Businesses that do not evolve are doomed to failure. This simple phrase has great power and everyday it makes more sense in the business world. Blockbuster and Kodak know it very well, and these days one of the most emblematic companies in the sale of toys in the United States has learned it: Toy “R” Us.
The store, which has more than 1,700 stores in the United States, Europe, Canada, Asia, Oceania and Africa recently declared bankruptcy for long-term debts of more than $ 5 billion. It should be noted that this declaration of bankruptcy does not include its stores outside the United States.
The firm itself declared that this debt has prevented it from investing in a retail market that is becoming more demanding and challenging all over the world. Although for the moment the toy store is still operating; accepting the gift cards that it has already sold and applying its return policy is a situation that will not last long.
Toys “R” Us is a company that maintains excellent income. According to the publication of Forbes it occupies the 22nd position of the largest private companies and the 244 on the Fortune 500 list; the debts it has prevent it from continue with your operation. Just for next year he would have to pay $ 400 million dollars to his creditors.
The toy giant has also been severely hurt by another Goliath: Amazon, and its excellent online sales strategy that is unique and to which retailers such as Toys “R” Us have not been able to match with such magnificence as Amazon has done.
Another cause of its collapse is the price war waged against Walmart in the past. Here are some lessons that businesses and businesses can learn from this case:
Adapt to the changes
According to a report prepared by GlobalData Retail; online toy sales have increased 6.5% in five years, reaching 13.7% of total sales. Toys “R” Us has come to this late because 90% of their sales are through their physical stores. The foregoing contrasts with the preference of consumers to buy in online stores.
A badly planned strategy
In spite of having the best novelties in toys and having a primordial place in the sector; Toys “R” Us got involved in an unnecessary price war with Walmart at the end of the 90s. A study conducted around this event showed that the toy store had prices 5% lower than the supermarket. Being that the prices of the latter were already low, since it has the opportunity to support it with other product categories that have higher demand; something that for Toy “R” Us is complicated. Walmart will always be the winner in a price war.
The credit is healthy when you take it with responsibility; taking into account the ability to pay and the rest of the debts you have. The opposite will be disastrous for our business, regardless of whether the creditors are the suppliers or a financial institution. Currently the owners of the toy store seek to restructure the debt amounting to $ 5,000 million dollars and to invest the nearly $ 400 million dollars of a loan they obtained to finance their operations and buy new products.
Little capacity to invest: The company’s large debts have prevented it from investing in its growth. Including increasing its presence in the online market. The money they receive is used to operate and another part for productive activities that generate resources to pay their debts.