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The Research and Examine Toys “R” Us

The purpose of this report is to research and examine Toys “R” Us, the world’s largiest toy chain store, so as to provide the company with strategic recommendations for future success. To throughly understand the company, the analysis is divided into multiple focus points: industry analysis, firm strategy analysis and firm financial analysis. The analysis concludes with rating that we give the company’s stock as well as our strategic recommendations for the company to increase it’s overall preformance.

Through studying the entire retail toy industry, we have been able to understand the complexity of the industry in which Toys “R” Us operates. Upon completion of the analysis, we realized that the industry is growing stably, in both size and dollar vallue, and has reached a mature market stage. In order to lead to future success, companies in this industry have no choice but to compete on new technology, innovation, cost, and global expansion. The financial analysis provides the information on the company’s financial data in operations.

Based on the research, we are able to conclude that Toys “R” Us is a fundamentally strong firm in the industry, and the top toy retailer around the global. In the past five decades, the company has hardly experienced any serious financial difficulties; and it’s been growing steadily in terms of both market share and market value. Based on the analysis, we are trying to provide Toys “R” Us with some specific recommendations, which include further expansion of operations and distribution channels, taking advantage of the internet age.

Returning from a stint in the Army, 25-year-old Charles Lazarus entered retailing in 1948, adding his $2,000 savings to a $2,000 bank loan to convert his father’s Washington, DC bicycle repair shop into a kids’ furniture store. Customers persuaded him to add toys, and he renamed the store Children’s Supermart. By 1966 sales had reached $12 million. He sold his company to discounter Interstate Stores for $7. 5 million, with the condition that he would retain control of the toy operation. By 1974 Lazarus’ division had expanded to 47 stores and $130 million in annual sales, but the parent had filed for bankruptcy.

From 1978 to 1983 earnings grew 40% annually, market share climbed to 12. 5%, and the number of toy stores reached 169. The company opened two Kids “R” Us clothing stores in 1983, copying the toy stores’ discount formula. Toys “R” Us entered the Japanese market in 1991. In 1993 Toys “R” Us continued its international expansion before Lazarus stepped aside as CEO in 1994. The company opened its first franchise (in Dubai, United Arab Emirates) in 1995. The toy seller paid $376 million for Baby Superstore in 1997 to strengthen its fledgling Babies “R” Us; by 1998 Babies “R” Us had become the largest US baby store chain.

Toys “R” Us was passed in US toy sales in 1999 by Wal-Mart. Also that year the company formed subsidiary toysrus. com, but it lost the backing of Benchmark Capital when disagreements over the subsidiary’s operational strategy could not be resolved. The company formed a joint venture with Li & Fung Retailing in 1999 to expand its presence in Thailand, the Philippines, and China. In early 2000 the company hired John Eyler away from FAO Schwarz as president and CEO. In addition, troubled toysrus. com received the backing of Japan’s Softbank, The Blackstone Group, KKR & Company, and Evercore Partners.

Also that year the company sold 32% of its Japanese subsidiary, Toys – Japan, to the public, retaining a 48% stake. Toysrus. com, haunted by its failure to deliver toys in time for Christmas 1999, launched a co-branded Internet store (toys, video games) with Amazon. com later in 2000. The partnership was expanded to include babiesrus. com in 2001. Toys “R” Us is rated: No. 172 in Fortune 500, No. 208 in Hoover’s 500, and listed in S&P 500. However, the only Monopoly that Toys “R” Us holds these days is on its shelves.

The Paramus, New Jersey-based company is still one of the world’s largest toy retailers, but it has lost its #1 US position to Wal-Mart. The company’s more than 1,500 stores (under the Toys “R” Us, Kids “R” Us, Babies “R” Us, and Imaginarium names) sell toys, sporting goods, books, furniture, computer software, and children’s apparel. To improve its lagging position in the toy retail game, Toys “R” Us is cutting inventory significantly in order to emphasize top-selling and proprietary items; it is also redesigning many of its stores (to eliminate the warehouse feel) and making a concerted effort to improve customer service.

To complicate matters, the company’s toysrus. com unit partnered with Amazon. com to sell toys (and baby products) on a combined Web site. The deal allows Toys “R” Us to close three distribution centers, and it saves millions on Web site design and maintenance. However it also must split any profits in an enterprise in which profitability has proven exceedingly difficult.

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