With its team in place, Toys 'R' Us pitches three new prototypes

Discount Store News, Feb 19, 1996

PARAMUS, N.J.-Toys "R" Us wants to play hardball.

The nation's largest toy retailer is stepping up to the plate in '96 with a realigned and invigorated merchandising team and a playbook full of aggressive moves, including three new store prototypes that should strengthen its position in the market and make it a more exciting retailer.

Leading the way will be Roger Goddu, who was elevated to president, U.S. Toys Store merchandising, effective Feb. 5. The promotion from executive vp, gmm, constitutes a rewarding of Goddu (a former Target and Dayton Hudson executive) for his accomplishments in merchandising and systems since arriving in February 1989. He is particularly credited with the chain's Freehold, N.J., store, which initiated TRW's move out of warehouse toy retailing and into contemporary merchandising techniques. Other promotions include Michael Madden to president of U.S. Toys Store operations from group vp, operations, and Louis Lipshitz, chief financial officer, who received the additional title of executive vp.

This team, with TRU vice chairman Michael Goldstein and president and coo Robert Nakasone, will move TRU into the next phase of power retailing with the introduction of Babies "R" Us baby superstores, a new TRU toy store prototype and a megastore that combines these two formats with a Kids "R" Us children apparel unit. until a Feb. 1 teleconference with analysts, details of the new prototypes and TRW's long-range plans were closely guarded by the retailer.

While still sketchy, TRU said it will:

* Close 25 underperforming stores-three Toys "R" Us stores and 12 Kids "R" Us stores in the United States, and 10 international units;

* Cut skus in its toy stores by about 1.000 to reduce underperforming inventory;

* Consolidate three distribution centers and seven administrative facilities in the United States and Europe;

* Adopt FASB No. 121, "Accounting for the Impairment of Long Lived Assets and For Long-Lived Assets to be Disposed of," costing the chain $24 million;

* Take a one-time charge of about $27 million, after taxes, to cover the cost of repositioning merchandise.

"As a result of this move [the $27 million charge] the company should be in a stronger position to generate significant gains in 1996 and, more importantly, it should improve the company's growth trends over the longer term," said Goldstein.

The restructuring should leave TRU with $590 million in operating profit for the fourth quarter, before taxes, and $740 million for the full year, which ended Feb. 3, said Goldstein. Sales for fiscal 1995 were not available at press time, but DSN estimates total corporate sales at $9.36 billion.

Analysts following TRU applaud the changes.

"The restructuring is very logical," said Dorothy Lakner of Oppenheimer & Co. "Carrying less inventory is what any good retailer should do." She also supports the naming of Goddu and the introduction of the new prototypes.

"This is a very important development. Now they're adding excitement. It's something they should have done a long time ago," said Walter Loeb of Loeb Associates.

TRW's restructuring better positions the retailer for the tough competition from discount retailers, the showier toy specialty chains and the creative baby superstore operators, an arena in which it will soon compete.

In fact, the much-awaited Babies "R" Us debut will be in May in Westbury, N.Y., in the burgeoning Roosevelt Field area that has become a mecca for megastores.

Like the 11 others now slated to open this year along the East Coast--three of which will be retrofitted TRU locations--BRU will be about 42,000 sq. ft. and feature typical baby/juvenile product assortments.

However, according to Lakner, Goldstein said that the prototype will feature some large merchandise presentations: 60 skus of strollers, 40 skus of high chairs and 8,000 sq. ft. of apparel. There will be a heavy emphasis on customer service in the stores.

The new toy store prototype, dubbed Concept 2000, will debut in June and end the year with 10 sites. No locations have been identified for the 45,000-sq.-ft. units, which will feature lower gondolas for better in-store vistas, improved signage and a different aisle configuration than existing stores, according to Lakner. Previously, Goldstein said the stores will be more fun to shop and include brighter lighting and interactive displays. Lakner also noted that the new toy stores will have special displays like Warner Kids, but that the breadth of licensed products within the store will be curtailed.

She said TRU will pare licensed products to only the best-selling items, but that no vendors will be cut. In the past, the toy chain has purchased full lines of licensed products to ensure itself sufficient supplies of hot items.

This buying pattern has left Toys "R" Us with unsold merchandise, which is now being eliminated. "That's the largest part of the charge," said Lakner.

The fewest details are available on the megastore. It will be 85,000 sq. ft. to 90,000 sq. ft. and will open sometime this year. Two to three units are planned. These units will include all three TRU prototypes, plus a McDonald's, party room, photo studio and hair salon.