Toys “R” Us, Inc.

461 From Road
Paramus, New Jersey 07652-3526
U.S.A.
Telephone: (201) 262-7800
Fax: (201) 262-8112
Web site: http://www.toysrusinc.com

Public Company
Incorporated: 1978
Employees: 65,000
Sales: $11.07 billion (2002)
Stock Exchanges: New York
Ticker Symbol: TOY
NAIC: 451120 Hobby, Toy, and Game Stores; 448130 Children’s and Infants’ Clothing Stores; 454111 Electronic Shopping

Toys “R” Us, Inc. is one of the world’s leading retailers of toys, children’s clothing, and baby products. Although Toys “R” Us stood as the only nationwide toy store chain in the United States in the early 2000s, it was no longer the nation’s leading seller of toys, having lost that position to retailing behemoth Wal-Mart Stores, Inc. in 1999. Of the company’s more than 1,000 U.S. locations, 681 were general toy stores under the flagship Toys “R” Us name, 183 specialized in infant and toddler products under the Babies “R” Us banner, 146 were children’s clothing outlets under the Kids “R” Us brand, and 37 operated as educational specialty stores under the Imaginarium moniker. There were also four Geoffrey stores featuring products from all three of the “R” Us formats. The company operated, licensed, or franchised an additional 544 toy stores in 29 foreign countries, headed by Japan, the United Kingdom, Canada, Germany, France, Spain, and Australia. Toys “R” Us, Inc. also sold its products online through toysrus.com and other web sites, with this online retailing conducted via an alliance with Amazon.com, Inc.

Toys “R” Us Meets Interstate, 1952–79

Toys “R” Us founder Charles Lazarus was born above a Washington, D.C., shop where his father repaired and sold used bicycles. In 1948, after a stint in the Army, Lazarus began selling baby furniture in his father’s shop, using as seed capital $5,000 from a combination of savings and a bank loan. This was just two years after the beginning of the baby boom, and Lazarus aimed to attract as customers the families of GIs coming home from World War II. Noting that customers often asked if he sold toys, Lazarus began adding rattles and stuffed animals to his stock within a year. The bike shop was eventually renamed Children’s Supermart. In 1952 he opened the Baby Furniture and Toy Supermarket in Washington, D.C.; five years later he opened a discount toy supermarket in Rockville, Maryland, the first to bear the abbreviated Toys “R” Us name (the store’s original name would not fit on its sign). By 1965 Lazarus operated four such outlets in the Washington, D.C., area, and the next year, when revenues had increased to $12 million, he sold the profitable toy supermarkets to Interstate Stores Inc. for $7.5 million but continued to run the toy business that he had created.

Founded in 1916, Interstate became publicly owned in 1927. With 46 small department stores in its fold by 1957, sales growth had dwindled to almost nothing, and profit margins were shrinking. The company sought relief for its financial woes in the burgeoning discount store arena by experimenting with a discount store in Allentown, Pennsylvania. By 1960 it had acquired two discount chains: the White Front Stores in southern California and the Topps chain, located mainly in New England.

Interstate undertook an aggressive but ill-fated expansion, overextending itself, and the 1973–74 recession aggravated its problems. In 1974 Interstate declared bankruptcy, its debt at the time the largest accumulation of liabilities in retail history. By that year Interstate had 51 Toys “R” Us stores, and it continued to open new ones during its court-ordered reorganization. Before 1974 Toys “R” Us was still ordering and counting stock manually, but that year the company streamlined its ordering and inventory system by installing its first computer mainframe. In years to come the company would upgrade its computer system many times to keep pace with its ever-growing sales volume and inventory level.

In 1978 Interstate emerged from its reorganization a vastly different company. It had closed or sold all of its discount store operations; only the 63-store toy chain and ten traditional department stores remained. To reflect its principal business, the company had changed its name to Toys “R” Us, Inc., with Lazarus serving as its president and CEO.

