Oct 4, 2011

TRU or False?

Is Toys-R-Us looking for a new model?  I was reading a blog post recently from one of the most respected toy insiders in the industry, Richard Gottlieb (Toys R Us and Neil Friedman: What it really meant!), and it got me thinking ... 

Allow me to summarize: 
Niel Friedman accepted the position of US Division President for Toys R Us (TRU) in April 2011.  Previously, Mr. Friedman had been President of Mattel brands, a product company, and considered by some as the top product person in the industry.  So why hire a product guy as the president of a major retail chain?  Richard postulated that the move was to utilize Mr. Friedman's expertise in the manufacturing, which could be leveraged with TRU's new Shenzen sourcing office.  Could this mean a move to become a full-fledged manufacturer? This month, that forethought was all but confirmed.  Jerry Storch, TRU Chairman and CEO commented publicly that Mr. Friedman was assuming not only the position of president, but also "head of product development".  His official bio also includes descriptions such as "merchandising, global sourcing, merchandise planning and allocation".
Also, reports have confirmed that TRU is expanding its exclusive toy offerings "dramatically", as well as increasing the number of store-branded items.  A 44-page direct mailing is planned this week that will promote over 350 new products exclusively through TRU or by TRU.
This is significant.  It can only mean that TRU is indeed turning its sights to become a full-fledged manufacturer and retailer.  This is how TRU plans on competing, or surviving, as a brick-and-mortar retail store ... by offering mostly (and arguably, ONLY) exclusive and private label products.  In other words, products you can only buy at TRU!  This is exciting for TRU ... but not so much for small toy companies like our own.  We have already had to struggle to meet the demanding guidelines and milestones for TRU stores, and this strategy only suggests that it is going to get even tougher to find space on their shelves for our products. 

It is a good move for TRU ... for now.  Exclusive products provide a competitive advantage over competitors (namely, Walmart) and positions their online offerings to avoid price shoppers (like myself).  Ultimately, however, it will require a tremendous amount of overhead to keep up.   Product development is tough enough, but trying to control the entire value chain from sourcing to retail is tedious to say the least.  Anyone who has dealt with TRU knows it is already a massive corporation, far bigger than Walmart with a quarter of the stores.  As well, this strategy will squeeze out the small inventors, who may prefer to NOT brand a product with a TRU private label just to get it on their shelves, reducing the number of innovative and hot products available.

And it doesn't solve the long-term problem.  The internet is going to make toys, as well as many other non-essential items, a commodity.  Online shopping will continue to eat aggressively away at the brick-and-mortar revenues, eventually proving them to be obsolete.  And, while TRU will have a great, exclusive catalog of products stocking their shelves, they will have a void of customers who prefer to just listen to a friend's recommendation, buy it online and save the time.  Maybe Mr. Friedman sees the writing on the wall and is planning a complete transition in the future from retailer to product company??  Only time will tell.