Toys "R" Us is still the biggest kid on the block in toy retailing, but it's lost its reputation as the smartest player in the 'hood.
The "category killer" toy retailer, famous for bullying everyone from competitors to toy manufacturers for the last 20 years with its aggressive discount approach, is suddenly under attack from many directions.
High-power discounters like Wal-Mart Stores and Target Stores are playing hardball with Toys "R" Us, increasing their offerings and selling toys at rock-bottom prices while supporting marketing efforts with separate TV advertising. And Kmart Corp. has instituted in-store promotions for toys, including sweepstakes driving repeat business.
At the other extreme, high-end specialty retailers focused on the fast-growing area of kids' computer software and educational playthings are drawing more families to their warmer, friendlier selling environments. The lure: comfortable chairs, the chance to sample the merchandise and knowledgeable customer service for costly software purchases.
Toys "R" Us, with its no-frills cost structure, has more personnel stocking shelves and moving people through checkout lines than answering questions about high tech products, and that's not likely to change, analysts figure.
Not only does Toys "R" Us lack a clear marketing strategy to combat its fierce discounter competition, the company recently endedits four-year agency of record relationship with J. Walter Thompson USA, New York, and has lost any consistent advertising image.
Analysts grumbled about the company's disappointing yearend same-store sales, which increased only 1% in 1994 over the previous year. Wal-Mart and Target each experienced 2% to 3% same-store sales growth in non-videogame toy sales last year, analysts estimate.
The forecast for Toys "R" Us' yearend earnings, to be released March 8, is also gloomy.
"I've downgraded the stock because it's obvious Toys `R' Us has a lot of things to figure out before it's back on a solid upward path," said Sean P. McGowan, a toy industry analyst with Gerard Klauer Mattison, New York.
Toys "R" Us refused to comment on any of its operations. The company has 619 stores in the U.S. and 170 outside the U.S.
What newborn competitors are doing may be everything Toys "R" Us should have done five years ago, some analysts say.
Examples include Tandy Corp.'s 11 Incredible Universe superstores, which sell everything from videogames to computer CD-ROMs for kids in a razzle-dazzle atmosphere with intensive hands-on customer service.
To the east, sales of creative learning toys at the 16 stores of Wynnewood, Pa.-based Zany Brainy are soaring; ditto for Noodle Kidoodle, Farmingdale, N.Y., which plans to expand its five edutainment product stores this year.
"People hate going to Toys `R' Us; they want to get out of there as fast as possible, while these specialty stores make you want to hang out and buy stuff," Mr. McGowan said.
Toys "R" Us is scrambling to catch up with the computer movement by rolling out several in-store departments selling educational software and learning aids, augmenting its substantial videogame offerings.
But many observers believe it's too little too late for Toys "R" Us to catch up with the fast-growing new niches. Its Books "R" Us departments started a few years ago have failed to wow either customers or the trade.
"Toys `R' Us has been too timid about getting into new areas. They've tacked on some ideas like books but they haven't really altered their formula in 30 years and it's getting old. Consumers want something new," said Sid Doolittle, a partner at the Chicago retail consultancy McMillan/Doolittle.
While Toys "R" Us still commands a hefty, fairly stable 25% market share of the toy industry, another of its problems is a lack of merchandise focus as it continues to try to be all things to all customers. It stocks a full array of videocassettes, bicycles and skates, as well as apparel at 211 Kids "R" Us stores.
Its non-toy merchandise has mushroomed to include candy, food, party supplies, diapers and juvenile equipment. It also offers a baby registry for new parents.
Instead of altering its stores as some analysts suggest it should, Toys "R" Us is betting heavily on international growth, although overseas operations have also been troubled in recent months. Growth in Canada, the U.K. and Germany has slowed with increased competition.
In the U.S., the company is relying heavily on in-store promotions. Last year it stepped up its in-store marketing by 30% and is circulating more coupon books while offering to match all competitors' advertised prices.
Some analysts believe Toys "R" Us will recover from its recent distractions and be back on the growth track by yearend.
"Toys `R' Us is a powerhouse, and they're certain to rise to the occasion to address their problems," said toy analyst Gary Jac-obson of BT Securities, New York. "They will figure out the computer arena in plenty of time, and they have huge opportunities overseas."
Headquarters: Paramus, N.J.
Estimated sales: $8.7 billion.
Leadership: Charles Lazarus, chairman; Michael Goldstein, vice chairman-CEO; Ernie Speranza, senior VP-marketing.
Estimated marketing spending: $30 million ($6 million to $10 million in broadcast TV; $16 million to $20 million promotional spending).
Agencies: No agency of record. J. Walter Thompson USA, New York; Wells Rich Greene BDDP, New York; and other agencies, on a project basis.
Recent successes: Stepped up promotional marketing for holiday sales season, including offering its first coupon catalog book dedicated to electronic toys; fine-tuned its Books "R" Us departments and corrected international problems to ensure steadier growth this year.
1995 challenges: Devise a new strategy bridging its core strength as a convenience discounter with improved customer service and better offerings in important fast-growing niches such as computer software, books and learning aids. The company lacks a consistent advertising image, and while it strives to heavy up in-store promotions, its brand identity as a retailer has suffered from scattershot short-term marketing efforts and a too-expansive assortment of merchandise. International opportunities are strong, but competition overseas is also increasing.
Source: Advertising Age and company reports