Toys “R” Us Taking Off: 1980–85

Lazarus’s approach to pricing was vastly different from that of his competitors: he sold the items shoppers wanted most at little or no profit. Customers then automatically assumed most of the store’s items were equally well-priced and did the rest of their shopping there. By 1980 Toys “R” Us had earned a solid reputation as a retailer of great efficiency, with 101 stores around the country. Since its reorganization three years earlier, sales had more than doubled to nearly $750 million in fiscal 1981, a year in which many toy sellers suffered, especially during the holiday season.

There seemed to be no serious threat to the company’s growing dominance of the retail toy market—with its 120 stores—and executives were often quoted as saying they sought not so much to boost sales as to increase market share, which Toys “R” Us did from 5 percent in 1978 to 9 percent in 1981. The following year as rival Lionel Leisure, a chain of 98 toy stores, filed for bankruptcy, Toys “R” Us announced the formation of a new division to sell name-brand children’s apparel at discount prices. The company had first-hand experience with the baby boom generation’s willingness to spend money on their children and opened two pilot Kids “R” Us stores in the New York metropolitan area during the summer of 1983. The 15,000-square-foot exuberantly decorated stores featured electronic games and clearly marked departments. From the day the first Kids “R” Us stores opened, owners of department and specialty stores recognized them as a major threat to their survival.

All was not easy for Kids “R” Us, however. In the 1980s traditional department stores and small children’s shops complained that name-brand apparel makers were selling their goods to discounters; new competition from Kids “R” Us further raised the stakes. Just a few months after Kids “R” Us opened its first two stores, Toys “R” Us filed suit in September 1983 against Federated Department Stores Inc. and General Mills, Inc., charging the companies with price-fixing. The following month, the company brought a similar suit against Absorba, which had agreed to supply the new stores, but later allegedly refused to fill the orders. Toys “R” Us later dropped the suits, noting only that circumstances had made it prudent to terminate litigation.

The Kids “R” Us concept successfully implemented many of the policies Toys “R” Us had, such as discount pricing, tight inventory control, purchasing in large volume, and opening stores in low-rent strip malls along major thoroughfares. In 1983 the company surpassed the $1 billion milestone, with sales of $1.3 billion. The following year was full of firsts for Toys “R” Us, beginning with its first foray outside the United States in 1984, with four Toys “R” Us stores in Canada and one in Singapore; two more Kids “R” Us stores (with an additional 5,000 square feet) in New Jersey; and a generous stock option plan open to all full-time employees. Lazarus later told Dun’s Business Month that salaries alone were no longer enough to make people feel they had a stake in a company’s success.

By the spring of 1985 there were ten Kids “R” Us units in New York and New Jersey with an additional 15 to be opened by year’s end, while five Toys “R” Us stores opened in the United Kingdom. In early 1986 Dun’s Business Month cited Toys “R” Us as one of the nation’s best-managed companies and credited Lazarus with developing an extraordinary management team (most of whom were promoted from within). Between 1980 and 1985 the toy retailing industry grew 37 percent, while sales at Toys “R” Us surged by 185 percent, leading the company to estimate that it had 14 percent of all U.S. retail toy sales, an increase of 9 percent from its share just seven years earlier when the company had emerged from its reorganization.

A Burgeoning Empire: 1986–91

Charles Lazarus believed market share was his company’s number one priority; to keep increasing market share he was even willing to cut prices—at the expense of earnings. Yet perhaps earnings did not need to suffer, because Toys “R” Us had the “ultimate marketing research tool,” the company’s highly computerized merchandising system. By January 1986 Toys “R” Us had 233 toy stores in the United States, 13 international stores, 23 Kids “R” Us outlets, and four traditional department stores. Moreover, as it grew into a national chain, the company aggressively fought others using an “R” in their name—Tots “R” Us, Lamps “R” Us, and Films “R” Us were among the companies successfully sued by Toys “R” Us for name infringement, a practice the company maintained for years to come.

