The beginning of every business is quite similar to our own life cycle. The first phase of the product life cycle is called the embryonic phase similar to your childhood. Typically, entrepreneurs spend on average about ten years telling the world about their solution, and trying to convince them to buy it and try it.
After establishing an interest with innovators, the brand enters the growth phase—now attracting early adopters. If successful, in about five years any good brand will reach the “tipping point” where more and more early adopters will be buying the product or service creating brand awareness in the marketplace.
The tipping point for any new brand is when enough innovators and early adopters have engaged with the solution to create a significant competitive threat to existing competitors.
As the success of the solution becomes the market leader the company enters the mature phase, similar to adulthood for a person. This phase can last for many years depending upon whether or not the management team can continue to migrate with their customer’s changing requirements.
It is a business fact that “if the customer gets to the future before you do they will leave you behind.” This is what basically what happened to Toys’R’Us. Once the management of any company begins to make assumptions for their customers, the end is not far away.
Business and life is about change. In the case of Toys’R’Us, management failed to react to the obvious—the impact of technology. The Toys’R’Us management culture never adapted to e-commerce.
Consumers are constantly looking for ways that they can save money and live better. If the company that they have been buying from doesn’t continue to help them do that, they will seek a faster, better or cheaper solution elsewhere.
At Toys’R’Us the management team assumed that customers would continue to buy the same old toys. Under that assumption they bought their competitors, FAO Schwarz and KB Toys, becoming what they called the world’s largest “toy showroom”, taking on more and more debt in the process.
This flawed assumption was the beginning of the Toy’s-R-Us descent into irrelevance.
Let’s look at the sequence of events that led to the demise of another iconic brand:
- In 2000, Toys’R’Us was unable to establish a viable e-commerce platform management when they entered into an agreement with Amazon to be the exclusive online toy seller on Amazon. This was like letting the fox into the henhouse. Consumers going to toysrus.com would be directed to Amazon.
This gave Amazon a wonderful opportunity to leap frog Toys’RUs into the toy business stealing precious customers from Toys’R’Us in the process. When management “woke up” in 2009 and cancelled the deal with Amazon they were already far behind in adopting the online model.
- The brand ignored another fundamental rule of the marketplace: “if a customer can get the same stuff cheaper somewhere else, they will buy there”. Management sold their toys at prices higher than the same toys at competitors like Amazon, Walmart and Target.
- Poor store appearance and experience. Toys’R’Us outlets were not a satisfying place to shop. With parents shopping increasingly on their smartphones and laptops the big box store filled with more toys than anyone could ever buy made little sense to e-commerce shoppers.
- Changing customer requirements. Adding to the myopia of management, Toys’R’Us never became the destination for teens and gamers. So consoles, video games and other tech toys languished on their shelves tying up precious cash in slow moving inventory.
Seventy years after the Toys’R’Us idea became a reality, the ride is over. The last leader of the descent into irrelevance was CEO David Brandon, the former head of Michigan’s athletic program who lacked experience in the toy industry. He blamed the failure on “customers who weren’t supportive enough.”
How naïve can you be?
In closing, 30,000 plus employees will lose their jobs with no severance, nor benefits. Nice! Another classic example of mismanagement at its best.
Lesson: Remember, you are in the customer business, not the toy business!