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Page 1: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

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Page 2: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Toys “R” UsAlan B. Eisner

Keeley Townsend

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Page 3: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Toys “R” UsIcebreaker Questions

How many of you have shopped for toys or children’s gifts or baby products?

Have you ever been in a Toys “R” Us store?

What about Wal-Mart? In general, do you shop for gifts in a

store or online? Does it make a difference to you if the

online store also has a brick-and-mortar equivalent?

What are the differences in the customer experience?

What about differences in the customer experience at a specialty retailer and a discount store?

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Page 4: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Toys “R” Us

1. Analyze Toys “R” Us’ external environment.

What are the general environmental factors that have impact on this retail industry?

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Page 5: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Toys “R” Us

2. What are the external forces of competition affecting this retail industry?

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Page 6: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Toys “R” Us

3. Analyze the Toys “R” Us internal environment.

What does the Toys “R” Us value chain look like?

What about its resources? How would you evaluate its

strengths, weaknesses and synergies?

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Page 7: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Toys “R” Us

4. What business level strategy does Toys “R” Us appear to pursue?

What niche (cost, differentiation, focus) do they fill in this highly competitive retail industry?

Is it sustainable?

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Page 8: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Toys “R” Us

5. What corporate level strategy does Toys “R” Us appear to pursue?

Is it sustainable?

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Page 9: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Q1. Industry Environment

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

SUPPLIERS BUYERS

SUBSTITUTES

POTENTIAL ENTRANTS

INDUSTRY COMPETITORS

Brick & Mortar: mall retailer and discounter growth; Internet: increasing capital requirements in tech. infrastructure

Both Brick & Mortar and Internet: no real supplier power evident

Both Brick & Mortar and Internet: general lack of product differentiation, absence of switching costs, consumers buy in small quantities

Brick & Mortar: Internet, including online auction environments

Brick & Mortar: market share and profit margins being squeezed; Internet: extreme rivalry; lack of industry concentration/high level of tech. change

Page 10: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Q2: Toys “R” Us Value Chain

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Value Chain Activity

How does Toys “R” Us create value for the customer? What challenges does Toys “R” Us have in its value chain, in both Brick & Mortar and Internet environments?

Primary:

Inbound logistics

Both: Toys “R” Us traditionally strong in both selection & procurement of toys. Challenges include competing with Wal-Mart in distribution/supply chain

Operations Brick & Mortar: operations happen at store level, with real-time control and monitoring. Internet: operations happen in tech. based “back rooms” where algorithms do the monitoring.

Outbound logistics

Brick & Mortar: no real challenges here. Internet: could be a highly value added function if customer delivery is accurate and expedited. As in above, Amazon controls part of process

Marketing and sales

Brick & Mortar: in-store promotions, TV and print ads. Internet: referrals/key word searches

Service Brick & Mortar: customer contact immediate, problems resolved at store. Internet: customer removed from the experience

Page 11: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Q2: Toys “R” Us Value Chain (cont.)

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Value Chain Activity

Secondary:

Procurement Both: strong long-term relationships with suppliers

Technology development

Both: in-store layout design and Internet environment design need specialists, either on staff or through contact work

Human resource management

Both: strong mission/vision statement can create energy and commitment

General administration

Both: innovative and energetic new management can create an edge

Page 12: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Q2. Toys “R” Us Resources

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Tangible ResourcesFinancial: economies of scale, purchasing power, long-term investments, access to capitalPhysical: extensive brick & mortar real estateTechnological: existing Internet presence, access to expertiseOrganizational: experience in handling a specific customer segment means specialized processes exist: i.e., inventory and customer relationship mgt., procurement & prod. selection

Intangible ResourcesHuman: partnerships with experts like Amazon.comInnovation & creativity: history of innovationReputation: long-term relationship with some customersOrganizational CapabilitiesSpecific Competencies/Skills: expertise in specific markets: babies, toysCapability to Combine Resources: synergies exist between brick & mortar and Internet business

Page 13: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Q4. Business Level Strategy

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Cost Leadership: not likely since Wal-Mart and other discounters are main competitors on price. Amazon partnership makes this unlikely in the e-business format.

Differentiation: Brand identity (Babies “R” Us, Kids “R” Us and Imaginarium); differentiate the shopping experience itself; lack of resources to differentiate in the e-business environment.

Focus: Initially Toys “R” Us could focus on children/babies – no longer sufficient.

Page 14: 1-1. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights

Q5. Corporate Level Strategy

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Horizontal diversification – the decision to expand the brand into “Kids”, “Babies”, and “Imaginarium”

Internet business? Did this leverage existing competencies?

Amazon partnership is an admission that Toys “R” Us does not requisite capabilities. Internal development to partnership.

Now struggling to find a competitive niche – significant environmental challenges


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