During the summer of 1986 Toys “R” Us and Montgomery Ward announced a joint venture to begin in Gaithersburg, Maryland, that fall. Each store would operate independently, but would share an entrance and exterior sign. The arrangement was a boon to Ward, which had restructured its business and had surplus floor space in many of its locations. Toys “R” Us found the arrangement beneficial, too, because many of the Ward stores were in excellent locations and rental rates were often quite reasonable. During the 1986 Christmas season, the company’s sales far exceeded many analysts’ grim forecasts. Its success was attributed to its ability to consistently offer the toys shoppers were most interested in buying. By 1987 the company had 37 additional domestic Toys “R” Us stores, 11 new overseas outlets, and 14 new Kids “R” Us stores; its market share now stood at 15 percent of the $12 billion toy industry.

Company Perspectives

The progress that has been made at Toys “R” Us is substantive. It encompasses all areas of the company and represents a solid foundation for future growth. As we look to the future, we will continue to focus on our key strategies: content differentiation, improved guest service, better presentation, consistent in-stock position and recreating an atmosphere where it is fun to shop for both children and adults.

Even when toy sales were sluggish, Toys “R” Us managed to perform well. In another bid to further increase its market share, the company surprised the retailing industry in 1987 by announcing that it would pass on the savings it expected from lower tax rates to customers. Two additional retailers, Wal-Mart and Target, quickly followed the company’s lead. This was also the year the Toys “R” Us international division moved into the black, and the company opened four stores in as many German cities. Although there were plans to open even more stores during the year, it proved difficult to secure the required permits for a retail outlet larger than 18,000 square feet. Competing German retailers had good reason for concern; in the United Kingdom, Toys “R” Us had captured 9 percent of the $1.8 billion toy market in just three years. The products of two prestigious German toy manufacturers, Steiff and Maerklin, were not sold in the new German Toys “R” Us stores. Steiff, maker of high-quality stuffed animals and dolls, chose not to do business with the toy giant out of loyalty to smaller-scale German retailers while Maerklin’s electric trains, sold without packaging, could not be offered in a toy supermarket setting.

From the very start Toys “R” Us overseas stores were strikingly similar to those in the United States. Most were freestanding buildings, and all bulged with many of the 18,000 items for which Toys “R” Us was famous. Approximately 80 percent of the items offered were the same as those found in U.S. stores, with the remaining 20 percent chosen to reflect local interests. Sales for fiscal 1987, the first year in which Kids “R” Us earned a profit, surpassed $3 billion. The company attributed part of its success to its upgraded universal product code (UPC) scanning system, which had been installed in all the Toys “R” Us stores shortly before Thanksgiving.

By January 1988 the company had 313 U.S. toy stores, 74 Kids “R” Us outlets, and 37 international toy stores. Plans to open stores in Italy and France were also in the offing. In August, Lazarus told the Wall Street Journal his goal was to sell half of all toys sold in the United States. While this may have sounded overly ambitious, signs abounded that Lazarus was well on the way to meeting his goal. Even though toy sales in 1986 and 1987 grew an average of 2 percent, sales at Toys “R” Us grew 27 percent during each of those years. The toy chain consistently proved itself capable of turning away all pretenders to the throne of top toy retailer. Its two nearest rivals, Child World Inc., with 152 stores and Lionel, with 78, offered similarly large toy selections in equally cavernous structures, but neither had been able to equal the success of the originator of the toy supermarket concept.

Something else Toys “R” Us had was a healthy sense of humor about itself and the industry, as when a Florida newspaper published a cartoon during the 1987 holiday season showing a couple burdened with many gifts leaving a Toys “R” Us store. The caption beneath the cartoon read “Broke ‘R’ Us.” Company executives thought it was so funny that copies were posted throughout their offices.

