Toys r Us Report (1)

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Case Study Analysis Report Format CONTENTS:

1. Introduction: Describe the situation and identify the main problem/issue. 2. Body: Analyse the problem and the issues underlying the problem in the light of relevant theory/conceptual framework. A clear synthesis between conceptual and empirical aspects should be presented. Also, alternative solutions to the problem/issue should be discussed in the context of the relevant theories. 3. Conclusion: Identify the best solution in the light of relevant conceptual aspects. 4. Recommendations: Identify the courses of action needed to implement the best solution, if required.

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1 Introduction Describe the situation and identify the main problem/issue: The American retailer's process of entry into the Japanese toy market. Discusses the history of Toys "R" Us in the United States as well as the history of the Japanese toy market, distribution, wholesaling, and retailing systems. Eager to enter the world's second largest toy market, Toys "R" Us executives begin in the late 1980s to formulate strategies for opening large discount toy stores in Japan. The American company faces a series of setbacks due to Japanese store-size regulation, application procedures, and a long-standing multilayered distribution system. Continued effort and the acceptance of a Japanese partner enable the company to prepare for the opening of a Toys "R" Us outlet in 1991. Faced with a lack of direct distribution deals and high land and labor costs, executives of Toys "R" Us Japan worry about the ultimate success of their new venture.Toys "R" Us(TRU), a leading toy retailer, in the United States and abroad encountered many obstacles and barriers when expanding their operation into the Japanese market. Toys “R” Us is the world’s leading dedicated toy and baby products retailer with more than 1,500 freestanding destination toy and baby specialty stores worldwide. Toys “R” Us offers an unparalleled selection of new toys, old favorites, Toys “R” Us exclusives and many other great values under one roof. Toys “R” Us positions itself as the authority when it comes to finding the perfect toy. Personal Service. Partnership with our customers is the driving force behind our mutual success and the ultimate satisfaction for our more than 34,000 employees in over 120 countries around the world. As a top global service provider, we do business in the most straightforward scenarios, as well as the world’s most challenging environments. Agility is a company on the move, yet we never lose sight of the fact that whether you are a small or large enterprise, the heart of our business is personal customer service. Special Services Provided to Toys R Us: • Order Management • Vendor Management • Inventory Management • Fulfillment

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Body Relevant theory: Toys “R” Us first told the public about their decision to enter the Japanese toy market in 1989. A lot of critics worried that Toys “R” Us would not be successful in this new and foreign market. They raised several issues that they believed proved the Japanese market was not ready for the marketing and retailing strategy that Toys “R” Us offered. They stated that the Japanese culture and beliefs were too different from that of the United States and Europe for Toys “R” Us to be successful. Toys “R” Us incorporates a “category killer” strategy (Johansson 181). In this marketing strategy they use mass advertising in order to make brand recognition, which in turn helps consumers remember and want to shop at their store. They also discount some of the popular items at certain times which give the consumer the impression that everything at their store is inexpensive or discounted. Some critics said that this strategy would clash with the Japanese consumers, since Toys “R” Us competes on price and the Japanese culture links quality with price. Another concern was that Toys “R” Us Japan would not be able to get sample permission and space to build their large toy stores. Toys “R” Us has a policy that none of their stores can be less than 3,000 square feet. This is a problem when entering the Japanese market because they have laws against big stores and land is so expensive. Also some Japanese toy manufacturers said that they would not sell directly to Toys “R” Us, but instead would only deal through middle men. Even with the critics telling them everything that could be standing in their way, Toys “R” Us saw a great amount of opportunity in the Japanese market. Japan is one of the top three wealthiest markets in the world for leisure products, United States and Europe being the other

