Toys R Us Case Study Solution

Toys R Us is based in Paramus, New Jersey. The company grew at an accelerating annual rate of 23 % and became the absolute leader in the retail toy market in 1990, with a market share of 20%. In order to reach this kind of dominant position, the company fused the split toy market by developing a nationwide chain of retail outlets. That way the company is able to follow a cost-leadership approach. To diminish its cost structure, the company established efficient material and management techniques for ordering and allocating toys to its shops. It also provided a low level of customer service in comparison to traditional small toy shops. This kind of business model allowed Toys R Us to achieve a low expense – to-sales ratio of 17% and it then

When the rapidly expanding companies such as Wal-Mart, Kmart and Target became aware of the high profits that Toys R Us was earning they began to make toy selling a major part of their business model. At this stage there was not much Toys R Us could do to top their competitors. The company failed to control its costs and therefore was unable to stop their entry into its business by reducing its prices. It failed to follow its cost-leadership strategy through, it had lost its ability to play pricing games as it had done with its earlier rivals. The entry of these other corporations also reduced its power over its suppliers, the toymakers, because they now had important new customers. Lastly, some of the new entrants, Wal-Mart in particular, were not the cost leaders in the retail industry, and their size gave them the resources to endure any problems if Toys R Us attempted to start a price war. In fact Wal-Mart simply copied the earlier approach of Toys r Us and began selling toys at prices that were lower than those of Toys R Us. By 2000, Wall-Mart became the leading price-setter in the toy market. To survive, Toys R Us has tried to lower its cost structure in its core toy business. It has set up new IT to increase the efficiency of its purchasing and distribution procedures. It lowered the number of items that its shops carry by over 30% to reduce its cost structure. At the same time, understanding that it will never be able to compete with Wal-Mart’s low costs, it changed its business model in the one that creates customer value by developing stores for related market segments, such as Kids R Us and Babies R Us. The company also went online and tried to develop a major Web presence. However Toys R Us was faced with high costs of online selling, therefore it partnered with Amazo.com. Toys bought in its shop on Amazon’s website can