GM Thought of the Week – Inevitable or preventable?
The news that Toys R Us had entered administration certainly evoked nostalgic childhood memories for me but was it really a great surprise?
Heralded as another example of the High Street crisis, the toy store joined restaurant outlets in announcing closures, whilst fashion retailers also this week confronted uneasy realisations of their ailing financial health. However we have long been aware of the pressures that high street stores face in the rise of online shopping and the general change in consumer preferences, but was this unavoidable? Sure such prevailing pressures are of course currently being heightened due to a confluence of factors. The biggest catalyst being the Brexit vote which caused the pound to depreciate by 15%, leading to imported inflation for both individuals and firms. The consequence of this and also low, wage growth rates has led to lower disposable incomes. Latest retail sales figures from the ONS report a slowdown in growth year on year to just 1.6%.
However Toys R Us did little to protect itself from this storm. A failure to evolve and a tendency to rest on past successes gave it little chance of surviving. Online monoliths attract customers with accessibility, convenience and their appealing price points. Retailers such as Toys R US cannot compete on price due to inevitable higher overheads but nevertheless have failed to cut costs and establish a competitive pricing structure. A focus on rapid expansion in its bricks and mortar stores has resulted in over distension and high levels of debt to get there, coupled with higher fixed costs. The warehouse style stores lacked the omni-channel experience which so many retailers have now embraced and integrated in their business models and which customers now expect. But more so than these economic reasons, is it that the appeal of visiting the, ‘magical place’ (one that I fondly recall) has long since subsided with today’s generation? Children are tech savvy and are interested in experiences; TRU failed to innovate and inspire even in this digital era. Whilst this does serve as a reminder to retailers of the current climate they are in ; it shows more the importance of being consumer obsessed, competitive, relevant and innovative to best shield them in such times.
For Toys R Us, the ‘Magic’ had become tired.
Thomas Jameson, Associate Director of Finance