Lazarus, Charles

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Lazarus, Charles

(1923-)
Toys "R" Us, Inc.

Overview

Charles Lazarus is one of the nation's most enterprising and successful entrepreneurs. A retail and merchandising genius, he had the foresight to see the potential in specializing in toys alone and to invest in a revolutionary computerized inventory system. This system kept the company he built from scratch on top of the most important trends in the toy industry. The company would remain the number one toy retailer for decades. Lazarus's homogenization of the huge warehouse–like stores and unprecedented selection of some 18,000 toys combined with deep discounts from bulk buying took the company from a single toy store begun in his father's basement to an $11 billion business enterprise with more than 1,450 stores worldwide.

Personal Life

Lazarus married wife Joan Regenbogen in 1995. He was widowed from his previous wife of 16 years, Helen Singer–Kaplan, the famous sex therapist who died of cancer in August 1995. A messy legal suit ensued after Kaplan notified Lazarus of her intention to seek a divorce the day before her death in order to trigger a post–nuptial agreement ordering Lazarus to give her a sum of $20 million that she intended to go, after her death, to her children from a previous marriage. Lazarus has two daughters from his first wife, Ruth and Diane. He was inducted into the Toy Industry Hall of Fame in 1990 by the American Toy Institute.

Charles Lazarus was born in 1923 in Washington, D.C. His father sold used bicycles out of the family's house, purchasing broken bikes and repairing them for resale. When young Charles asked his father why they didn't sell new bikes, his father told him something he never forgot—that he couldn't compete with the large chain stores that could sell them for much less. He went on to serve as a cryptographer in World War II, and when he returned from the army in 1948 he considered enrolling in college on the G.I. Bill but felt he was too old at 25. Searching for a career of some kind, Lazarus didn't have to look beyond the very house he was born in and with $5,000 began a business selling baby furniture out of his father's Washington, D.C. bike shop. Other servicemen were returning from the war and starting families, and Lazarus planned to supply the growing demands of these new parents. Customers then started asking for toys for their babies as well, so Lazarus began to stock toys. He called his business Baby Furniture and Toy Supermarket with a backward "R" to give the name a unique quality.

The turning point for the business came when one customer came back to buy another toy after the infant had broken the first one. Lazarus realized that toys were the better business. After all, furniture, lasting many years, was usually a one–time purchase, whereas toys needed to be replaced much more often. He began to sell toys almost exclusively and renamed his store Children's Supermarket, retaining the backward "R."

Career Details

The 1950s were a good time to be in the toy business. Mr. Potato Head become the first toy advertised nationally on television in 1952, and it sparked a toy selling boom. Lazarus's toy business grew along with it, and he decided the name of his company was too long and the letters, therefore, too small. In 1957 he changed the name to Toys "R" Us, using the backward "R" he had devised. Businesses such as E. J. Korvette that offered deep discounts, now allowed by the fair trade laws abolishment, began emerging. Lazarus decided this was the way to go with his business and, upon opening his second store, employed the self–service discount method. It was a huge success and not long after, he opened the third store and adopted this as the policy for all future stores. To cap off the decade, Barbie emerged in 1959, becoming the best–selling doll ever.

Lazarus had a total of four stores by 1966, with $12 million in sales annually. He then sold the business to Interstate Stores for $7.5 million and a promise of growing the chain, which Lazarus still headed. The sale proved advantageous to the business—over the next eight years, the franchise grew to 47 stores under the name TOYS. However, in 1974 Interstate's poorly managed, premature venture into discount retailing drove them into bankruptcy. In order to save the toy business that accounted for 85 percent of Interstate's sales, Lazarus was named CEO of Interstate in 1975. He began to sell off the company's other assets and expand the toy store business. Three years later, Interstate was turned around and reorganized under the name Toys "R" Us, with Lazarus as its CEO.

In the late 1970s, Toys "R" Us went public. In an unprecedented decade of growth, the company, which had $200 million sales in 1975 grew to $2 billion in annual sales by 1985. Some of the keys to the chain's success may be found in the sheer volume of toys available to shoppers, with about 18,000 items in each of the stores. Since toys are stocked year–round, unlike department stores, they are able to obtain big discounts from suppliers, allowing them to keep prices low. Each of the items is priced up to 50 percent below retail, and the stores rarely offer sales because of this. Another of Lazarus's demands was uniformity: all the stores are virtually identical—large and warehouse–like, near high–traffic shopping centers, with shelves stacked almost to the ceiling with the same toys on the same shelves in each. Another thing keeping prices down was that employees were usually students earning minimum wage, whose main job was stocking shelves, not customer service.

Lazarus also demanded daily sales analyses from each store with a computer system that sent such sales data from the cash register to company headquarters. This computer system was an invaluable aid in purchasing decisions and was the most advanced computer system in retailing. Lazarus didn't always agree with the computer, telling Forbes in 1988, "I thought Cabbage Patch Kids dolls were ugly. I don't think my granddaughter would want to hold one," but when the system caught one of the toy industry's hottest trends early, Lazarus had the sense to go with the computer. Lazarus made a policy of rewarding his employees for good performance. In 1978 he revived employee stock options as incentives for good work. They had been around for years but had not been used in some time. The strategy proved to be very successful, with many of the company's managers and executives remaining loyal to the toy giant for their entire business careers.

