New Toys R Us CEO outlines strategy to reverse declining sales

Published on: 27th March 2014

Antonio Urcelay admitted performance was disappointing and outlined the measures that the retailer will take to stabilise its business.

Toys R Us has said that its sales last year declined 7.4% to $12.5b, the lowest level since at least 2009. Lower demand for items including video games and baby toys led to a 4.1% decline in its holiday quarter same-store sales. Discounting to clear unsold merchandise contributed to a loss in Q4, more than two-fifths of total sales. That translated to a loss of $1.04b in the year ended February 1st after profits declined in each of the prior three years.

In his first media meeting, chief executive Antonio Urcelay admitted performance was disappointing and said the retailer has spent time with its suppliers, customers and employees performing a “diagnosis” of what hurt results. While he cited external factors, including declining US birthrates since 2008 and US toy industry sales that have stayed flat around $22b, and consumers’ increased online spending, he called out issues that were “self-inflicted”. He didn’t name the company’s rivals from Wal-Mart WMT to Amazon AMZN +0.02% , but his presentation showcased how the retailer stacks up against its top rivals in several customer metrics.

While the retailer ranks high in perceptions, like having the newest and hottest toys, it fell behind on measures including easy in-store and online navigation, in-stock level, easy returns and check-out speed.

Mr Urcelay said: “We listen to customers much more than before. In the past we may have insights, but we may do nothing. Now we are doing something about it. We are trying to focus on the basics.”

He explained that Toys R Us will stabilise its business and slow its rate of sales and profit decline, adding that the company has two years to realise its strategic vision before key debt maturities are due. Toys R Us has refinanced $1.8b in debt with lower interest rates, he said, adding that it has the full support of its lenders. Same-store sales have risen 3.5% so far this fiscal year in the US, which represents about 60% of its total sales and half of its profit.

The retailer said it will identify cost-cutting opportunities, and with a total of 70,000 employees globally, has cut 500 jobs this year, including 100 in its New Jersey headquarters. Mr Urcelay said he doesn’t see major store closings as part of the plan because 98% of the company’s 862 US stores and 94% of its 635 international stores are profitable.

The company will update its mobile apps and website speed, invest in store facelifts to make them easier to shop in and less cluttered, as well as increase training and add labour in key store areas. It also will slow US store growth and no longer focus on putting its Toys R Us and Babies R Us side by side. Urcelay said the company also will better utilise its loyalty programme, which he described as a key asset. That includes targeted and customised messages to its 29m active reward members at Toys R Us and another 18m to date that have registered with Babies R Us.  Like other retailers, it also wants to better integrate online and in-store sales, including shipping online orders from stores. Using stores to ship products will allow the company to cut costs and shut a distribution centre in Nevada this year.

Toys R Us, which has a price matching guarantee to compete against its rivals, said it is also fixing its price perception problem by simplifying prices and sales signs.

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