An Analysis of The Rebuilding Process of Toy “R” Us

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An Analysis of The Rebuilding Process of Toy “R” Us
Toy “R” Us is a retail store that deals in toys and videogames for kids. Founded in 1957 by Charles Lazarus, it has grown from strength to strength operating for more than 65 years. Focusing the store on a niche to sell toys proved to be a masterstroke as it was able to operate around 1600 stores in the US and outside, in Britain, Australia, Asia, and Africa. In 2005, a consortium of Bain Capital Partners LLC, Kohlberg Kravis Roberts (KKR), and Vornado Realty proposed a buyout at $6.6 billion, but the store went for $26.74 which was a 63% increase in the public stock consequently becoming a privately-owned institution. Problems in management have resulted in significant losses as it has not been able to make a profit since 2013. The debts forced the chain store to declare bankruptcy in 2017 a year, which continued the losses from 2016, losing a close to a combined $300 million in the two years.
Introduction
There have been plans to revive the toy brand in America with the opening of two stores. Under the new management of Tru Kids Brands, there is a need to avoid the mistakes of their predecessors. The fall of Toy “R” Us was not abrupt rather the consequences of managerial decisions. The buyout by the Bain Capital Partners LLC, Kohlberg Kravis Roberts (KKR) and Vornado Realty consortiums, private companies may not have been the best solution to revive its floundering state. Before the buyout, Toy “R” Us had a debt of $1.86 billion, but the debt rose considerably with the new owners, peaking at $5 billion. Private companies give the notion that they swoop in to save a struggling retail chain, but maybe they hasten their demise. The private companies rely on leverage buyout policy where they buy a struggling company at a cheap in the hopes of selling it at a profit on a later date. CITATION Cov18 \l 1033 (Covert) These opportunistic tactics lead to rush decisions because, in order to make considerable profits, the new owners needed to pump in cash, and that’s where the need to acquire loans comes in. With sales stalling and the great effects recession of 2008, the new century provided a whole new world. Toy “R” Us failed to adapt to the new conditions, and it got outdone by its competitors, Amazon, Walmart, and Target.
Toy “R” Us categorically named its main competitors for making them go out of business. They cited that the retail chains discounted their products significantly at the time Toy “R” Us was trying to recover, leaving them unable to compete. This is because Walmart, Target, and Amazon have an array of products that they sell; thus, they can afford to significantly slash their prices for toys on holidays for promotional purposes. Toy “R” Us, on the other hand, relies on toy sales for profit; therefore, they cannot heavily discount their merchandise. In 2016, Amazon recorded the biggest turnover of baby and toy products in the United States, with $2.16 billion in online sales. Walmart was second with $1.3 billion in sales the same year. Toy “R” Us was third with its relatively lower turnover of $912 million CITATION Mik17 \l 1033 (Mike and Dennis)
Ecommerce sales are paramount in today's market, that is why retail companies have invested heavily in providing its customers with quality online service and affordable pricing and shipping. This business strategy is what has made Amazon the successful retail giant it is today. Toy “R” Us, although having an online store, provides only toy products compared to their competitors whose online stores are littered with an array of all products. This lack of diversity has hugely affected Toy “R” Us because their main source of profit has become obsolete over time as the toys they sell can be considered outdated. The technological innovations such as realistic gaming and advanced toys have a huge market among the young generation of the 21st century. The competitors of Toy “R” Us have the toys as their main selling point, and they offer incredible discounts compared to the original manufacturers, making the stores more desirable to the younger generation. Failure to conform with the changing times and change their business model has left Toy “R” Us unable to compete with also being burdened by the hefty debt.
Theoretical analysis
There is a need to implement these business management strategies such as system theory, bureaucratic management, human relations theory, contingency theory, and theories x and y to resuscitate the organization. System theory is important as it treats the organization as a system, closed or open, meaning that it is governed and affected by the same factors and laws as other organizations. It comprises concepts such as entropy, synergy, and subsystem that encompass the way that a business is perceived. Toy “R” Us decline is manifested by entropy, which describes the tendency of a system to die. Synergy promotes the importance of teamwork as different entities produce far better results than a single entity would. Toy ...