Chronology: Charles Lazarus

1923: Born.

1948: Started a baby furniture business in his family's home.

1957: Renamed his new toy business Toys "R" Us.

1966: Sold his four toy stores to Interstate Stores.

1975: Became CEO of Interstate after they file bankruptcy; Toys reached $200 million in sales.

1978: Interstate renamed Toys "R" Us with Lazarus as CEO.

1983: Lazarus opened Kids "R" Us.

1985: Toys "R" Us had $2 billion in sales.

1994: Lazarus retired as CEO and president while remaining chairman.

2001: Toys "R" Us had seven divisions.

The high degree of centralization, in which all decisions are made at headquarters, turned into yet another of Lazarus' successful strategies. Chain Store Age coined the phrase the "Lazarus Factor" to describe his bright and creative nature combined with his love of the toy business. Toys "R" Us changed the toy business itself, with toymakers redesigning toy packaging based on how it would be shelved at the retailing giant and how it would stack together. By the mid–1980s, nearly 16 percent of all toy sales were made at Toys "R" Us. In 1984 the company also took its first stores into England, the Far East, and Canada. With little competition, the company had been selling children's apparel since the mid–1970s but not seriously until 1981. In 1983, Lazarus opened Kids "R" Us stores, which sold children's clothing and were managed much like Toys "R" Us, with low–priced, high–quality merchandise and a huge selection. The success of that company further boosted Toys "R" Us' stock prices. By 1988, Kids "R" Us had 112 stores and $300 million in annual sales. Later that year, however, Toys ran into some trouble with sales up a mere 5 percent during the vital Christmas season, down from 1987's 12 percent increase in the same period.

In 1990 the company's sales hit $4.8 billion, boosted by the hot new product from Nintendo—Game Boy, a handheld game. In 1994 Lazarus retired as president and CEO. The company's sales began to slump and discount chain competition heated up, with Wal–Mart, Target, and Kmart expanding into Toys' territory, often with lower prices. Lazarus named Michael Goldstein as his successor. Lazarus still serves on the company's board and has a major say in all the company's decisions. Once cornering the toy market, competition continued to keep Toy "R" Us on its toes as eToys opened online. Furthering its growth, the company launched Babies "R" Us in 1996 with 150 stores selling everything from apparel to furniture for new parents. With continuing growth, Toys "R" Us had more than 1400 stores in more than 20 countries by 1998 but was surpassed as the largest toy retailer that year by Wal–Mart. Goldstein stepped down as CEO.

Nakasone was named CEO in 1998 but left after only 18 months as Toysrus.com struggled to deliver. To turn its fortunes around, in 1999 the company took advantage of the new market for educational toys and opened Imaginarium, an educational chain of toy stores, with 200 stores planned and 700 more inside Toys "R" Us by 2002. To improve the website, Toysrus.com teamed up with Amazon.com. John Eyler took the reins in 2000 with plans in place for proprietary toys, better customer service, and revamped, more modern stores, which it touted in the 2001 advertising campaigns. By 2001, Toys "R" Us, the empire Lazarus built, had grown to include a total of seven divisions: Toys "R" Us USA, Toys "R" Us International, Kids "R" Us, Babies "R" Us, Imaginarium, Toysrus.com, and Babiesrus.com. There are a total of 700 stores in the United States and 450 stores in 27 other countries. Kids "R" Us is one of the largest kids clothing chains, with more than 200 stores. Lazarus said to Forbes of the unprecedented growth of his company, "The one enormous advantage that we have over other retailers is that we are in a business that we love."

Social and Economic Impact

Charles Lazarus revolutionized the retail world with his one–stop toy shopping concept, combined with deep discounting that changed the entire toy industry from manufacturing and packaging to retailing. One of the most successful entrepreneurs of his time, Lazarus had the foresight to specialize in toys at a time when no one else did, and with his unique concepts of standardization, giant selection, and self–service atmosphere, he cornered the market on the toy industry for many years. He put in place the most advanced computer system of the time to track sales and pinpoint the ordering process, putting him far ahead of any of his competitors. His shrewd business acumen led to such ground–breaking decisions as selling from large warehouse–like stores, located near shopping malls, but not in them, to reduce overhead and making all company decisions centralized using sales information coming from each of stores, further driving down costs and streamlining ordering.

Toys "R" Us began as a single store but grew to more than 1,450 stores due to Lazarus' fierce drive and love of the business. In its heyday, the company grew 30 percent a year. By the end of the 1980s, the company drove its two biggest competitors into bankruptcy. Of the continuing expansion, first wife, Helen Singer–Kaplan once referred to Lazarus as having an edifice complex. Lazarus confirmed to Forbes this was indeed the case: "I like to have an expanding kind of business." He added, "I like opening stores."