The Cosmopolitan Hotel Las Vegas April 19, 2017

Toys“R”Us Turnaround: Culture & Customer

Experience

Dave BrandonChairman & CEO

Toys“R”Us

What Do These Five Organizations Have in Common?

Changemanagement!(Myexperiencehasbeen…changeisconstant)

Toys“R”Us

How Do I Approach Change Management?

• Understand and Embrace the Fact that … Change Creates Stress – and Stress can be Good!

• Create a “Change Culture” in the Organization

• Make Change a Positive (“Sudden Change Drill”)

• Manage Change vs. Allowing Change to Manage Me!

Toys“R”Us

Organizational Behavior / Performance

“The Stress Curve”

Per

form

ance

Desirability

Anxiety - Stress - Tension

0 0

100 100

Lo Mid Hi

Toys“R”Us

Toys“R”Us, Inc.

… is a Good Thing

Sudden Change…

Toys“R”Us

ChangeCase for Change Vision Skills Incentives Resources Action Plan

Status QuoVision Skills Incentives Resources Action Plan

ConfusionCase for Change Skills Incentives Resources Action Plan

AnxietyCase for Change Vision Incentives Resources Action Plan

Gradual ChangeCase for Change Vision Skills Resources Action Plan

FrustrationCase for Change Vision Skills Incentives Action Plan

False StartsCase for Change Vision Skills Incentives Resources

Managing Complex Change

Toys“R”Us

Case for Change

Toys“R”Us

U.S. Stores 2005

3,702

1,397

---

8

901

230

Case for Change

Toys“R”Us

U.S. Stores 2005

U.S. Stores 2016 + / -

3,702 5,229 1,527

1,397 1,806 409

--- --- ---

8 113 105

901 879 (22)

230 223 (4)

Case for Change

Toys“R”Us

U.S. Stores 2005

U.S. Stores 2016 + / - Revenues

2005

3,702 5,229 1,527 $288 Billion

1,397 1,806 409 $53 Billion

--- --- --- $2 Billion

8 113 105 $6 Billion

901 879 (22) $11.3 Billion

230 223 (4) $2.1 Billion

Case for Change

Toys“R”Us

U.S. Stores 2005

U.S. Stores 2016 + / - Revenues

2005Revenues

2016 + / -

3,702 5,229 1,527 $288 Billion $486 Billion 70%

1,397 1,806 409 $53 Billion $74 Billion 40%

--- --- --- $2 Billion $136 Billion 6,800%

8 113 105 $6 Billion $12 Billion 100%

901 879 (22) $11.3 Billion $11.5 Billion 2%

230 223 (4) $2.1 Billion $1.3 Billion (38%)

We Have…More Competition

Bigger Competition

Better Competition

Case for Change

Toys“R”Us…Gets Done!!

What Gets Measured…

Toys“R”Us

Toys“R”Us

Adaptability Pattern..Trends..Market

Translating the demands of the business environment into action

“Are we listening to the marketplace?”

MissionDirection..Purpose..Blueprint

Defining a meaningful long-term direction for the Company

“Do we know where we are going?”

InvolvementCommitment ... Ownership … Responsibility Building human capability, ownership, and responsibility “Are our people aligned and engaged?“

ConsistencySystems… Structures… Processes

Defining the values and systems that are the basis of a strong culture

“Does our system create leverage?”

Organizational Culture Survey…

Toys“R”Us

Organizational Culture Survey# Of Responses

1332NUMBERS DENOTE PERCENTILES | 10/30/2015 | 2013 Normative Dataset

©Daniel R. Denison, Ph.D. All rights reserved

Toys“R”Us

©Daniel R. Denison, Ph.D. All rights reservedNUMBERS DENOTE PERCENTILES | 10/30/2015 | N=1332 | 2013 Normative Dataset

IN ALL CASES, A HIGHER SCORE INDICATES A MORE FAVORABLE CONDITION.*For this negatively worded item, the raw score has been reversed.

The way things are done is very flexible and easy to change.

We respond well to competitors and other changes in the business environment.

New and improved ways to do work are continually adopted.

Attempts to create change usually meet with resistance.*

Different parts of the organization often cooperate to create change.

Customer comments and recommendations often lead to changes.

Customer input directly influences our decisions.

All members have a deep understanding of customer wants and needs.

The interests of the customer often get ignored in our decisions.*

We encourage direct contact with customers by our people.

We view failure as an opportunity for learning and improvement.

Innovation and risk taking are encouraged and rewarded.

Lots of things "fall between the cracks".*

Learning is an important objective in our day-to-day work.

We make certain that the "right hand knows what the left hand is doing".