The company’s success was attributed to many factors, including its buying clout, great selection, deep inventories, and ability to identify the latest hot items and get them on the sales floor fast. When some companies’ stores were finding it difficult to get sufficient quantities of Nintendo games in early 1988, for instance, Toys “R” Us was able to get the number of Nintendo games it wanted. It was reported in the Wall Street Journal that Toys “R” Us sold $330.80 worth of merchandise per square foot annually, with Child World selling only $221.70, and Lionel just $193.10. Average sales for a Toys “R” Us store were $8.4 million; Child World, $4.9 million; and for Lionel, $4.4 million.

In the fall of 1988 Toys “R” Us shed the last reminder of its connection to Interstate Stores by selling the remaining department stores in Albany and Schenectady, New York, and Flint, Michigan, to that division’s management. Company sales hit the $4 billion mark in fiscal 1988, and by the fall of the following year Toys “R” Us joined McDonald’s Company (Japan) Ltd. to open several toy stores in Japan. Toys “R” Us would have an 80 percent interest in the venture to McDonald’s 20 percent with an option to open restaurants at the store sites. During the holiday season in 1989, Toys “R” Us launched Geoffrey’s Fun Club as a low-key, noncommercial club sending quarterly mailings featuring items such as an activity booklet with a family member’s name or a storybook that presented a family child as the main character, with his or her name repeated throughout the book. The club, designed to boost the company’s profile in members’ homes, more than doubled original membership projections. Total sales for the year were more than $4.7 billion, with a 25 percent market share of the $13 billion U.S. retail toy market.

Key Dates

1948:: Charles Lazarus begins selling baby furniture at his father’s bike shop in Washington, D.C.; toys are soon added to the stock, and the shop is renamed Children’s Supermart.
1952:: Lazarus opens his first Baby Furniture and Toy Supermarket.
1957:: Lazarus begins operating his discount toy supermarkets under the Toys “R” Us name, with an outlet in Rockville, Maryland, being the first so christened.
1966:: Lazarus sells his four Toys “R” Us stores to Interstate Stores Inc., but he continues to manage the chain.
1974:: Interstate is forced to declare bankruptcy; at the time there are 51 Toys “R” Us outlets.
1978:: Having shed most of its other retail units, Interstate emerges from bankruptcy with 63 toy stores; the company, now led by Lazarus, is renamed Toys “R” Us, Inc.
1983:: Company opens its first Kids “R” Us children’s apparel stores; sales surpass $1 billion.
1984:: First international stores open in Canada and Singapore.
1996:: The Babies “R” Us chain is launched.
1997:: Toys “R” Us acquires Baby Superstore, Inc. for $376 million; its 78 stores are converted to the Babies “R” Us format.
1998:: Company begins selling toys online and launches a huge restructuring.
1999:: The Imaginarium educational toy store chain is acquired.
2000:: Strategic alliance is entered into with Amazon.com to combine the two companies’ toy and video-game online stores.

Lazarus told Forbes there would always be “room in this tightly controlled company for innovations to further decrease operating costs.” An instance of this came in 1989 when Toys “R” Us completed installation of gravity-feed-flow racks in most of its U.S. toy stores for restocking fast-moving items such as diapers and formula. Yet as every rose has its thorns, Toys “R” Us ran into some trouble in the early part of the 1990s. First came difficulties with the Consumer Product Safety Commission for importing toys it deemed dangerous. In the spring of 1990 the company recalled 38,000 “Press N Roll” toy boats with small parts that, if broken off, could choke a child. A few months later, Toys “R” Us was named as one of seven distributors sued by the Justice Department on charges of selling hazardous toys (including a xylophone painted with lead-based paint, and the aforementioned toys with unsafe, small parts). Yet Toys “R” Us successfully defended itself on the grounds that its safety record was excellent, and a federal judge dismissed the charges.

