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Working with Toys R Us

Posted By Ron Sidman, Thursday, July 14, 2011
Updated: Tuesday, July 21, 2015

Jerry Storch, Chairman and CEO of Toys"R"Us, is a very impressive and successful leader. In his breakfast keynote presentation at JPMA’s recent Summit in DC, he made it clear that his company, already one of the dominant retail forces in the industry, intends to continue to try to gain market share wherever it can in the US and abroad. The phrase, "We’re playing to win", has been used very successfully by Mr. Storch to motivate his company in this direction, evidenced most recently by reported market share increases in 2010 at the expense of his competitors.

But while leading in toy and baby market share and becoming the industry "voice of authority" is their goal, it was also clear from Mr. Storch’s very presence at our Summit and his comments about vendor partnerships that they also recognize how important branded suppliers are to their business model.

Having said that, it’s possible his comments about the critical importance of exclusive products and their intent to accelerate their private label program sent shivers up the spines of some of the manufacturers in attendance. This is not new news or a change in strategy for TRU. These strategic themes go back to at least the Marty Fogelman era if not before. As Mr. Storch admitted, TRU simply does not have the cost structure to compete with the likes of Walmart head to head on price and therefore needs as much as possible to have a different set of products in their stores. He highlighted Mayborn’s Tommee Tippee feeding line as an example of an exclusive TRU/BRU program that has been successful for both Toys"R"Us and the supplier.

The Challenges:

·         Those of you who count TRU/BRU among your customers are very fortunate in many respects but you also have some hairy issues to deal with.

·         Can you and should you create exclusive products for them?

·         Is it possible that one of your high volume, high profit products could appear some day in a Babies"R"Us private label package—a brand that Mr. Storch says scores very well with consumers.

·         Should you take the initiative and provide private label products to them yourself as Mr. Storch suggests?

·         What are the implications of TRU/BRU becoming a higher and higher percentage of your total business?

Some Suggestions:

Keep working at maximizing your competitive advantage.

Unless you’re Procter and Gamble, you are never in a great bargaining position with large retailers. And even P&G occasionally gets put in their place by the big guys. However, the more appealing your brand and products are to consumers versus the other guys, the stronger stand you can take on all these issues and still remain a supplier. Increasing competitive advantage is what strategic planning is all about.

Design your products with the ability to create multiple versions.

Exclusives of one sort or another are a fact of life in this industry. When you are in the design stage, plan for multiple versions in a way that minimizes tooling, production, and inventory costs.

Continually improve high volume products.

You can’t totally stop knock-offs either by competitors or retailers, but you can stay ahead of the game by annually upgrading your key products. That way they are always superior to copies whether by competitors or private label. Of course, you should patent whenever you can as long as the patent is strong enough.

Stay true to your core competencies and strategy.

Be careful about trying to be all things to all retailers. If your competitive advantage comes from being the low cost producer, it might make sense to consider being a private label provider to retailers. However, if your culture and product line is all about superior quality and performance, think three times before getting into it because you won’t be leading you’re your strength and you’ll dilute the focus of your staff.

Diversify, diversify, diversify.

That maxim that applies to investing applies just as much to your business. As the big retailers get bigger it becomes more difficult, but you will sleep better at night to the extent you can keep any customer from getting so big that losing all or part of their business could be fatal. Diversifying your customer portfolio needs to always be a strategic priority.

What are your thoughts? Submit a comment or question and I’ll respond to it.

 

Disclaimer: No warranties, express or implied, are contained herein. Purchasers, or users, of this information acknowledge that any errors or omission in the performance of the material contained herein or, any injuries resulting from its use, are the sole responsibility of the purchaser or user, and not JPMA or the author. Opinions expressed are those of the author only.

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