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two (Johansson 183). Seeing as Toys “R” Us had already successfully dominated the market in the United States and penetrated the European market they saw that it could be beneficial for them to expand to Japan. In 1991 Japanese people spent $25 billion dollars on leisure products. Their toy market was dominated by small specialty toy stores and small general retailers. Only 500 larger general retailers made a significant portion of their income from toy sales. On the other hand, U.S. stores like Wal-Mart and K-mart had a significant percentage of sales. By seeing this they realized that Japanese consumers shop mainly at specialty stores for their toy purchases, not at general retailers. This was a huge upside to the Japanese market. In order to penetrate the Japanese market Toys “R” Us signed an alliance contract with McDonald’s Japan. Being that they knew little of this foreign market, the signing of this contract was an enormous aid. In the contract it stated that McDonald’s Japan would own 20% of Toys “R” Us Japan, while Toys “R” Us would control the other 80% (Johansson 183). Another section of the contract stated that McDonald’s Japan could place a restaurant anywhere a Toys “R” Us Japan was located. Toys “R” Us Japan hired almost solely Japanese employees. There were also no foreign employees at their headquarters. The combination of these two companies’ skills would prove to be heavy competition for local businesses. Toys “R” Us knows how to successfully enter foreign markets and they also have a remarkable marketing strategy. With the combination of McDonald’s Japan’s know-how of the Japanese market Toy “R” Us Japan was set in motion. When McDonald’s expanded to Japan they changed their restaurant to suit Japanese rules but kept their innovative nature (Johansson 183). Toys “R” Us learned from McDonald’s and realized that they would have to change their company to suit this new market without changing

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their style of store. Toys “R” Us kept their slogan, “Everyday Low Prices.” This turned out to be a very beneficial decision. When their first store opened in 1991 there had been a recession in the Japanese economy.

The Japanese consumer was looking for low prices but also wanted

good quality in their products. Therefore they found this slogan to be very appealing. They also made some changes to their policies. As stated earlier, one of their policies doesn’t allow any stores to be less than 3,000 square feet. When entering the Japanese market they had to change this rule, since some of the stores in Japan are less than 2,800 square feet. Their transition was also assisted by the Japanese government. They waived laws which prohibited larger retailers from coming into the area. With this help the first store that Toys “R” Us opened in Japan was 3,000 square feet. It was opened outside of Niigata in Ibaraki Prefecture in December 1991. By 1993 the company had opened 15 more stores in Japan (Johansson 184).

Conceptual Framework: Toys “R” Us was founded in 1948 by 25 year old Charles Lazarus. It started as a baby furniture store in Washington D.C. and was opened at just the right time. World War II had just ended and Lazarus’ store hit the market just in time for the baby boom. This impeccable timing set Toy’s “R” Us up for more success than Lazarus could have ever expected (toysrus.au). The store started out with just baby furniture but soon the customers were asking for toys and as the children grew, so did the range of products offered at the store. The products grew from “infant, to preschool, to kids and then teenagers” (toysrus.au). By responding to the needs and wants of his customers Lazarus had turned his store into a “full-scale toy store extravaganza.”

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By 1957, Lazarus had revolutionized the toy retail market by opening the first toy supermarket with a HUGE range of kid-focused products (toysrus.au). Today, Toy’s “R” Us is an $11 billion business with approximately 1,500 stores worldwide (toysrus.com). Doing business in other countries is very different than doing business in America, and Japan is probably about as different as it gets from American business culture. Japan is a country on a relatively small island with over 127 million people whose ancestors have been living there for centuries. Japan’s culture embodies peace and harmony, and is very collectivistic relying heavily on the tradition of its people for centuries. “Japan has formed a distinct model of hierarchy, honor, and etiquette that is still reflected in many social and business practices today” (communicaid.com). Japan’s culture relies on three basic values and principles: the concept of “wa,” or harmony; the concept of “kao,” or saving “face” which stems from pride; and the concept of “Omoiyari,” which relates to a sense of empathy and loyalty (communicaid.com). These values and principles shape the way that almost all business is conducted and to successfully do business in Japan you will need a thorough understanding of these principles and how they shape business relationships (communicaid.com). Toys’ “R” Us falls in the industry of retailing, specifically, toy retailing. According to a retail industry profile on About.com, retail is the second largest industry in the U.S. in terms of establishments and number of employees and one of the largest industries worldwide. In the U.S. the retail industry generates $3.8 trillion in sales, which is approximately $12,000 per capita (about.com - retail). The Toy sector of retailing generates about $22 billion of that (about.com – toys). Though Wal-Mart is the worlds largest retailer with over $312 billion in sales annually, Toy’s “R” Us is one of the largest toy retailers with $11 billion in sales annually. Single-store business accounts for 95% of all retail business in the U.S., it only accounts for around 50% of

