Can the new owners of Toys R U's, the second largest toy retailer in the US, revive the giant's sagging fortunes?
Toys R U's, which revolutionized toy retailing in the US with its big-box (the format of making available all goods under one roof) low-price stores, has succumbed to competition from discounters and has sold its businesses to a consortium of three private venture capital firms. While Toys R U's used the low-price strategy to grow at the cost of smaller toy retailers, the same low-price strategy has come back to haunt it, as retailers like Wal-Mart and Target have made it tough for the company to earn profits.
Started by Charles Lazarus in 1948, selling children's furniture the company slowly moved into the toy business and went public in 1978. Toys R U's major divisions include Toys R U's (US), Toys R U's International, Babies R U's (which sells apparel, furniture, bedding and other materials for babies) and the online portal Toysrus.com.
The American toy industry has been struggling to cope with the rapid changes in consumer preferences. The discounters have made it more of a commodity market further increasing the woes of the industry. The US toy industry is characterized by the seasonal nature of the business (which sees increased sales in the fourth quarter, which includes the Christmas season), apart from the unusual and often unpredictable life cycles of the toys.
The consortium, which outbid rivals Cerberus Capital Management for Toys R U's, brings in their experience of managing and turning around retail businesses; this will augur well for the company. One crucial aspect of the deal will be the advantage the company will have by becoming a private company. It will enjoy greater freedom in operating as it will no longer be regulated by the Sarbanes-Oxley Act constituted to check scandals and compliance with law by private companies. |
