

Additional channels — including TRU’s two-year-old joint venture with Amazon.com — complement its own spiffed-up stores. TRU’s showpiece, its 15-month-old Times Square store, hosts product launches and an early-November Toy Parade with costumed characters and spokes-giraffe Geoffrey. “It’s a stage for the entire industry,” says Kornblum.

Times Square is great for p.r. but not necessarily sales, counters McGowan. “It depends on the ad value you put on having a store in that expensive location.”

Remodeling wrapped up just in time for holiday shopping and a “Low Price Superstar” ad campaign starring a cozy, smart-alecky Geoffrey the Giraffe, fresh from his own makeover. Three of the six spots garnered top marks for audience recall, measured by research firm Intermedia Advertising Group, New York City. (IAG tracks how well viewers remember prime-time ads within 24 hours.) Leo Burnett USA, Chicago, handles.

Sponsorships extend TRU’s cozier image outside its stores. The chain is presenting sponsor of HIT Entertainment’s Barney’s Colorful World tour, traveling to 80 markets over two years. (Other sponsors are Rayovac Corp. and Procter & Gamble’s Luvs.) Store displays in major markets give TRU shoppers a code to buy tickets before they’re on sale to the general public. Audience members can redeem their ticket stubs in-store for a free phone card that lets parents arrange for a three-minute phone call from Barney. HIT approached TRU; this is the chain’s first extensive tie-in with a live show.

“Our sponsorship strategy continues to be opportunity-driven, with properties that make sense to kids and moms,” says Kornblum. TRU begins its second season with NASCAR this year, peppering its existing NASCAR stock with exclusive products.

Private label has grown to more than 20 percent of TRU sales, up from around five percent a few years ago, says McGowan. That’s driven partly by exclusive deals: TRU’s hold on E.T. goes into its third (and final) year in 2003, and its year-old tie to Cabbage Patch Kids expands this year. Dedicated areas sell TRU’s own E.T. designs and updated Cabbage Patch dolls. A new deal with Sesame Workshop, New York City, gives TRU exclusive Dragon Tales product from Fisher-Price, with an in-store sweeps to launch the line next month (see Hot Properties on p. 25). A separate, three-year deal with 4Kids Entertainment, New York City, gives TRU its own line of electronic Tech Toys starting this year.

Exclusive products and co-marketing differentiate TRU from mass merchandisers. “We don’t want to be in that commodity cycle, so we work with manufacturers on marketing together,” says Kornblum. The “Low Price Superstar” ads each carried three price/item messages to show TRU’s selection. Manufacturers traditionally kick in media dollars for mentions in spots, but TRU didn’t ask for any.

Exclusive items preserve profit margin and differentiate the chain, says McGowan. “It also says, ‘We’re not getting enough from traditional manufacturers, or it’s too expensive.’”

TRU thrives online, with the top market share for toy sales, per Kornblum. It launched giftsrus.com in November, selling personalized toys, clothes and furniture. Its three-year-old alliance with Amazon.com gave TRU the infrastructure it needed after its 1999 holiday fiasco that left five percent of orders unfilled and some shoppers angry enough to file a class-action suit. The 10-year deal, signed at the height of the dot-com boom, came at a premium, but TRU couldn’t afford to mess up a second Christmas. “Amazon helped salvage their reputation,” says McGowan. “They bought themselves some expensive time, but they had to have a partner.”

Online and in-store experiences, while different, should be seamless, says Kornblum. That’s part of ongoing efforts to give shoppers a pleasant, consistent experience.

“I wish we were in a better economic environment for retail, but we’ve had a lot of accomplishments, especially in the stores, service, and stocking,” says Kornblum. “With that kind of substance, it makes my job — simply telling the story — easy.”

Making friends

K-B TOYS, Pittsfield, MA, expanded its year-old deal with Sears to put “K-B Toys at Sears” departments in 77 stores (up from 29 in 2001) and launch My First Craftsman toy tools for 2002 holidays. K-B also became exclusive toy supplier to Sears’ Wish Book and sears.com. A similar deal puts K-B departments in CVS/pharmacy’s 4,000-plus stores this year. K-B provides a year-round assortment of toys, customized merchandising for spring and summer toys, and exclusive products for seasonal and impulse buys.