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the retail sales, which shows how powerful the chain retailers such as Toy’s “R” Us truly are. The gross margin for retailers typically is between 31% and 35% but varies in terms of specific types of retailers (about.com - retail). One thing that is really helping the toy industry is the internet, with toy stores representing 20% of all online transactions and generating over $1.3 billion in sales in 2005 (about.com – toys). As stated above, in the beginning Toy’s “R” Us started with just baby furniture, and as their customer’s children grew so did the range of products offered at the store. Toy’s “R” Us now offers products in many different categories. They offer baby products, such as music, games, and yes, still furniture. They also offer action figures, dolls, and stuffed animals as well as preschool toys such as learning toys and toys that spark the children’s creative side. Toys that help children learn have become very popular with kids and parents alike which has sparked Toy’s “R” Us to carry toys for early development, electronic learning toys, toys to help kids learn to read and write, as well as puzzles and science play sets. They typically have a large arts and crafts section in their stores as well with craft kits, and drawing and sculpting items. They’ve also started carrying large items such as bikes, scooters, skateboards, sports items, pools, and water games for some elementary school aged children. More recently Toy’s “R” Us has expanded to be a leader in video game sales offering all the leading systems, the games for those systems and any other accessory that may be needed (amazon.com). Toy’s “R” Us has also expanded outside of their own store, and created other avenues for them to get their specialty products to the public. They have opened up stores overseas creating Toy’s “R” Us International where they aim to please parents and children all around the world. They have also opened up chains of Kid’s “R” Us which specializes' in children’s clothing, from newborns to 16, with their own brand clothing as well as recognized name brand clothing. Another avenue

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they have taken is to open many chains of Babies “R” Us where their mission is to offer high quality baby products and a knowledgeable, friendly staff that will make your baby shopping experience as pleasant as possible. Lastly, in recent years they have teamed with Amazon.com to create ToysRUs.com to meet the needs of busy shoppers, or people that prefer that mode of shopping for their children. Even ToysRUs.com has expanded to include BabieRUs.com for baby’s needs and Imaginarium.com to offer the finest learning toys available at an easy way Suggested Actions The long-term strategy for Toy’s “R” Us was to expand in international markets . Now just by reading the title of our case study “Toy’s “R” Us goes to Japan” you can grasp the amount of energy that it took to get the company there. And believe us, it wasn’t an easy task. Toy’s “R” Us had huge successes with the North American and European markets. And since Japan is also on the list, for the top three wealthiest markets in the world for leisure products, than why not expand and conquer the market? Entering a foreign market has its set backs, and all actions have to be taken with precautions. Toy’s “R” Us, had to put on the foreign entry-“export manager hat.” They had to learn how to evaluate other countries markets qualitatively and quantitatively. For example, by teaming up with McDonalds Japan they were able to use their research to help them evaluate the new environment. And by understanding the foreign customers needs and preferences in terms of products and services they knew how to layout the store. But after doing some research and seeing how Japans market keeps going in and out of recessions they may need to change how retail is done in Japan. In April 2001 the company introduced a system of “sales associates” in 13 Japanese outlets (Johansson 253). Sales associates were something Japan had never invested in; they thought it was an inefficient service. But in order to grow through new customers and

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continue high revenues the company must change how service is being done. They would soon see the changes in increased profits. And this prediction by our group was seen in April 2001 with the hiring of sales associates who would simply help the selling process. Another suggested action that we saw was the way Toy’s “R” Us Japan handled advertising.

Advertising in the US is a huge deal.

Millions of dollars a year are spent

specifically on “getting the word out,” and we thought that Japan would soon come to realize the importance of advertising and its relationship to sales. It was stated in our case that “the primary advertising media strategy was the use of colorful inserts in newspapers” (Johansson 184), which were then hand delivered to homes with mothers and children. Being that this is their target market it would makes sense to ensure that these particular groups of people see these ads. Japan decided not to broadcast any advertising on Television or on the radio since they feel that it was too scattershot and too expensive. But as marketing students we know the value of advertising and we feel that if they continue this simple route in advertising than the company will see decreases in sales and profits. We feel that Toy’s “R” Us Japan needs to invest more money into advertising, by taking advantages of the viewers who watch or listen to the T.V/radio. We suggest that it would only benefit sales and profits if they would invest more money into advertising using other sources besides hand delivered mail inserts. Another suggestion that we foresee as an upcoming problem is Japans views on quality and price. As noted above, Japan’s culture relies on three basic values and principles: the concept of “wa,” or harmony; “kao,” or saving “face” which stems from pride; and “Omoiyari,” which relates to a sense of empathy and loyalty (communicaid.com). All these values and principles are directly related to why Japan favors quality over most possessions in life. It is important for the U.S. to see this, and to take it into consideration whenever doing business in