By the end of 1990 the company had a new $40 million distribution center in Rialto, California, that held 45 percent more merchandise than the company’s other warehouses, but took up one-third less land. The company finished the year with sales topping $5.5 billion and net earnings reaching $326 million. An industry analyst, impressed by the company’s solid sales and consistency, remarked to the Wall Street Transcript, ’ can look at a slowing economy and still feel comfortable that Toys ‘R’ Us is going to grow.” And grow it did, especially overseas. Although difficulties in finding store sites and circumventing the large-scale retail law still loomed before Toys “R” Us and McDonald’s, the Japanese joint venture moved ahead with plans for up to 100 stores by the end of the decade. For other U.S. retailers interested in opening outlets in Japan, Toys “R” Us became a test case in how to overcome local retailers’ resistance. Japanese retailers had already felt the pinch of a declining birthrate since 1973 and did not relish a further erosion of their market share. U.S. officials, however, persuaded Japanese officials to speed up their approval process on applications for large retail stores, and the first Toys “R” Us opened in Ami Town on the outskirts of Tokyo in 1991.

Overseas Growth and Debut of Babies “R” Us: 1992–97

Over the next few years, Toys “R” Us continued to expand in high gear, especially overseas. Once operating in a handful of countries worldwide, company stores now popped up all over the globe, in Hong Kong, Israel, the Netherlands, Portugal, Scandinavia, Sweden, and Turkey, while the heaviest concentrations were in Australia, Canada, France, Germany, Japan, Spain, and the United Kingdom. Consequently, Toys “R” Us’s annual figures reflected this steady growth: fiscal 1992 sales reached $7.2 billion; 1993, $7.9 billion; and a big leap in 1994 to $8.7 billion. Similarly, earnings climbed from 1992’s $438 million to 1994’s $532 million. In early 1994, there was also a changing of the guard: Charles Lazarus, the company’s longtime chairman and CEO, turned the duties of the latter over to Michael Goldstein, vice-chairman; and Robert Nakasone, formerly president of worldwide stores, was appointed president and COO.

In 1995 the company’s sales once again soared to $9.4 billion (helped in part by the introduction of educational and entertaining computer software), yet earnings were heavily slashed ($148 million) due to restructuring costs and grand plans for the near future. As Toys “R” Us looked to the new century, the company was determined to become the ultimate “one-stop kid’s shop.” To further this plan, the company adopted several ambitious programs to take Toys “R” Us to the end of the 1990s and beyond. First and foremost was restructuring, which included streamlining merchandise by up to 20 percent, closure of 25 underperforming stores, and the consolidation of several distribution centers and administrative facilities domestically and overseas. In addition, there would be new Kids “R” Us stores, the debut of Babies “R” Us and superstores, and the introduction of “Concept 2000,” for new and renovated Toys “R” Us stores—all to provide “the ultimate kids shopping experience.”

The first three Babies “R” Us stores, each measuring about 45,000 square feet, opened in 1996 with an additional seven planned before the end of the year. Like its siblings, Babies “R” Us stores were filled to the brim—with clothes, juvenile furniture, carseats, and feeding and infant care supplies. Like better department stores, Babies “R” Us also offered a computerized national gift registry. At the same time, the first Concept 2000 toy store, one of 12 announced for the year, debuted in July. The Concept 2000 facility was a megastore of 96,000 square feet, replacing the formerly successful supermarket setup with an oval format with color-coordinated departments, lower shelving, a Bike Shop, learning centers, and special sections for Barbies, Legos, and video games. Moreover, the company also introduced experimental superstores (the first one, Toys “R” Us Kids World, opened in November 1996 near company headquarters in New Jersey) combining the inventories of Kids “R” Us and Babies “R” Us with a multitude of top-of-the-line toys. Superstores were slated to include fast food, candy shops, hair salons, photo studios, party rooms, and possibly even rides such as carousels and Ferris wheels.

In February 1997 Toys “R” Us acquired Baby Superstore, Inc., a 78-store chain based in Duncan, South Carolina, for $376 million. By the end of 1997 the acquired stores had been converted to the Babies “R” Us format, and the company had instantly transformed a fledgling brand into the largest retailer of baby products in the country. With the opening of a number of brand-new Babies “R” Us outlets in time for the 1997 holiday season, the store count neared the 100-unit mark. Sales for the chain were already in excess of $600 million.

