Toys 'R' Us prototype debuts in tough holiday test - Company Profile

Discount Store News, Jan 4, 1999 by Mike Troy, Laura Liebeck

ALPHARETTA, GA - Toys "R" Us' new C-3 format takes aim at Wal-Mart and other discount retailers with a strong emphasis on value pricing, a more rounded merchandise assortment and a format that is more convenient, open and easy-to-shop than previous prototypes.

Customer reaction and store performance results are just starting to trickle in as the first nine test stores opened only within the past eight to 10 weeks. Toys "R" Us will release its holiday sales report Jan. 7, perhaps providing a peek at the format's performance.

In mid-December, associates in several C-3 stores reported that the layout seemed to appeal more to customers than its predominant warehouse style Sales, however, did not always bear out the preference Sales at some C-3 stores were exceeding last year's performance, but others were running even with 1997 levels.

The C-3 prototype-whose designation stands for customer friendly, cost-effective and concept for the future-is currently operating only in TRU's Atlanta market, a region that includes several surrounding states C-3 locations include Alpharetta, Ga., Memphis, Chattanooga and Nashville (two units), Tenn., Raleigh-Durham (two units) and Charlotte, N.C., and Birmingham, Ala One industry source reported that one to two C-3s may open in California.

TRU plans to roll out 200 additional units this year at a cost of $500,000 per store. It expects to have 75% of the chain remodeled to the new program by the end of next year.

This rollout effort will put off a meaningful earnings impact of C-3 for nearly two years, a critical issue considering the chain's 57% earnings plunge for the third quarter.

So far, the test stores offer just 30% to 40% of the merchandising changes TRU management expects to make in the stores. TRU expects further adjustments in department adjacencies and positioning, based on customer feedback and sales performance.

Toys "R" Us has spoken little about the prototype except to identify some broad changes at a small group of stores. However, DSN has learned the location of the test stores and visited one unit, in Alpharetta, Ga., an Atlanta suburb.

Clearly, the chaos has been removed. Gone are the soaring racks of toys, and in their place are lower profile gondolas, providing clear sight lines throughout the store. The high warehouse racks remain in place in aisles that line the perimeter only. The aisles are generous in width, and customer service is a new, long overdue priority.

Value is emphasized. For the first time, TRU offers some EDLP signs and attempts to challenge discounters in a core strength.

The store offers a utilitarian approach to retailing. It doesn't wow consumers, but it also doesn't turn them off. And the store does take a step toward serving a broader range of family needs than a mere toy store.

Key to the merchandise plan in the new store are such departments as the "R" Zone, home to the electronics assortment, a new baby products area now called Especially for Baby, which combines toys and assorted juvenile products that sits diagonal to apparel, the reintroduction of apparel into the assortment (the items were cut two years ago as part of the Concept 2000 prototype), the Great Outdoors, a sporting goods area, and Dollar Shop, featuring dollar-oriented merchandise as well as special buys. It is a program that performed particularly well at TRU stores in Canada.

Analysts' reactions to the new prototype have been mixed.

"All in all, we are impressed with the new C-3 prototype," wrote Jeff Feiner of Lehman Brothers in a recent report. He believes the new format points TRU in the right direction.

He noted that the new format does not overwhelm customers, but rather the format maintains "appropriate inventory levels to meet demand for popular products."

Ursala Moran of Sanford Bernstein is less enthusiastic. "The new C-3 store format at Toys 'R' Us represents an improvement versus existing space, but is defensive rather than offensive and its emphasis on promotional and 'deal' merchandise could backfire, given cannibalization potential."

However, Moran also noted that the new merchandising program, which includes beefed up assortments in electronics and apparel, is sufficiently compelling to win customers back from Wal-Mart, Target, Best Buy or elsewhere.

Field executives at TRU were enthusiastic about the prototype when contacted by DSN.

"What customers like best is the openness of the store," Mike Heffner, a Toys "R" Us general manager who is responsible for 65 TRU stores in the. Southeast, told DSN. "When people come in they can identify what they are looking for."

The more open look was achieved by reducing the height of tall shelving in the center of the store and eliminating a central walkway. The back room was cut, too, by 18%, permitting the sales floor to be expanded to 33,000 sq ft from 25,000 sq ft. As a result, the main racetrack was widened to 14 ft.

Now, upon entering the store, customers can see where they want to go. Large lettered aisle markers on top of gondolas running perpendicular to the outside of the racetrack inform shoppers of the location of their desired merchandise. The wider aisles also make the store easier to navigate and gives TRU the opportunity to expose customers to promotional merchandise displayed in the aisle or on end-caps. Among the key features of the Alpharetta, Ga., store are.