Subscribe to our newsletter
Toys ‘R Us has come crashing down, as irresistible – and arguably inevitable – forces brought the household name to the edge of oblivion. What caused this? How can companies guard against this? What impact does this have on companies both online and off?
The Experts Agree
It was only a few months ago that Toys R Us CEO David Brandon had spoken about turning the company around by upgrading online sales, renovating stores and introducing augmented reality into the shopping experience.
None of these happened. At least, not quickly enough.
Experts have put forward a number of reasons for the relatively sudden collapse; of course, the company’s massive debt load was the final hammer blow, but there were other factors at play that, if done differently, could have resulted in a vastly different outcome.
For example, by announcing bankruptcy so close to the holiday season, there was a massive distraction factor, and shoppers were less likely to make purchases. Who knew if returns and gift cards would be honored? (Toys R Us is now accepting gift cards only through mid-April).
Then, competitors such as Amazon, Walmart and Target all aggressively boosted toy discounts during the holiday season – as Toys R Us reported in a court filing. They also offered aggressive online shipping options, effectively hastening the demise of the toy retailer.
These are just some of the issues at play. Perhaps the overarching trend here, what will set companies apart and differentiate the winners from the also-rans, and is as relevant to traditional brick & mortar retailers as it is to cutting-edge etailers, is the following:
Toy brands were doing everything they could to go direct to the consumer, and cut out the likes of Toys ‘R Us. And this isn’t specific to the toy industry. Far from it.
All retailers are suffering from the speed, pricing, and service offered by Amazon, but more than this, the key is that brands want to go direct to their consumers.
To survive in this climate, companies need to have an edge; they need to create their own brands and IP to survive.
For single vertical etailers, to be successful it’s “differentiate on customer experience, or die”.
Looking at Toys ‘R Us, the customer experience had gone down, digital channels weren’t competing, their own brands were non-existent, and the likes of Amazon and Lego left no place for them in the value chain.
The Challenge Facing Dick’s
Another company facing similar pressures is Dick’s Sporting Goods. The circumstances are all-too-familiar, but the retailer still has time to pull the necessary levers to turn things around.
In an article titled “Dick’s Sporting Goods shares downgraded because ‘competing with Amazon too difficult’”, CNBC takes a look at the reality facing Dick’s specifically, but which can be extrapolated across the entire industry and applied to any similar company one can think of.
The company’s stock has taken a beating. And what doesn’t bode well for the future is that key brands such as Nike and Under Armour (representing 20% and 12% of Dick’s Sporting Goods sales, respectively) are increasingly looking to sell through other distribution channels.
This forms part of the trend we’ve already seen: companies wanting to go directly to the consumer, even if “directly” means “through Amazon”.
Nike has already discussed these plans, and Under Armour and Adidas are already selling directly on Amazon.
As Bloomberg reports, Under Armour is expanding its store footprint (which included 280 locations worldwide by the end of last quarter) and Nike has launched more exclusive products to its membership program and provides unique experiences through its Experts on Demand service.
They’re Not The Only Ones
Toys ‘R Us, Dick’s, and now even Foot Locker. The company has seen shares plunge as key brands go direct-to-consumer.
Chief Executive Richard Johnson, however, does not see the greatest threat coming from online competitors or brands going direct. He notes that “We do not believe our vendors selling product directly on Amazon is an imminent threat. There is no indication that any of our vendors intend to sell premium athletic product, $100-plus sneakers that we offer, directly via that sort of distribution channel”, according to a FactSet transcript.
According to Johnson, for more affordable and “undifferentiated” items, shoppers might head to Amazon. But he went on to say that “vendors agree with us that consistently selling their premium aspirational product requires great storytelling, great relevance to the influences on our customers lives, as well as engaging digital and in-store experiences.”
While this may be a case of “head in the sand”, the fact remains that brands are going direct-to-consumer, having differentiated products and experiences is essential, and being on top of online channels is critical.
What The Response Has To Be
Dick’s has made some smart moves. One example is with their intangible assets. As consolidation in the industry has occurred – if not carnage – they have ditched many non-strategic suppliers, acquiring their IP and customer lists. They have boosted their own in-house brands, which generate over $1 billion a year and include women’s athletic line, “Calia by Carrie Underwood”, and have expanded their online offering.
Despite their struggles, they are attempting to differentiate in all aspects, including customer experience, and to carve out a space for themselves in the value chain.
The Final Word
Some companies are making it through; many are not. Those that have an edge, that have their own brands and IP, that can differentiate themselves and offer value, have a bright future ahead of them.
The differentiating factors are every single touchpoint. Each of these are now a do-or-die strategic asset. If you’re not in this game, you will be circumvented in the race to reach the consumer.
Ensure you’re on top of every one of these touchpoints, in particular when up against your fiercest competitors. With Market Beyond for example, you get actionable insights into all of your touchpoints: from pricing to reviews, SEO and a whole lot more. Ensure you’re part of the future, and not a case study in failure to adapt, like Toys ‘R Us.