Struggling amid Heightened Competition: 1998 to Early 2000s

The successful launch of Babies “R” Us was offset by a host of problems that together had stopped the company’s momentum in its tracks. Throughout the 1990s Toys “R” Us faced steadily growing competition from the discount chains, principally Wal-Mart but also Target and others. Wal-Mart had avoided the low-margin toy sector for years, but in 1990 the discount giant began stocking up on the hottest selling toys and used them as loss leaders to get customers into its stores. Target followed suit. In addition, warehouse clubs, such as Costco, began adding toys to their vast offerings and selling them at low prices. At the same time as it was facing pricing pressure from these new and burgeoning competitors, Toys “R” Us also had to contend with new competition in the form of smaller toy chains specializing in so-called edutainment products. In addition to their more specializing inventory, Zany Brainy, Noodle Kidoodle, and Imaginarium, among others, offered their customers superior customer service (as did the typical mom-and-pop toy store) and a more appealing store environment. Toys “R” Us was notorious for its poor customer service; it had been able to neglect this side of its operations for a long time because its customers could generally find any toy they were looking for and get it at a decent price. In the mid- to late 1990s, however, customers had a whole array of other options (including the growing number of online toy retailers), many of which provided better customer service and lower prices. The end result of this new competitive situation was a steady decline in Toys “R” Us’s U.S. market share—from 25.4 percent in 1990 to 18.4 percent in 1997. During the same period, Wal-Mart increased its share from 9.5 percent to 16.4 percent. Furthermore, the trend toward lower prices cut Toys “R” Us’s profits, and the firm saw its operating margins fall from 12 percent to 8 percent from fiscal 1993 to fiscal 1997.

The entrance of warehouse clubs into the toy sector led to another problem. An administrative law judge with the Federal Trade Commission (FTC) ruled in late 1997 that Toys “R” Us had illegally pressured manufacturers to keep certain popular toys out of the warehouse clubs. The company vigorously denied the charges and appealed the decision, eventually settling with the FTC for $40.5 million.

By early 1998, most of the recent initiatives—the exception being Babies “R” Us—had proven to be failures. By that time, only 15 percent of Toys “R” Us units had been converted to the Concept 2000 format, which had not led to the gains in sales that were expected. The Kids World superstores proved to be too large for the sales they were generating, and the format was soon abandoned. In addition, the 200-plus-unit Kids “R” Us chain was struggling in the face of stiff competition from department stores, specialty retailers, and the discount chains. At the same time that the company reported lackluster earnings for the fiscal year ending in January 1998, it also announced a management shuffle. Goldstein was bumped up to the chairman’s seat, while Nakasone was named CEO; Lazarus remained on the board as chairman emeritus.

Under Nakasone’s leadership, Toys “R” Us soon launched its largest revamp in history. In September 1998 the company announced a restructuring involving a huge inventory reduction; the closure of 59 underperforming Toys “R” Us stores—nine in the United States and the remainder mainly in Germany and France—as well as the shuttering of 31 Kids “R” Us units; and a workforce reduction of 3,000, or 2.6 percent. Restructuring charges for the year ending in January 1999 totaled $353 million, resulting in a net loss for the year of $132 million.

The company also began testing another new format for its flagship Toys “R” Us outlets, this one dubbed C-3 (the three C’s being “customer friendly,” “cost effective,” and “concept with a long-term vision”). This format featured the racetrack-like style prevalent at discount chains, doing away with the aisle after aisle of ceiling-high warehouse shelving. There was colorful signage throughout the store and a number of new departments that were aimed at broadening the product range. These included deal/seasonal; baby apparel; Animal Alley, showcasing a large selection of private-label stuffed animals; the Learning Center, which featured educational and developmental products for young children through the kindergarten age; and the “R” Zone, a glass-enclosed section with computer, electronic, and video products for children aged nine and above. The format also had 20 percent more floor space thanks to a one-third reduction in the stock room.

