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Aug 5, 2025
Research Papers / Research Essay - Why Toys R Us Failed. [2]
The Failed Company: Why Toys R Us Crumbled
Most people born in generation Z can vividly remember shopping at Toys R Us, enthralled by the aisles and variety of toys up for display. Parents holiday shopping, and a reward for getting good grades. Toys R Us would become the most memorable and exciting place for children. However, this would all come to an end when they filed for bankruptcy in 2017. Even though most teens and adults can recall their memories in the store, it couldn't save their piling debt, failure of e-commerce, and competition taking over sales.
The company started in the 1940's after World War II during the increase of birth rates across the country. As stated by Erin Blakemore, Charles Lazarous saw the success his company was receiving and started to expand with a larger variety of toys. Toys R Us quickly became the biggest toy store in the country (Blakemore). However, the CEO began to step down on the company in 1994 which began the setback on the store's debt issue. They soon filed for bankruptcy and opened their stores again after partnering with Macys in 2024. Although they are back in business, the store doesn't feel the same since it's smaller and doesn't offer many toys anymore.
The start of this debt occurred in 2005 when Toys R us made a 6.6 billion dollar leverage buyout that failed miserably. According to Jessica Dinapoli, the company couldn't keep up with the debt and started making $400 million interest payments to pay off debt every year (Dinapoli & Rucinski). Moreover, the amount of debt caused a drastic decrease in store quality and maintenance. For example, outdated toys due to consumer behavior changes led to competitors winning them over. Suppliers weren't getting paid, which led to a drawback on new toys being received.
Brian Mismore, a research associate for Harvard Business explains how Toys R Us' net margin is negative due to debt. And an equity multiplier of 5.35 which is the result of private equity (Misamore). Private equity firms buy businesses, and they strip the company of its assets to turn a profit. As a result, it caused the company to deal with debt that ruined their store.
In addition, the unsuccessful method used for e -commencing failed because of negligence and consumer preferences. Research done by Hooi & Rafiez states that the digital sales were higher than retail, however it steadily declined because of their debt and other retail companies paving their way in the digital world (Hooi & Rafiez). As they first launched their website, many consumers decided to shop online for toys because Toys R Us was the biggest toy company at the time. But as other digital platforms sold more for a lower price and lower shipping, they moved and left Toys R Us with staggering sales.
Furthermore, an article by Parmy Olsen states the poor system Toys R Us had on their website. This was another reason why consumers shifted their digital shopping elsewhere (Olson). The layout was confusing and disorganized, and the prices were higher than other companies. When it came to shopping for low prices, customers were going to other places such as Amazon and Target, however for a personalized and special gift many will choose the expensive option for great service. Toys R Us sadly didn't have these services and
They weren't planning on it either. Digital sales were low without any changes being made to enhance the experience.
To continue, competitors started taking over Toys R Us' sales and consumers when it came to toy sales. A case study written by Abbey Francis explains how Toys R Us didn't put enough effort into their e-commencing strategy. This led to other big companies such as Walmart and Amazon taking over (Francis). Also, the competitors were on top of trends and consumer behavior. As technology progressed, children became more entertained with electronics such as tablets, handheld games and consoles. Traditional toys were becoming less popular.
Toys R us was still behind on this societal change, with their outdated toys and underwhelming selection of electronics. It wasn't a surprise when many began shopping in Walmart, Target, and Amazon. There were simply better options for customers, especially during the holidays when toys were on sale. Toys R Us wasn't unique anymore, even though they were the biggest toy store in the country.
Almost all the products can be found online or in other stores for a lower price and fast shipping. For instance, Amazon provided a wider selection of toys than Toys R Us with the next or same day shipping with membership. Even without, shipping costs were low. In addition, Target provided more sales and trendier toys. While Walmart had a cheaper selection and a proficient online website where customers can find other options. These three companies, including others, were just the cheapest option for many.
The negative impacts of this company shutting down mainly hurt the employees and the retail sales of the toy industry. According to journalist Danelle Brown, "The toy industry generates approximately $26 Billion per year in direct retail sales, and 95.2% of toy manufacturers, wholesalers, and distributors in the United States are small businesses (Brown). As shown, the company made a billion dollar impact on the US economy, proving that children's toys were a huge market for the country.
Companies such as Lego and Hasbro relied on Toys R Us with sales, causing them to lose a major distribution channel. Also, smaller niche brands were also hurt since Toys R Us was their biggest distributor. Additionally,
Over 30,000 employees lost their jobs according to a Dive Brief article written by Valerie Bolden. Toys R Us' closure led to many losing their jobs and were prevented severance pay due to bankruptcy (Bolden). Although they received benefits, the damage private equity businesses have done is irreversible.
