Toys R US filed for Bankruptcy on the dark night of 18th September 2017. This mega toy maker store lost to its competition, e-commerce, the fastest growing online business in the world.
Charles Lazarus a World War II veteran found this mega toy store in 1948. The name “Toys R US” became a brand in 1957. In the last 60 years of its existence this toy store has seamlessly worked for its customers who are mostly kids of any age. This is a sad news and every kid and even adult who were in some way touched by this toy store, would cry, when they find out that “Toys R US” may not live long.
Stay with me to the end and I will tell you exactly how Toys R US a traditional business giant collapsed to the competition from the fastest growing online business in the world, E-commerce.
Whether you have a business or you want to start one, you need to read this case study completely. You have to understand what led to its fall and how you can avoid a similar fate for your business.
To take advantage of the fastest growing business, E-Commerce, WATCH this FREE Video Series “How to Build A Successful E-Commerce Business?”
Toys R US the Largest Toy Maker in the World:
Toys R US is the largest toy maker in the world today. It has revenues touching $11 Billion when last reported. But everything is not well with it. The sales have dipped across the 1700+ stores across the world of Toys R US. Major dip in sales came after 2012. Finally the sales dipped so much last year that on the night of 18th September, it filed for bankruptcy.
When I told my daughter of 7 years, “Toys R US, is closing down.” She became sad and was on the verge of crying.
What led to Bankruptcy of Toys R US?
From every news story two names are common. They say Walmart and Amazon led to its fall. Walmart is a giant store that sells everything at huge discounts. Amazon is the online giant that sells everything from A to Z online. The blame is squarely on these giants who pulled the Toys R US customers away from the Toys R US stores.
Another reason that was cited is a debt of $ 7.5 Billion. The company got into debt of $7.5 Billion in 2005 to make the company private. With falling sales and increasing expenses, Toys R US, struggled to pay of the debt. It stands at a huge amount of $6.5 Billion today. This is another reason for its fall.
One of the important trends that is coming up in every bankruptcy story is the rise of e-commerce and online business. Companies with traditional business models are stuck to old ways of doing business. These are being hit by e-commerce companies that are establishing themselves online. Sales are on a decline for these traditional companies.
Why is the blame squarely on has E-commerce and online business?
Let us study the fall in ranking of Toys R US and the rise in the ranking of Amazon.com.
Here are two graphs,
The fall of Toys R US, A traditional Category Killer Company.
The rise of Amazon, A E-commerce Giant riding the wave of the fastest growing online business in the world.
These two graphs clearly show a pattern. There is a decline in ranking of Toys R US a traditional brick and mortar company. And at the same time there is a rise of Amazon.com a e-commerce company.
From these graphs we can say that traditional businesses are losing their customers to e-commerce and online businesses.
What about your business? If your business still follows a traditional business model then you need to plot a graph of last five years in business and see if your sales have dipped. Try to reason out why this has happened.You can save your business with a simple shift in your model from physical store to online.
Let us continue with our Toys R US story,
Other traditional businesses falling to Online Business and E-Commerce
Toys R US is not the only company filing for bankruptcy. There are many other businesses like them who have already filed for Bankruptcy in 2017. According to S&P Global Market Intelligence, 35 retailers have filed for bankruptcy this year.
Following are some of the retailers that have sought bankruptcy protection just this year:
1. The Limited
2. Wet Seal*
3. Eastern Outfitters
4. BCBG Max Azria
9. Gander Mountain
10. Payless ShoeSource*
13. Cornerstone Apparel, owner of Papaya Clothing
14. True Religion Apparel
15. Alfred Angelo
17. Vitamin World
19. Toys R Us
* — Second bankruptcy protection filing by Wet Seal and RadioShack. Payless ShoeSource emerged from bankruptcy protection in August, while Rue21 received court approval to emerge from bankruptcy last week.
(Credit Source : Retail chains filing for bankruptcy protection in 2017 )
The writing is on the wall, traditional businesses are not able to compete with e-commerce business. Their sales are falling continuously. Fewer customers are walking into their stores now.
What is common with all these companies?
Toys R US and similar companies that are filing for Bankruptcy have a lot in common. These companies are of the type called, Category Killers.
Yes, they are known for that type of business. Category Killer is a business that specialises so throughly and efficiently in one sector that it pushes out competition from both the smaller speciality stores and the larger general retailers.
So these companies thrived on pulling the customers from these smaller speciality stores and larger general retailers. Only this time the trend has reversed. E-commerce and Online stores reversed this trend and are responsible for dropping sales of the so-called category killer companies.
Bad News for Category Killers is Good News for E-Commerce and Online Business.
Now there is a bad news for such companies. But there is good news for you and me. Especially if you are in e-commerce and online business or better, you are planning to start one.
First the bad news,
The bad news is for the companies like Toys R US. These companies are built on a traditional brick and mortar business models. Their business model works on principle of foot falls. How many people walk into their stores daily?
