Toys r us goes to japan

Toys “R” US Goes to Japan – Case study

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1. Introduction:

The giant ‘Category Killer’ in toys, represents a very special kind of firm. Category Killer is a speciality retailer that operates on a much larger scale than the typical boutique

speciality retailer. This case shows:-

a) How high barriers to entry can be overcome, at a cost b) How protected business easily become uncompetitive c) How a new service format requires promotion that educates customer’s about its advantages

Toys “R” US Inc. is a children speciality retailer concentrating on a) Toys and b) Children clothing

Toys “R” US Inc. Head Quarter is at Paramus, New Jersey

2. Company Background

Period Description 1940 Founded in late 1940’s by an American Charles Lazarus 1966 It was first “toy supermarket” and was acquired in 1966 by Department store chain operator

Interstate Inc. 1978 Opened for public in 1978 1982 First kids “R” US stores was Children Clothing store opened in 1982 1984 First International Store was opened in 1984 1990 => Largest toy retailer in the world

=> About 20-25% => US market sales in 1990 => About 2% => Total International Sales in 1990

1993

Toys “R” US Daiei (Japan’s largest Retailer at the period 1993) Sales (1993) => $ 7.9 Billion Sales (1993) => $ 14 Billion 50th largest retailer in the world in 1993 22nd largest retailer in US in 1993

2000 At the beginning of 2000s:=> Encountered increase Competition form wall-mart

3. Company Strategy

Uses “Category Killer” Strategy which combined: a) Strong advertising to promote name recognition b) Discounts on the most popular items to create a perception that everything was discounted.

Stores were large and offered a wide selection of Brand Name Merchandise. In USA, a computerized inventory system was used to track demand on a regional and store-by-store

basis to maintain low standing inventories and capitalize quickly on trends Also owned and operated its own fleet of trucks to save on shipping Prices on most goods were competitive with other retailer but in general they were not deeply

discounted Some years Toys “R” US used coupons for promotions aggressively in the period before Christmas

to increase market share Long term strategy => To expand in international markets

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4. Japanese Toy Market

Toy Retail market in Japan was dominated by small speciality stores and general retailers

Most popular products => Computer Games => Dolls or toys

5. Overcoming Barriers to Entry

1989 => Toys “R” US first made public its plans to enter the Japanese Market Signing a high-profile alliance contract with McDonald’s Japan. (New Joint-venture)

Toys “R” US Japan was established with 80% share of Toys “R” US Inc. and 20% share of McDonald’s Japan

Toys “R” US Japan Head Quarter => Kawasaki city As part of the deal McDonald’s had the right to establish a restaurant in any location Toys “R” US

picked for a store Issues were pointed out that Japan was not Ready for Retail Revolution Voices were raised to suggest that Japan was not ready for retail revolution The issues took a number of forms:-

a) Suggestions that Toys “R” US would not be able to get the necessary permissions and empty space it needed to open huge stores b) Statements that major Japanese Manufactures would not be willing to enter into direct deals with Toys “R” US instead preferring to work through middle wholesalers and preserve their traditional trade links c) Discount retailing was antithetical to the Japanese psyche which linked quality with prices and so Toys “R” US by competing on price would class themselves out of the market

When McDonald’s came to Japan => It had faced and beat the same issues of establishing distribution and supply channels and its experience was valuable for Toys “R” US to draw on

6. Market penetration

December 1991 => First stored opened in Japan (Niigata in Ibaraki) => Economy Lapsed into recession => Slogan “Everyday Low Prices” appealing to many who were looking for value as well as quality => Minimum level of service (No gift wrapping) was more acceptable as fewer gifts were being given

Japanese govt. pushed a regional got. To waive the “Big Store” laws under which existing retailers could veto the entry of a large retailer into the Area

1st store => 3000sqm offering 1800 items in inventory was the perfect example of what has come to be called in America a “category Killer”

By creating an over whelming advantage it was intended to stop competitors from opening opposing stores before they started

Retailed on McDonald’s market research to target suburban areas with young families as a primary growth base

Despite the High cost of land => The store provided ample parking

Linkages to animated

television character

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7. Primary Advertising Media Strategy

Use of colorful inserts in newspapers rather than TV or Radio which were more expensive and scatters not necessarily reaching the targeted Audience

Newspaper inserts for Home deliveries ensured that advertising reached the Home where mothers and children the primary targets were more likely to see them

8. Localization

Toys “R” US Japan improved more than ½ of its supply from US Toys “R” US adopted a flexible strategy

a) Working through existing channels in Japan where available b) Utilizing the central kobe warehouse as a way station to control in store inventory

Only I major Japanese manufacturer signed on to ship directly to Toys “R” US stores, that was Nintendo

No other manufacturers had made a similar deal and no other toy retailer had been able to crack the distribution network and deal direct

Toys “R” US stores promised => Guaranteeing that even the most popular items would be in stock at all times which small local retailers were unable to do

E.g. Rather than being forced to get up at 4am and get in line to get the new Mortal combat 4 the day it to Toys “R” US any time to be sure they could get the game

9. Threats

Two footwear dealers => Chiyoda’s “Harrowmark” chain & Martutomi’s “BanBan” Both expanding Nationwide, offering low prices compared to Toys “R” US but unable to finance the

same size stores or inventories Movement of smaller retailers to unite in opposition to Toys “R” US

10. Challenges (to be faced in future)

i) Increasing competition iv) Steady Deterioration of Japanese economy ii) Increasing costs v) Consumer spending iii) Possible Positioning Problems

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Toys r us goes to japan

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