Toys 'R' Us pulls plug on ailing stand-alones

DSN Retailing Today, Dec 15, 2003

PARAMUS, N.J. -- Toys "R" Us started the holiday season on a down note when it announced plans to shutter its 146 Kids "R" Us stores and 37 Imaginarium standalone outlets by the end of January. The news came on the same day the company reported a deeper-than-expected loss of $38 million in its third quarter.

Toys "R" Us ceo John Eyler said the chain had attempted without success to "reverse significant performance declines" at both of the ailing chains and added that the closings would afford Toys "R" Us the opportunity to "refocus our effort to ensure our most productive divisions and formats are best positioned to deliver."

The company wasted little time in initiating the chain-wide store closures. Stores in both divisions began posting "Store Closing" signs in earlier this month and are offering discounts on nearly every product line.

While the timing of the announcement caught many by surprise, the fact that Toys "R" is shutting down the stores in both divisions is not altogether shocking. The Kids "R" Us apparel stores have been losing money for some time, most recently posting an 11.4% decline in third quarter sales, and the company has closed 38 underperforming stores since 2001. Additionally, Toys "R" Us has been folding the division into many of its regular U.S. toys stores, which now offer a wider variety of apparel, and its new hybrid, Geoffrey Stores.

The same holds true for Imaginarium. Mass merchants Wal-Mart and Target have moved into educational toys in a big way and now offer the same products at lower prices along with their own private label toys. And the rollout of Imaginarium departments in its 681 U.S. toy stores signaled months ago that Imaginarium's days were numbered as a separate entity.

Retail analysts have said the decision to close both stand-alone divisions is a good one, given their weak performance over the past few years and a retail environment that is rendering them obsolete.

"It's the best thing they could have done," said George Whalin, president of Whalin Retail Consultants. "They've had too many stores for a long time and have taken a long time to finally upgrade their existing stores."

In a report on Toys "R" Us third quarter results, Danielle Fox of JP Morgan predicted the disappointing third quarter results "would weigh on the stock," but sees "the closures of Kids 'R' Us and Imaginarium as long-term positives."

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John Eyler hired as CEO (JANUARY)

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From 2000 to 2002

Toys "R" Us aggressively converts many Imaginarium stores (acquired in 1999) and Kids "R" Us stores (founded in 1984) to in-store boutiques.

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Kids "R" Us president Janet Emerson given additional oversight of Imaginarium. (MARCH 2002)

'03

Toys "R" Us No. 2 Greg Staley steps down (JANUARY)

Kids "R" Us reports a drop in 3Q comps of 11.4%; company announces shuttering of all 146 freestanding KRU stores and 36 free-standing Imaginarium stores (NOVEMBER)