PERCENTILE0 25th 50th 75th 100th

Creating Change7

6

5

22

27

Customer Focus15

14

16

6

10

Organizational Learning17

18

21

7

25

1st 2nd 3rd 4thQUARTILE

Toys“R”Us

2014 Temkin Customer Service Ratings 2014

Rating Company Industry

Temkin Customer

Service Ratings (TCSR)

Company TCSR vs Industry

TCSR

146 Toshiba Major Appliances 51% 0

159 Toshiba Computers 49% -1

70 Toyota Auto Dealers 59% 2

105 Toys 'R' Us Retailers 55% -4

173 TracFone Wireless Carriers 47% 4

10 Trader Joe's Grocery Chains 69% 4

159 Travelers Insurance Carriers 49% -10

87 TriCare Health Plans 57% 13

30 True Value Retailers 65% 6

35 U.S. Bank Banks 64% 6

Toys“R”Us

American Customer Satisfaction Index (ACSI) Specialty Retailers

Toys“R”Us

Toys“R”Us

Strategic Pillars Make Talent and Culture a Competitive Advantage

Grow and Build the TRU and BRU Brands Throughout the World

Create a World Class Experience for Our Customers - Innovate & Lead

Create a Strong Financial Foundation

Long-Range Goals

• Earn recognition as a Great Place to Work • Achieve top-quartile scores in every category of the Denison

Culture Survey • Embrace diversity and inclusion • Create a culture of high performance – empower team

members to be accountable • Provide ongoing career development opportunities and ensure

succession for all team members • Recognize and celebrate team member achievements

• Be recognized for global corporate citizenry • Establish and lead best-in-class global sourcing and safety

practices • Create high brand(s) engagement by becoming best-in-class in

CRM and digital marketing • Be loyal to our best customers • Make our vendor relationships a competitive advantage • Grow global Private Brands • Build the BRU brand in Europe & Asia • Remodel and re-image all TRU and BRU stores

• Be a leading specialty retailer delivering seamless multi-channel capabilities with strong in-stock conditions at every point of sale

• Establish a seamless brand transition for the customer from BRU to TRU, becoming a vital, trusted authority for families

• Operate brick and mortar stores that are attractive, technologically competitive, and flawlessly execute in every way

• Operate a webstore that provides a superior customer shopping experience

• Achieve >$1 Billion in EBITDA • Consistently grow profitable SSS in BRU & TRU and grow

our share of market every year • Stay “Fit for Growth” while we create a greater focus on

GROWTH • Work towards a simpler, more efficient capital structure • Create positive trends in sales growth, market share growth,

and EBITDA growth that will make TRU an attractive IPO candidate

Strategic Pillars Initiatives

• Conduct Denison Culture/360 degree Surveys • All leaders conduct regular store visits • Over-communicate results with team members • Create an effective succession planning process • Schedule & launch global best practices summits • Develop several initiatives to recognize and celebrate team

member accomplishments • Create a safe working environment for all employees

• Eliminate brand offensive stores • Execute a focused social media strategy/CRM • Improve global vendor relationships • Create a focused Private Brand and sourcing strategy for growth • Develop a rigorous process to qualify, approve and monitor vendors

for quality and compliance

• Increase our SFS and fulfillment capacity • Upgrade, train and empower SMs and DMs to “own” the

operations of their stores • Create user-friendly, efficient, and affordable customer care

processes • Develop the means for customers to order products whenever,

wherever and however they want to shop • Establish a selling & service culture in our stores

• Continue to lower operating expenses as a % of sales without impacting the customer experience

• Evaluate the size, mix and effectiveness of our annual promotional spend every year

• Create global “Centers of Excellence” around key support functions

• Create solutions to our capital structure issues

2017 Strategic Pillars

SMAC Objectives

• Conduct a GRC Denison Culture Survey by 10/31 and improve in all areas versus 2015 results

• Conduct a minimum of 2 LT hosted Brown Bag lunches per month at the GRC beginning 4/1

• LT members collectively increase the number of store visits versus 2016 levels

• Execute a minimum of five (5) GRC Huddles • Recognize either a Champion Pay/ABCD Award/Hall of Fame

recipient at every Huddle

• Achieve Private Brand growth of 3% or greater globally (2% or greater US)

• Execute top-to-top meetings and joint business planning with the top (in total) 15 toy, baby and licensing partners leading to their overall sales and share growth

• Complete the installation of ICIX by 7/30 and have GSO and non-GSO private label vendors utilizing the system by 9/30

• Fix 95% + of the 858 P1 issues that impact 338 stores by 10/1

• Install traffic counters in our brick and mortar stores by 7/1 • Achieve average brick and mortar store NPS score of 73 and

70 or greater on dotcom fulfillment • Create a pipeline of fully trained SMs and DMs to provide us

with trained and ready leaders - 103% coverage of both positions by 10/1

• Reduce the number of escalations to our Customer Care Center and the amount of appeasements versus 2016 levels

• Achieve $--- million or greater in EBITDA • Increase the CEO contingency by a minimum of $10 million

as a result of targeted zero-based budgeting initiatives and partnering with store operations to identify productivity opportunities through store-to-store benchmarking

• Improve financial health by achieving targeted quarterly metrics in gross inventory and net accounts payable

2017 Critical Missions

Serve Our Customers with What They Want – When and How They Want It

Provide a World-Class Digital Experience Bring Our Toy Stores to Life Transform the Babies “R” Us Brand