A possible quick fix solution Toys R Us could've taken is differentiating on their products to attract more customers. A case study written by Gary S. Smith lists solutions the company should've tried to redeem their staggering sales. One of the solutions being personalized toys, if customers were given the option to customize toys for special occasions, sales would've had a decent price increase (Smith). This would've been a great way to offer creativity and uniqueness to the store. Slowly bringing the popularity of traditional toys back by making it more special to children. Such as personalized figures, books, plushies and baby toys. This ties into their digital platform as well, since this could've been offered online.
Another solution is encouraging people to experience the store, rather than just shopping. An article written by Chris George states that, "An average size of a Toys R Us store was approximately 30,000 square feet" (George). With a store this big that is overstocked on toys, there are other opportunities that could've been experimented with to connect with customers.
Such as building a learning center within the store to help children who have difficulties in learning different subjects. Virtual learning is an option, as well as tutors. And building a small arcade with food stations that can host birthday parties is another option for connecting with customers. Allowing the store to be a destination, and not a quick trip for an item. Birthday parties may include benefits such as discounts or a registry for items sold in the store. As a result, more revenue and separation from its competitors.
A long-term solution would've been investing in e-commerce and focusing on consumers' needs. This is one of the most important changes a company can make. And one that should be focused on, not neglected. Setting up a website and app earlier with faster shipping, free shipping, and in store pickup would attract more customers, limit competition and increase sales. Playing an ugly game with competitors only benefits them, rather than focusing on the negatives the company should've been improving on their own online platform and in store flaws.
Adding memberships where you get exclusive discounts, deals, free shipping online, and exclusive items is another possible long term solution. If people were granted the option to receive cheaper deals in store and online, consumers would've probably stayed with the company.
To conclude, neglect and inevitably both led to the debt piling up within the company. To add, the lack of focus Toys R Us had when switching to digital allowed major competitors to overtake them and the customers. The only reason the competitors were so successful was because they adapted and changed their environment. Many people don't want expensive and outdated toys, embracing technology and putting the customers first should've been a priority. Even though the billions of debts would've caught on either way, a small change could've benefited for a short while, and maybe even bring them to a fresh start if they would've kept their promises on fixing all their issues.
The Failed Company: Why Toys R Us Crumbled
Most people born in generation Z can vividly remember shopping at Toys R Us, enthralled by the aisles and variety of toys up for display. Parents holiday shopping, and a reward for getting good grades. Toys R Us would become the most memorable and exciting place for children. However, this would all come to an end when they filed for bankruptcy in 2017. Even though most teens and adults can recall their memories in the store, it couldn't save their piling debt, failure of e-commerce, and competition taking over sales.
The company started in the 1940's after World War II during the increase of birth rates across the country. As stated by Erin Blakemore, Charles Lazarous saw the success his company was receiving and started to expand with a larger variety of toys. Toys R Us quickly became the biggest toy store in the country (Blakemore). However, the CEO began to step down on the company in 1994 which began the setback on the store's debt issue. They soon filed for bankruptcy and opened their stores again after partnering with Macys in 2024. Although they are back in business, the store doesn't feel the same since it's smaller and doesn't offer many toys anymore.
The start of this debt occurred in 2005 when Toys R us made a 6.6 billion dollar leverage buyout that failed miserably. According to Jessica Dinapoli, the company couldn't keep up with the debt and started making $400 million interest payments to pay off debt every year (Dinapoli & Rucinski). Moreover, the amount of debt caused a drastic decrease in store quality and maintenance. For example, outdated toys due to consumer behavior changes led to competitors winning them over. Suppliers weren't getting paid, which led to a drawback on new toys being received.
Brian Mismore, a research associate for Harvard Business explains how Toys R Us' net margin is negative due to debt. And an equity multiplier of 5.35 which is the result of private equity (Misamore). Private equity firms buy businesses, and they strip the company of its assets to turn a profit. As a result, it caused the company to deal with debt that ruined their store.
In addition, the unsuccessful method used for e -commencing failed because of negligence and consumer preferences. Research done by Hooi & Rafiez states that the digital sales were higher than retail, however it steadily declined because of their debt and other retail companies paving their way in the digital world (Hooi & Rafiez). As they first launched their website, many consumers decided to shop online for toys because Toys R Us was the biggest toy company at the time. But as other digital platforms sold more for a lower price and lower shipping, they moved and left Toys R Us with staggering sales.
