Dave Brandon was named CEO of Toys R Us in June. Brandon, the former head of Domino's Pizza, sat down with NJBIZ to talk about his new role in New Jersey as the company prepares for its most important time of the year:
NJBIZ: You’ve had a long and successful career as a businessman and leader — but you’ve never had anything to do with the toy industry, so it was a bit of a surprise when you were named CEO this summer. Take us through that.
Dave Brandon: I wasn’t at the table when the owners of the company decided who the next CEO was going to be, but it would have been difficult for them to say, ‘How many global toy retailers are there that we can choose talent from?’ There’s one of us. I think what they were looking for is someone who is an experienced leader who was familiar with retail, familiar with culture change, familiar with growing companies who knew a bit about branded marketing.
New Jersey and Toys R Us: Perfect together?
We asked Dave Brandon to talk about the future of Toys R Us in New Jersey:
“This is a great New Jersey-based company. I see nothing but upside here. We’re in a region where there’s a great talent pool for us to recruit from and the quality of life is terrific. People are not serving time here until they move to another region of the country. They want to be here — and that creates a stability in your workforce that’s very important. It’s obvious that this is home, we own this facility and this property. This was built here on the basis that this is home. This is where we’re going to stay.”
There’s a lot about my background and things that I’ve done that have made this transition for me pretty comfortable. Seldom do I run into something here that I have seen or been very close to over the course of my career. And that’s not only being a CEO for 22 years before coming into this job, but serving on a number of boards. Some of those boards were very much striking at the heart of big box retailing and mass retailing. I came to this pretty comfortable about understanding the business model and the opportunities.
NJBIZ: And you actually have experience being an outsider coming in to take over a company. How does that help you?
DB: It really felt the same way at Domino’s. When I was hired, the headline was, ‘Bain Capital chooses industry outsider’ (he says with a hearty laugh). And then it went on to talk about how unqualified I was for that job. There’s a great advantage to being able to come into a situation like this as a leader and challenge the status quo, just ask a lot of questions like, ‘Explain to me one more time why we’re doing it that way?’ I think it opens up the funnel in terms of ideas and energy around change.
NJBIZ: Let’s talk changes. Toys R Us has been struggling in recent years. How are you going to rebuild what is an iconic brand in this country?
Bold move at Domino’s
We asked Dave Brandon to talk about his major move at Domino’s, when he successfully changed the recipe for the pizza:
“Risk taking is a good thing if it’s a considered risk and you’ve done your homework and you’ve minimized the possibility of failure. When we launched the new recipe at Domino’s, people were skeptical. ‘You’re No. 1 in your category, you’re 50 years old, you do a million transactions a night, you’re expanding globally and you’re going to change the recipe?’ When we were talking about it, there was one voice in the room that kept saying, ‘New Coke, New Coke, New Coke.’
“It would have been very easy to rationalize that we should retreat and keep doing what we’re doing. I’m really proud of what we accomplished at Domino’s; we took some risks and we were bold.”
DB: One of the greatest assets the company has is this brand and the emotional connection people have to it. There’s an affection for this brand. Our job in the omni-channel world is to take that and turn it into the chance to be relevant in today’s world. There’s a whole different competitive set, a whole different set of challenges in terms of customer expectation. We’ve got to adjust to that, and in some cases we need to build capabilities that are new and different.
NJBIZ: Simple to say, but that’s proven to be a heavy lift for many retailers. How are you going to succeed?
DB: We have to create three different store experiences as part of the whole retailer of the future experience if we’re really going to satisfy customers.
The first store has to be the traditional bricks-and-mortar experience, which a lot of people still enjoy. Now the bricks-and-mortar stores of the future are going to be smaller. They’re not going to be 45,000 square feet, but they are going to be chock full of the items people are interested in. They are going to be very shop-able; they’re going to have a lot of technology woven into the experience, so as you’re walking around with your handheld, you have the flexibility and availability to shop in whatever manner you feel is most comfortable. You may want to order it in that store and have it delivered; you may want to order in that store and have it shipped elsewhere. The store of the future has got to enable all that.
Being a Michigan Man
We asked Dave Brandon how playing for Bo Schembechler at the University of Michigan (where he majored in education) impacted his life in the business world. Here’s how:
Hiring: The first time I got involved in recruiting talent the only thing I had to go on was my memories of watching Bo — first in recruiting me and then how he recruited his assistant coaches. All of them ultimately went on to become great head coaches, so I saw how he purposely hired people who wanted his job — but also who could add value to the program. He enjoyed the fact that they could go off and become successful head coaches. I learned from that.
Setting expectations: The first goals and objectives I ever set were parroting the Michigan football program, where displaying those goals in a way that everybody saw them every day and bought into them, creating a sense of ownership.
The second store we have to build is the back end of that store, which has to look less like a traditional stock room and more like a miniature distribution center. The ship-from-store opportunity is one of the great advantages we have. Having 850 ship points logically patterned around the country gives us the ability to cover a lot of geography efficiently. If you’re trying to build these goliath retail centers and you need to ship it hundreds of miles and it only has a retail value of $9, that starts to become a very difficult economic proposition. We can ship from the back of that store. The store of the future needs to look on the back end like a very efficient, well thought out miniature distribution center.