2017 Critical Missions

Initiatives

• Implement a new planning and allocation system that lowers inventories and improves in-stocks

• Improve our promotional planning and communication processes to ensure that our DCs have required product to support featured items

• Reduce the operational costs associated with our supply chain activities

• Successfully launch our new webstore with improved functionality and customer experience

• Launch a new loyalty program that will grow our number of loyal customers and encourage repeat visits to our stores

• Significantly improve the EBITDA production of our webstore • Make CRM a sales and traffic driver for BRU and TRU

• Execute a significant item reduction in brick and mortar stores • Expand our American Girl shop-in-shops by a minimum of 25

stores • Activate our stores with events and activities that will provide a

“toy fair” experience

• Execute a significant item reduction in brick and mortar stores

• Launch a new BRU Registry that is competitive with other baby registries in function and design

• Successfully roll-out a unique and user-friendly car seat customer experience by 6/1 and a similar stroller customer experience by 10/1

2017 Critical Missions SMAC

Objectives

• Each functional unit impacting in-stock levels in our stores will set a SMAC objective related to their role and will successfully achieve it to create an improvement in every one of our in-stock measures

• Achieve a 90% in-stock level in all DCs on all featured items • Deliver a minimum of 3 customer pain point solutions for our

omnichannel experience

• Successfully launch our new webstore with improved functionality and customer experience as measured by an improvement in traffic and conversion metrics by 7/1

• Achieve a dotcom store contribution rate of 17.7% or better • Successfully launch our new loyalty program by 10/1 • Implement a targeted experience for 3 large customer segments:

build sustainable process (EOQ2), and key data in-house (EOQ3), and make CRM technology decisions (EOY)

• Grow total transactions versus 2016 • Item reduction of 10% or greater • Maintain or grow our 2016 Market Share position in the Toy

category • Plan and execute a minimum of 5 national traffic driving out-

of-season activation events • Create 4 new shop in shop experiences in a minimum of 300

stores

• Grow total transactions versus 2016 • Successfully launch a BRU registry mobile app native 1.0 by

7/1 and launch an upgraded mobile app native 2.0 by 10/1 • Achieve growth in Registry sales by 5% versus 2016 levels • Item reduction of 10% or greater • Achieve market share of 22.8% or higher in 2017 as reported

by NPD

Toys“R”Us

Strategic Pillars

Toys“R”Us

Strategic Pillars

Make Talent and Culture a

Competitive Advantage

Toys“R”Us

Strategic Pillars

Make Talent and Culture a

Competitive Advantage

Grow and Build the TRU and BRU Brands Throughout the World

Toys“R”Us

Strategic Pillars

Make Talent and Culture a

Competitive Advantage

Grow and Build the TRU and BRU Brands Throughout the World

Create a World Class Experience

for Our Customers - Innovate & Lead

Toys“R”Us

Strategic Pillars

Make Talent and Culture a

Competitive Advantage

Grow and Build the TRU and BRU Brands Throughout the World

Create a World Class Experience

for Our Customers - Innovate & Lead

Create a Strong Financial Foundation

Toys“R”Us

Strategic Pillars

Make Talent and Culture a

Competitive Advantage

Grow and Build the TRU and BRU Brands Throughout the World

Create a World Class Experience

for Our Customers - Innovate & Lead

Create a Strong Financial Foundation

Long-Range Goals

Toys“R”Us

Strategic Pillars

Make Talent and Culture a

Competitive Advantage

Grow and Build the TRU and BRU Brands Throughout the World

Create a World Class Experience

for Our Customers - Innovate & Lead

Create a Strong Financial Foundation

Long-Range Goals

Strategic Pillars

Initiatives

Toys“R”Us

Strategic Pillars

Make Talent and Culture a

Competitive Advantage

Grow and Build the TRU and BRU Brands Throughout the World

Create a World Class Experience

for Our Customers - Innovate & Lead

Create a Strong Financial Foundation

Long-Range Goals

Strategic Pillars

Initiatives

2017 Strategic

Pillars SMAC

Objectives

Toys“R”Us

Strategic Pillars

Make Talent and Culture a

Competitive Advantage

Grow and Build the TRU and BRU Brands Throughout the World

Create a World Class Experience

for Our Customers - Innovate & Lead

Create a Strong Financial Foundation

Long-Range Goals

Strategic Pillars

Initiatives

2017 Strategic

Pillars SMAC

Objectives

Toys“R”Us…Gets Done!!

What Gets Measured…

Toys“R”Us

Overall Assessment Since Program Launch

✓ Aggressive timelines were achieved and implementation was very smooth

✓ Significant improvements in the customer experience over past 6 months

✓ Overall Net Promoter Score went from 66 to 68

✓ Current performance is 68 – Average

✓ FY17 Goal is 73 – Above Average

Toys“R”Us, Inc.

✓ Our teams give positive feedback that the platform is intuitive, immediate and impactful

✓ The Mobile app is a clear winner for our Marketplace Leaders!

• Store Managers have been able to contact customers to solve bad experiences and build on positive ones

• Provides quick feedback on customer behaviors

QUESTIONS?