There were other new initiatives as well. In 1998 the company joined the online retailing boom with the launch of the toysrus.com web site, and the firm also produced its first mailorder catalog. In August 1999 the company spent $43 million to purchase Imaginarium Toy Centers, Inc., a specialty retailer focusing on educational toys with 41 stores in 13 states. The deal provided Toys “R” Us access to the higher end of the market, which carried higher profit margins and was growing at a rapid clip; it also led to the opening of Imaginarium departments within remodeled Toys “R” Us stores. Just days after this acquisition was finalized, Nakasone was forced to resign after clashing with the board of directors—particularly with his two predecessors, Goldstein and Lazarus. Further bad news came on the competition front that year as Wal-Mart surpassed Toys “R” Us as the leading U.S. toy retailer. In addition, the Christmas season was a near-disaster as the toy stores ran out of stock on some of the season’s most sought-after items and toysrus.com failed to deliver a number of online orders by December 25.

Stepping in to attempt to turn around the company’s flagging fortunes was John Eyler, who was named president and CEO in January 2000 (and chairman in June 2001). Eyler was hired away from specialty toy retailer F. A.O. Schwartz, where he had served as CEO and chairman for nine years. The new chief continued the rollout of the new C-3 format. By early 2001,165 Toys “R” Us stores had been converted, and initial results showed an increase in sales. One year later, 433 of the U.S. toy stores featured the new format, now dubbed “Mission Possible.” At the same time, new “combo” stores were being created—essentially Toys * ‘R” Us outlets with a select assortment of Kids “R” Us merchandise; there were 273 of these combo stores by early 2002. Eyler also began working with toy manufacturers to secure more exclusive products for the Toys “R” Us shelves. Sales of exclusive products soon rose from 5 percent to 12 percent of overall revenues, reaching 20 percent in 2002.

Meanwhile, in April 2000, Toys “R” Us Japan was taken public through an IPO that raised $315 million for the company and took the division’s large debt off the parent company’s balance sheet. The transaction reduced the company’s stake in the Japanese affiliate from 80 percent to 48 percent. In August 2000 Toys “R” Us entered into a ten-year strategic alliance with Amazon.com whereby the two firms united their online toy and video-game stores. Amazon.com took responsibility for web site development, customer service, order fulfillment, and warehousing of goods, while Toys “R” Us would handle purchasing and managing the inventory. The following year, ba-biesrus.com was shifted into the Amazon.com alliance platform, and imaginarium.com was launched.

In November 2001 Toys “R” Us opened its international flagship store in New York City’s Times Square. Occupying 110,000 square feet, the three-story store featured, in addition to a huge assortment of merchandise, a 60-foot Ferris wheel, a 20 foot-tall animatronic T-Rex dinosaur from Jurassic Park, and a two-story, 4,400-square-foot doll house filled with Barbie gear. The flagship store was intended to revitalize Toys “R” Us by providing a new image for what was widely considered to be a tired chain. Toward this same end, the company launched an advertising campaign featuring a new animatronic Geoffrey the Giraffe, the longtime Toys “R” Us mascot who had made his first appearance in 1960. In another 2001 initiative, the company began testing out small Toys “R” Us Toy Box sections at Giant supermarkets run by the Dutch firm Royal Ahold.

While the remodeled Mission Possible stores were generating positive results, a new Kids “R” Us format was not proving so successful. Thus as part of a broader restructuring announced in January 2002, the company closed an additional 37 Kids “R” Us outlets, bringing the unit total for that chain down to 146 at the end of fiscal 2002. Twenty-seven Toys “R” Us stores were also closed, and about 1,700 jobs, or 5 percent of the U.S. workforce, were eliminated. Restructuring charges of $213 million were recorded, resulting in anemic net earnings of $67 million for fiscal 2001 (compared to $404 million for the preceding year).