Furthermore, an article by Parmy Olsen states the poor system Toys R Us had on their website. This was another reason why consumers shifted their digital shopping elsewhere (Olson). The layout was confusing and disorganized, and the prices were higher than other companies. When it came to shopping for low prices, customers were going to other places such as Amazon and Target, however for a personalized and special gift many will choose the expensive option for great service. Toys R Us sadly didn't have these services and
They weren't planning on it either. Digital sales were low without any changes being made to enhance the experience.
To continue, competitors started taking over Toys R Us' sales and consumers when it came to toy sales. A case study written by Abbey Francis explains how Toys R Us didn't put enough effort into their e-commencing strategy. This led to other big companies such as Walmart and Amazon taking over (Francis). Also, the competitors were on top of trends and consumer behavior. As technology progressed, children became more entertained with electronics such as tablets, handheld games and consoles. Traditional toys were becoming less popular.
Toys R us was still behind on this societal change, with their outdated toys and underwhelming selection of electronics. It wasn't a surprise when many began shopping in Walmart, Target, and Amazon. There were simply better options for customers, especially during the holidays when toys were on sale. Toys R Us wasn't unique anymore, even though they were the biggest toy store in the country.
Almost all the products can be found online or in other stores for a lower price and fast shipping. For instance, Amazon provided a wider selection of toys than Toys R Us with the next or same day shipping with membership. Even without, shipping costs were low. In addition, Target provided more sales and trendier toys. While Walmart had a cheaper selection and a proficient online website where customers can find other options. These three companies, including others, were just the cheapest option for many.
The negative impacts of this company shutting down mainly hurt the employees and the retail sales of the toy industry. According to journalist Danelle Brown, "The toy industry generates approximately $26 Billion per year in direct retail sales, and 95.2% of toy manufacturers, wholesalers, and distributors in the United States are small businesses (Brown). As shown, the company made a billion dollar impact on the US economy, proving that children's toys were a huge market for the country.
Companies such as Lego and Hasbro relied on Toys R Us with sales, causing them to lose a major distribution channel. Also, smaller niche brands were also hurt since Toys R Us was their biggest distributor. Additionally,
Over 30,000 employees lost their jobs according to a Dive Brief article written by Valerie Bolden. Toys R Us' closure led to many losing their jobs and were prevented severance pay due to bankruptcy (Bolden). Although they received benefits, the damage private equity businesses have done is irreversible.
A possible quick fix solution Toys R Us could've taken is differentiating on their products to attract more customers. A case study written by Gary S. Smith lists solutions the company should've tried to redeem their staggering sales. One of the solutions being personalized toys, if customers were given the option to customize toys for special occasions, sales would've had a decent price increase (Smith). This would've been a great way to offer creativity and uniqueness to the store. Slowly bringing the popularity of traditional toys back by making it more special to children. Such as personalized figures, books, plushies and baby toys. This ties into their digital platform as well, since this could've been offered online.
Another solution is encouraging people to experience the store, rather than just shopping. An article written by Chris George states that, "An average size of a Toys R Us store was approximately 30,000 square feet" (George). With a store this big that is overstocked on toys, there are other opportunities that could've been experimented with to connect with customers.
Such as building a learning center within the store to help children who have difficulties in learning different subjects. Virtual learning is an option, as well as tutors. And building a small arcade with food stations that can host birthday parties is another option for connecting with customers. Allowing the store to be a destination, and not a quick trip for an item. Birthday parties may include benefits such as discounts or a registry for items sold in the store. As a result, more revenue and separation from its competitors.
A long-term solution would've been investing in e-commerce and focusing on consumers' needs. This is one of the most important changes a company can make. And one that should be focused on, not neglected. Setting up a website and app earlier with faster shipping, free shipping, and in store pickup would attract more customers, limit competition and increase sales. Playing an ugly game with competitors only benefits them, rather than focusing on the negatives the company should've been improving on their own online platform and in store flaws.
Adding memberships where you get exclusive discounts, deals, free shipping online, and exclusive items is another possible long term solution. If people were granted the option to receive cheaper deals in store and online, consumers would've probably stayed with the company.
To conclude, neglect and inevitably both led to the debt piling up within the company. To add, the lack of focus Toys R Us had when switching to digital allowed major competitors to overtake them and the customers. The only reason the competitors were so successful was because they adapted and changed their environment. Many people don't want expensive and outdated toys, embracing technology and putting the customers first should've been a priority. Even though the billions of debts would've caught on either way, a small change could've benefited for a short while, and maybe even bring them to a fresh start if they would've kept their promises on fixing all their issues.
