TRU overhaul starts to bear fruit - Toys "R" Us

DSN Retailing Today, Oct, 2003 by Doug Desjardins

toys "R" Us spent the first three years of the new century renovating stores in a remodel it dubbed "Mission Possible." Now the retailer is on a mission to get customers back into stores to check out their new look.

The task isn't an easy one, given tough competition from other toy specialists and Wal-Mart, but Toys "R" Us is seeing encouraging signs. Back in early 2002, when store remodels were still in progress, Toys "R" Us started receiving positive feedback about the new look.

"For a year and a half now, we've measured what we call 'customer delight,' and our guest ratings have shown improvement in 17 of those 18 months," said Richard Markee, president of U.S. toy stores for Toys "R" Us. "Our guests are more delighted with the experience in our toy stores than they were a year ago, and that's the critical thing."

The chain's 681 U.S. stores are earning high marks from customers now but that wasn't the case just a few years ago. In the late 1990s, business at Toys "R" Us was flagging and the stores were showing their age.

"If people haven't been in our stores lately, they probably remember that period in the 1990s when the stores weren't as attractive and didn't do as good a job of keeping things in stock," said Ursula Moran, vp of investor relations and corporate communications for Toys "R" Us.

To remedy the problem, Toys "R" Us ceo John Eyler launched "Mission Possible" in 2000 to remodel stores and make them more user-friendly. The remake focused on improving customer service, showcasing name brands and opening boutique-style departments like Imaginarium for educational toys and R-Zone for games.

That remodel was finished in October 2002 and since then Toys "R" Us has kept a close watch on the results. "Our customers believe we've made solid improvement," said Markee. "They can find merchandise in stock, they think the stores are better organized and neater and our associates are more engaging."

That view is shared by Eyler, who acknowledged that many Toys "R" Us stores in the late 1990s had fallen into disrepair" and disappointed a lot of customers."

"One of the things I really take pride in is that our Toys "R" Us division has gone from having pretty poor levels of service to a point where they are approaching the levels of service at Babies "R" Us," said Eyler. "And that's a monumental accomplishment."

But happy customers haven't translated into improved sales at Toys "R" Us stores just yet. Same-store sales were flat in the fourth quarter of 2002 and fell 2.4% this summer in the second quarter ended Aug. 2. "We've been delighted by what guests think of the remodel, but not by the overall sales results," said Markee.

The company is hoping Geoffrey the Giraffe will lope in and save the day. Toys "R" Us brought its venerable mascot out of retirement last year in TV commercials that were a hit with customers. And a new round of commercials are already hitting the airwaves to help drive sales during the holidays.

"Geoffrey continues to be a key element in our promotions, and you'll see even more of Geoffrey this fall than you did last year," said Markee.

Overall, Markee said he expects the new-look stores to produce solid results during what many analysts predict will be a strong fourth quarter.

"Frankly, we're not satisfied with the performance of our U.S. toy stores during the first half of the year," said Markee. "But we're optimistic we can improve our performance and drive sales and earnings during the holiday season."

toys "R" Us

STORES          681
NET SALES    $6,743 mil.
OP. INCOME     $280 mil.

Source: Company Reports

Note: All figures as of Feb. 1, 2003