By late 2002 the conversions of the Toys “R” Us outlets had been completed, and the company launched a new type of store aimed at smaller markets where the company had not previously operated. The 42,000-square-foot stores were to be named Geoffrey, after the company mascot, and were a hybrid format offering products from Toys “R” Us, Kids “R” Us, and Babies “R” Us. Four of the new stores opened in late 2002. That same year, the company said that it wanted to add Toy Box sections to another 40 Giant supermarkets. Following a disappointing 2002 holiday season, Toys “R” Us announced that it would lay off 700 management and supervisory personnel. In June 2003 the company reached an agreement with Albertson’s Inc. to set up Toy Box sections in more than 2,300 grocery and drugstores. The burgeoning Toy Box concept was giving Toys “R” Us another channel to reach customers and another way to increase its revenues in the increasingly competitive toy retailing industry.

Principal Subsidiaries

Toys “R” Us (Australia) Pty. Ltd.; Toys “R” Us (Canada) Ltd.; Toys “R” Us S.A.R.L. (France); Toys “R” Us, Iberia, S.A. (Spain); Toys “R” Us Limited (U.K.).

Principal Divisions

Toys “R” Us - United States; Toys “R” Us - International; Kids “R” Us; Babies “R” Us; Imaginarium; Toysrus.com.

Principal Competitors

Wal-Mart Stores, Inc.; KB Toys; Target Corporation; The Gap, Inc.; The Children’s Place Retail Stores, Inc.; F.A.O., Inc.; Kmart Corporation; The Gymboree Corporation; Carter Holdings, Inc.; OshKosh ’Gosh, Inc.; Sears, Roebuck and Co.

Toys “R” Us, Inc.

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Toys “R” Us, Inc.

461 From Road
Paramus, New Jersey 07652-3526
U.S.A.
Telephone: (201) 262-7800
Fax: (201) 262-8112
Web site: http://www.toysrusinc.com

Toys “R” Us Meets Interstate, 1952–79

Toys “R” Us Taking Off: 1980–85

A Burgeoning Empire: 1986–91

Company Perspectives

Key Dates

1948:: Charles Lazarus begins selling baby furniture at his father’s bike shop in Washington, D.C.; toys are soon added to the stock, and the shop is renamed Children’s Supermart.
1952:: Lazarus opens his first Baby Furniture and Toy Supermarket.
1957:: Lazarus begins operating his discount toy supermarkets under the Toys “R” Us name, with an outlet in Rockville, Maryland, being the first so christened.
1966:: Lazarus sells his four Toys “R” Us stores to Interstate Stores Inc., but he continues to manage the chain.
1974:: Interstate is forced to declare bankruptcy; at the time there are 51 Toys “R” Us outlets.
1978:: Having shed most of its other retail units, Interstate emerges from bankruptcy with 63 toy stores; the company, now led by Lazarus, is renamed Toys “R” Us, Inc.
1983:: Company opens its first Kids “R” Us children’s apparel stores; sales surpass $1 billion.
1984:: First international stores open in Canada and Singapore.
1996:: The Babies “R” Us chain is launched.
1997:: Toys “R” Us acquires Baby Superstore, Inc. for $376 million; its 78 stores are converted to the Babies “R” Us format.
1998:: Company begins selling toys online and launches a huge restructuring.
1999:: The Imaginarium educational toy store chain is acquired.
2000:: Strategic alliance is entered into with Amazon.com to combine the two companies’ toy and video-game online stores.

Overseas Growth and Debut of Babies “R” Us: 1992–97

Struggling amid Heightened Competition: 1998 to Early 2000s

Principal Subsidiaries

Toys “R” Us (Australia) Pty. Ltd.; Toys “R” Us (Canada) Ltd.; Toys “R” Us S.A.R.L. (France); Toys “R” Us, Iberia, S.A. (Spain); Toys “R” Us Limited (U.K.).