The third store of the future is the online experience. No matter what device you’re in love with, we need to provide you a shopping experience that makes you feel just as comfortable and just as satisfied as the old bricks-and-mortar experience felt years ago.
NJBIZ: Left unsaid is the fact you need to compete with Walmart, Target and Amazon — three companies that have taken so much of your market share. How do you battle them?
DB: We can’t, nor should we try, to out-Walmart Walmart or out-Target Target or out-Amazon Amazon. They have very different business models. They’re not specialty retailers; they’re in hundreds of categories. They operate very different platforms and their focus changes season to season. This particular time of year is when they come alive and get excited about the toy industry. The rest of the year there’s an aisle in the store, but it isn’t really a focus. We wake up every day of the year and live and breathe toys and babies. That should put us in an advantageous position because that’s what specialty retailers do.
Toys of the future
We asked Dave Brandon to talk about how toys are changing:
“If you look at the 15 hottest toys of this season, there’s a lot of robotics, there’s a lot of voice recognition and voice activation. Barbie dolls are really cool and we still sell the same Barbie doll we’ve been selling for decades, but now you’ve got a Barbie doll that jumps on a horse and rides across the room. And now they’re working on Barbie dolls that have a conversation with a child. What everyone is doing in this business is stepping up to the fact that the youth of today have higher expectations in the activities they want to engage in and they’re more used to sensory overload in the entertainment that they receive. The toy companies are stepping up to that and that gives us more opportunity to partner with them and be a part of that innovation. Nobody is in better position than Toys R Us to partner with those vendors and enable that innovation in the marketplace.”
The Toys R Us “Fabulous 15”
We can provide a specialty experience. All you have to do is take a child into one of our stores and see the joy they get from being in that type of environment and then take them to a Target or a Wal-Mart and see the difference.
NJBIZ: OK, then let’s look inwardly. Which of the three Toys R Us ‘stores’ gets priority?
DB: Operating brick-and-mortar stores is what we’ve been doing for 65 years. The things we’ve got to get better and better at are certainly all the digital platforms. It’s a changing world; that’s something we really have to dedicate ourselves to. And that whole ship-from-the-back-of- the-store proposition is going to be a very different skillset that we have to develop to give the customer what they want, when they want it and how they want it.
NJBIZ: That’s easier said than done. How tough is it going to be to change the transaction model?
DB: In my previous life at Domino’s, 90 percent of our orders were taken over the phone when I arrived. Somebody who was making a pizza would grab the telephone, and when you hung up, you hoped that they got it right. Today, over half of the orders are placed on a digital platform — and the pizza tracker will enable you to watch your order as it’s being built. There’s a lot of technology that was brought to what used to be a very traditional way of ordering pizza. In many respects, we need to run the same play here. We need to become more multifaceted.
NJBIZ: That brings up Domino’s, a company you helped take public. It’s no secret that when you were hired, many felt it was to take Toys R Us public. Where does that stand?
DB: My middle initials are not IPO (he says with another hearty laugh). We have private equity owners who purchased the company over 10 years ago, and anyone who knows anything about private equity knows that those folks don’t typically buy companies to operate them forever. Typically, they operate them for far less than a 10-year horizon. Their job is to buy and sell and move on to the next investment. I think everybody knows that this has been a long hold for those private equity investors and, certainly at some point, they would enjoy participating in some form of liquidity event. And for a company of this scope and scale, a public offering would certainly be the most logical way to enable that.
Even though I’ve done IPOs and people think that’s one of the arrows in my quiver and it is, the reality is an IPO is not the end of a journey — it’s the beginning of a journey. You enter a completely new realm of oversight and expectations and the stress it puts on an organization to operate consistently is one where you don’t want to enter that realm until you’re ready. And I’ll know when we’re ready. And until I’m convinced that we have trend lines and momentum in the areas that are so important to the future of this business, my effort shouldn’t be dreaming of an IPO; my effort should be focused on how we can execute better and get those trend lines established.
NJBIZ: And that starts now. Just how big is the holiday season for you?
DB: Huge. The seasonality in this business is greater than any business model I’ve ever experienced. Nothing compares.
NJBIZ: So that leads to the final question: The Toys R Us holiday shopping season will start on Thanksgiving night this year. Was that a tough decision to make?
DB: I wouldn’t describe it as a difficult decision. There are certain businesses and business models in our country that are called upon to satisfy consumer needs because we’re all about satisfying our customers. If our customers want to shop in the afternoon and evening of Thanksgiving, then we should be providing that opportunity because that’s the promise we make to our customers.
If the hotels all close down and the airlines didn’t fly and caterers didn’t cater — there are certain segments of our world that are required to be who they are and do what they do to satisfy their customers. I look at this as it’s a decision that’s based on both the reaction to a competitive environment. If other people are going to be open, you better be open to be competitive, but also what our customers are telling us. And they vote with their wallet and some of them want to shop on that occasion.
I used to be in the pizza business. And you order pizza on Friday and Saturday and on Super Bowl Sunday. You order pizza when you are partying and having a good time; those are the peak periods. I can’t go to the organization and say, ‘Listen, we’re going to close down all the times everyone else is partying so we can go party with them.’ We’ve got to be who we are, just like airlines and hotels and other service-oriented organizations. For me, this is not a difficult thing.
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