Following a disappointing fourth quarter and fiscal year ended Feb. 1, Toys “R” Us hosted investors, industry analysts and the media and outlined its strategy for improving its operational performance and driving profitable growth in the future.
The company had a challenging year, with declines in its domestic and international segments. The U.S. business experienced the more significant downturn, primarily due to a decrease in net sales, margin pressure and one-time items, including the write-down of excess and obsolete inventory. As a result, chairman and CEO Antonio Urcelay and Hank Mullany, president, Toys "R" Us, U.S., presented the company’s TRU Transformation strategy to achieve sustainable business growth.
"Toys"R"Us is one of the most recognized brands in the world with a strong international presence and a large and loyal customer base," said Urcelay. "Our global network of stores generates strong profitability, and together with our $1.2 billion global e-commerce business, is integral to our growing omnichannel capabilities. And, as the world's leading dedicated toy and juvenile products retailer, we have well-established relationships with our manufacturing partners, and can provide them with a year-round distribution outlet that showcases the broadest selection of their products in 36 countries around the world."
Urcelay explained the the company’s disappointing performance in 2013 was partly driven by macro conditions, such as the decline in birth rates since 2007, which he said contributed to stagnating overall toy and baby industry sales, and the rapid growth of online shopping. He added, however, that several execution issues also affected the company’s financial results.
“Over the past several months, we have undertaken a comprehensive analysis and diagnosis of the business, and believe we have four main issues to resolve — improve the customer experience in-store and online, make progress on changing price perception, put disciplines back into inventory management and right-size our cost structure on a global basis,” he added. “We are encouraged that all of these foundational issues are firmly within our own control to fix, and our strategy will address these to improve the business over the short-term and put the company on track for the future."
Mullany noted that the TRU Transformation' strategy is grounded in consumer research and customer insights, and is anchored by three guiding principles: Easy, Expert, Fair.
“Among our highest priorities will be to deepen our focus on the customer, build meaningful relationships through loyalty and targeted marketing programs and improve the shopping experience both in-store and online,” said Mullany. “This will include putting more emphasis on the distinct needs of our customer base of new and expectant parents and gift-givers. We are committed to delivering on our mission to bring joy into the lives of our customers by being the toy and juvenile products authority and definitive destination for kid fun, gift-giving solutions and parenting services."
For 2014, the objective of TRU Transformation will be to slow the company's sales decline, stabilize cash flow and improve EBITDA to effectively position the business to grow revenue and profits in 2015 and beyond.
The company will be focusing on a few initiatives, including transforming the shopping experience in-store and online. To improve the customer experience in-store and online and become a customer-centric business, the company has already begun to implement initiatives, such as cleaning up existing stores and improving in-store execution; improving out-of-stocks and the speed of checkout; solidifying customer relationships through strengthened loyalty and targeted marketing programs; improving price perception by developing a clear pricing strategy and simplifying promotional offers; and optimizing the e-commerce experience by capitalizing on the online shopping growth and omnichannel integration with stores.
The company also plans to close some stores during the year primarily due to lease expirations, but added that at this time it has no plans to close a significant number of them.
It does plan to close the McCarran Distribution Center in Storey County, Nev., June 1. During the past few years, the company has expanded its omnichannel capabilities as well as its ability to ship online orders from stores and distribution centers that serve stores, resulting in the ability to flex inventory more efficiently, leverage underutilized space and ship from points closer to customers. The company will continue to open stores and expand fulfillment capabilities in markets where it makes the most sense, including in China where growth has accelerated.
Comparable store net sales for the quarter were down 4.1% in the domestic segment and 2.2% in the international segment. The overall decrease in comparable-store net sales resulted primarily from decreases in the entertainment (which includes electronics, video game hardware and software), learning and juvenile (including baby) categories. Net sales for the quarter were $5.3 billion, a decrease of 8.7% compared to the prior year.
So far, the company is off to a good start in fiscal 2014 with a 3.5% comparable store net sales increase in the U.S. and a 0.2% comparable store net sales increase in its international segment through the first seven fiscal weeks. The U.S. comparable store net sales results are largely attributable to the learning, juvenile and entertainment categories, which were affected by strong sales of movie-related products, both in-store and online and an enhanced e-commerce shipping offer.