Their ability to attract customers was on the basis of specialisation of one type of product. In the case of Toys R US it was toys. They would create products that were only available at their store. And people would be ready to pay a premium price for these products.
Companies like Walmart and Amazon overturned the speciality products business model. The one that thrived on walk in customer was going to change permanently.
The game had changed completely. Toys R US was crushed below the weight of their own debt and falling sales.
The Walmart Challenge:
Walmart first created a giant store. They filled up their stores with everything a person would need on their visit to a mall. And then they offered huge discounts on all products. Black Friday & Festival Sales became common to attract customers.
This was a boon for a customer who was also having a challenge of time. Now he could find everything in one store. He did not have to hop from one store to another. And with family it was a picnic like experience. The entire family could get everything they wanted on their single visit.
The customers stopped visiting stores like Toys R US and started going more and more into Walmart.
This slowly changed the shopping pattern of customers. Instead of going to Toys R US for toys they found it in Walmart. This happened for all the other speciality products.
Slowly but surely the speciality stores were deserted. They were the ones on the path of being killed. If you see the graph of Toys R US decline you will see a similar pattern for all other category killer companies.
The Amazon Challenge:
Amazon on the other hand started selling everything. They have departments from A to Z. What started as an online book store now ships anything and everything legally possible in your country. Electronics, Toys, Furniture, etc. Name it and you have it. Amazon adopted e-commerce business model long back in 2002. Since then it has been steadily growing as shown in the graph above.
Here is the page of Toys & Games online. This is in direct competition for the Toys R US business.
So lazy people like me who do not like to go out shopping started buying everything online. That dealt another blow to stores like Toys R US who did not shift with the growing trends of e-commerce and online business.
This is the bad news for companies like Toys R US,
To all the traditional brick and mortar business model, you need to immediately shift to e-commerce business model. The earlier you can do the better it will be for you.
Avoid becoming the next Toys R US, Watch the FREE Video series I have shared somewhere on this page.
Now, the Good News,
You may have already sensed the good news. But I will continue,
The good news is that the fastest growing business in the world today is E-Commerce or what is also known as Online Business. There is a frenzy of buying and selling activity happening online.
Amazon.com dominates this space. It has become a giant that sells everything from A to Z online. They have a combination of digital products like books, video & music as well as physical products like shoes, apparel, mobile to everything. Anything that is legally possible to be traded in your country is available on Amazon.
As per recent stats on Fortune 500, the Market Capitalisation of Amazon.com stands at $423 Billion. This is huge and it puts Amazon within the first five biggest companies in the world.
What is the good news for you and me?
This E-Commerce and Online Business is a good news for you and me equally.
We need to understand that Amazon is a platform. This platform connects buyers and sellers on a common place called the Internet. It is similar to other platforms like E-Bay or Shopify or Etsy or your own shop on a private website.
It means anyone today with very little capital can start his own business online without the need to open a physical store. This is the real advantage you and me have today.
Will your online store succeed or fail?
That will depend on how you set up your online store and how you create your brand.
Today the environment for business is such that if you have an idea for product you can easily,
- Build the product by outsourcing it to an expert who can build the product for you and put your branding.
- Grow your sales by driving traffic to your online store.
- Scale your business with your brand and creating multiple products under that brand.
Today you can start your business with as little as a laptop and an internet connection. You don’t need a huge investment. There is no need for a shop. The easiest and fastest way to build a business today is to tap into e-commerce and build your online business.
There are three advantages of starting an Online Business.
- Location Freedom: Today you can start a business from anywhere. From your home or From a coffee shop in downtown or From your Garage. Practically you can start from anywhere you want. So you have Location Freedom.
- Time Freedom: In the past from product development to launch could take anywhere between 6 to 12 months. Also, you had to plan out the time for working. Now the entire product development life cycle can be outsourced to an expert in that product. They will put your logo and branding and give you the finished product to your need. This frees up a lot of time. Companies can be built in days or weeks or months instead of years. So you have time freedom.
- Financial Freedom: The cost of development of products was huge. Then there was cost of the store where the product would be sold. This required a big investment upfront. In fact, Toys R US went into debt of 7.5 Billion Dollars to support its entire operations, which it could never come out of. But today you can start with few dollars in your pocket and build a brand that looks and feels like an already existing luxury brand. So you have financial freedom.
With these three advantages time, location and financial freedom, it is easy to start your own business today.
There are a few people who are launching their stores and starting the business within days. Because of the expert advice available to them.
If a giant company like Toys R US can collapse then anything can happen to small businesses. No one is openly talking about the losses small businesses are making because of the shift to online business.
So if you want to start a new business or you have an existing business with the brick & mortar model then it is time to change. Get on to the e-commerce and online business bandwagon and save yourself from bankruptcy.
Watch this free Video Series and take advantage of the fastest growing business in the world, E-commerce.
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