Toys "R" Us vs. Wal-Mart
Somewhere in Toyland, Geoffrey the giraffe, Toys "R" Us's upbeat mascot, was melting down. In August, after losing share for years to Wal-Mart, Toys "R" Us CEO John Eyler suggested that the retailer might ditch the toy business to focus on its baby-goods division. Eyler didn't raise the white flag, but he sure seemed to be unfurling it for future use.
Wow. Could Wal-Mart take down Toys "R" Us, the 56-year-old chain that basically invented the term "category killer"? It sure looks that way: In the six months ended July 31, sales at Toys "R" Us's 684 U.S. toy stores dropped 8.7%, producing a $152 million operating loss. To find out why, we went shopping.
On one level, a store-to-store comparison appears lopsided: Toys "R" Us has thousands more toys. It's not just that you find more Legos, Barbies, and stuffed animals. You find them in greater variety — more characters, colors, and accessories. Toys "R" Us has renovated many stores since 2000, and it shows. Instead of aisles, big loops take shoppers past distinct "worlds" of stuffed animals, preschool toys, strollers, bikes, cars, action figures, video games. With more shelf space, manufacturers have room to experiment and surprise.
Wal-Mart's toy department is seven aisles, or about 3,500 square feet, a fraction of the 45,000 square feet typical at Toys "R" Us. (Wal-Mart expands the area for the holidays, though.) It stocks mostly best-sellers such as Bratz dolls and movie spin-offs — Spider-Man Legos and Shrek 2 Rotten Root Canal Play-Doh sets. Shelves seem organized at random and have the picked-over appearance of a yard sale. Service is next to nonexistent: A blue-smocked employee tells me toys "isn't my department." And the place doesn't feel remotely playful.
What's Wal-Mart's appeal? Heather Dambek, a Chicago mother of 2-year-old twins, doesn't come to Wal-Mart intending to buy toys, but she winds up with them in her cart. "I'm in here once a week for things like toilet paper, and every time I browse for toys," she says, "I see the prices and get suckered in."
That's revealing. It's not that Wal-Mart's prices are much lower than those at Toys "R" Us; one analyst pegged the advantage at 1.2%. But Wal-Mart's combination of price and convenience is powerful indeed. Toys "R" Us is a big, brightly colored store where you could spend hours and not see every toy. Consumers go to Wal-Mart to buy something else, but can't resist trolling the toy aisle for a bargain.
Toys "R" Us is clearly the better retail experience. Its stores have a sense of the fun and magic that toys, at their best, can deliver. They're playful (in a formulaic, corporate way, but still). In the face of the Wal-Mart monolith, though, Toys "R" Us doesn't have a prayer.