Toys “R” UsAlan B. Eisner
Keeley Townsend
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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.
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.
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.
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.
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.
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.
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
Q2: Toys “R” Us Value Chain
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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
Q2: Toys “R” Us Value Chain (cont.)
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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
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
Q4. Business Level Strategy
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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.
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