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Japan. But what we are also aware of is competition and we worry that Japan may need to balance the two concepts of quality and price. The future holds competition and Toy’s “R” Us needs to keep in mind that their target market (the youth) may not be able to afford their products if other stores carry the exact same item at a lower cost. And if they stem too far away from their original concept of quality over price and start only carrying cheaper items in order to compete, then consumers will assume there store has nothing to offer them since it is all cheap items. So this juggling act is something they need to accomplish before it’s too late. We also waned to spot out that they imported more that half of its supply from the U.S (Johansson 184). Finding potential suppliers within Japan was something they didn’t think too much about and it became an issue. By importing large quantities of goods they would profit from the cheap dollar (Johansson 184) but they need to keep in mind that cheap land, cheap money, and cheap imports has to end at one point in time (Johansson 184). By finding local manufacturers/distributors then they will help the localization process and continue to stay own the retail market for leisure goods. As long as Toy’s “R” Us looks at the challenges they may be faced with for the future and they have a plan then we feel they will stay on top. Things Toy’s “R” Us needs to continue to be on the look out for are: competition, increasing cost, possible positioning problems, and the steady deterioration of the Japanese economy and consumer spending (Johansson 185). By being prepared and having a plan of action for all these setbacks they will be able to dominate the retail market in Japan. We feel that Toy’s “R” Us Japan had also made great decisions when entering the Japanese market. High barriers is something Toy’s “R” Us saw right away as a hurtle they had to get over. And to help them enter the country they decided on a joint-venture with McDonalds

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Japan with their 20%/80% relationship.

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In doing this joint-venture they were able to use

McDonald’s successful international marketing research. This research is so important in order to enter foreign countries. The joint-venture gave them a great advantage and a strong foot in the door. Another positive aspect that Toy’s “R” Us Japan had on their side was the timing of their first opening. And as Dr. Tong always says “In order to be successful you have to come up with the right product, at the right place and the right time.” From these exact famous words you can see how entering Japan at the right time was perfect for Toy’s “R” Us. Their slogan of “Everyday low prices” was not seen as a cheap store to get cheap things, but seen as a blessing during their recessions. Overall, we feel that this case study helped us relate what we have learned in international marketing. It is such a benefit for us students to apply things to real life situations, and to see how marketing globally can benefit a company if it is done right. The key here is to remember that we are all human and we all make mistakes but it is our mistakes that we can learn from and to make our business a successful one.

Alternative solution To Be Learned: Many lessons can be learned from the case of Toy’s “R” Us going to Japan. First, this case shows us how high barriers to entry can be overcome. For this, Toy’s “R” Us had a huge advantage, they signed on with McDonalds Japan to make this a joint venture with Toy’s “R” Us owning 80% and McDonalds owning the remaining 20%. This was quite an advantage because McDonalds had been so ingrained in the Japanese market that they were seen to many as being a

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Japanese company (Johansson, 183). “Toy’s “R” Us was able to utilize McDonalds in-depth market knowledge and research skills as well as the communication lines to the target groups of children and young families” (Johansson, 183). Another lesson learned from this case is how the government can be helpful in starting your business in a foreign country. In this case there was a law in Japan that restricted the “big store” from opening. The Japanese government, in an effort to create good PR, waived the law and allowed Toy’s “R” Us to open a 3,000 square meter building offering 18,000 items. This was a big advantage for Toy’s “R” Us being that there were no other stores of that size. “By creating an overwhelming advantage, it was intended to stop competitors from opening opposing stores before they started” (Johansson, 184). One more lesson learned from this case study is that you must tailor your advertising to what is more accustomed in the new environment. You would think that a major company such as Toy’s “R” Us would advertise on television and radio to most effectively reach their target market; however, in Japan, radio and television are far more expensive and scattershot. What they found to be most effective in Japan was colorful inserts in newspapers that could be home delivered to ensure that children and mothers, which is their target market, would be reached. Overall, this case examines differences between U.S. and Japanese retailing systems, and what these differences imply for U.S. firms hoping to enter the lucrative Japanese market

Conclusion & Recommendations:

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