Why We Should All Care About the Return of Toys "R" Us

Toys "R" Us, the venerable retailer that liquidated all of its stores last year, is having another go at it. Here's why we should pay attention.

Most of us have fond memories of Toys "R" Us as kids. Excitedly wandering the store aisles and marveling at the toy selection towering over our childish stature. Receiving the Toys "R" Us catalog at home combing through its pages over and over and over again. It was a magical mystique for children -- even if a nightmare to our parents' wallets.

As we know, Toys "R" Us shuttered all of its 800 stores in 2018, ending the 60 year-old company run and putting thousands of employees out of work. This week, however, Toys "R" Us, under its new ownership, Tru Kids Inc, opened one new store in Paramus, New Jersey at the Unibail-Rodamco-Westfield's Garden State Plaza mall. A second store is scheduled to be opened later this December in Houston, Texas at the The Galleria, in time for holiday shoppers.

In order to understand the significance of this single store opening, first we should briefly recap how we got here. Many blamed the demise of Toys "R" Us on Amazon and, more broadly, the rise of online shopping. This is largely accurate, but Toys "R" Us would have been positioned to evolve had it not been burdened with debt from a leveraged buyout almost 15 years ago. The company simply did not have the cash to service debt while also investing in the future.

The real question, however, is whether retail in general can survive in today's online shopping world. Toys "R" Us was not alone -- not even close -- in struggling with changing consumer preferences and behaviors. Over the past few years, we have experienced the "death of retail" through continued closings and downsizing of venerable retailers, from Sears to Payless Shoes stores to -- well, there are too many to name. 

In fact, there have been 9,300 retail closings in 2019 alone.

Of course, the convenience of online shopping is a major reason for this shift. So how will retailers survive?

In 2013, I wrote about a toy retailer in South Carolina, Wonder Works, that was thriving as online shopping was growing in popularity. They differentiated by creating unique consumer experiences that encouraged customers to come to the store. And while Toys "R" Us struggled, Wonder Works expanded.

The new business model for Toys "R" Us stores now seems to be chasing this customer experience model. According to CNBC, the new stores will be smaller, abandoning the large retail footprint formally associated with Toys "R" Us stores, and will add interactive games, treehouses and even a theater. Toys "R" Us has also partnered with a company called B8ta to create digital experiences that can only be had in the stores. 

The idea of differentiating through customer experiences is not new, and in just the past few years, it has become the go-to differentiation strategy for any businesses-to-consumer company that depends on in-person interactions. 

But will it all work? The new Toys "R" Us stores for 2020 offer all of us a remarkably unique opportunity to watch and learn from a real-world experiment in action. Toys "R" Us is the first significantly large and well known retail brand to close all its brick-and-mortar outlets completely and re-open with this new retail business model.

If it succeeds, we may learn that retail stores can survive in the age of digital media and online shopping. If it fails, however, it may be the "nail in the coffin" for retail as we know it.