While Amazon continues to suck all the air out of the room over its proposed HQ2 “headquarters lite” project, and waits to see which suitor bends over the furthest for Jeff Bezos, its business model continues to hog the oxygen in the retail space, as well.
Now, it’s Wayne-based Toys R Us’ turn.
In February, the retail giant slashed more than 200 jobs at its corporate offices following a disappointing holiday shopping season. Last week, the downward drumbeat continued as Toys filed for Chapter 11 bankruptcy protection, an aggressive attempt to restructure $5 billion in debt.
It’s a sharp reduction of fortunes for a company that hit a sales peak in 2012 just shy of $14 billion, but also a cautionary tale — make that another cautionary tale — of stagnancy in the face of disruptive innovation. In the case of Toys, it’s the usual culprits of Amazon’s convenience and selection, and the popularity of smartphone and tablet games on Apple and Samsung devices that has eroded the company’s lead.
The company has more than 1,500 stores facing highly uncertain futures, and while Toys insists most of its stores remain profitable, online toy sales have increased to nearly 15 percent of total volume, up substantially from just five years ago. In that space, the retailer is just not competitive.
Despite the writing on the wall — Gymboree and Payless being two other large chains shackled to Amazon’s rear bumper; both declared bankruptcy earlier this year — Toys secured a $2 billion loan to give it a cushion heading into the holiday season. For the retailer’s more than 60,000 global employees, the fervent hope is they awaken to a huge surprise under the tree come Christmas morning.
Small businesses and entrepreneurial ventures are rarely caught off guard by disruptors like Amazon, simply because they are agile enough to read the market in ways that big companies like Toys are often unable to as they become victims of their own successes. But for New Jersey businesses, this one hits awfully close to home. Treat Toys R Us as a warning about getting complacent, putting too much trust in your own brand, and not thinking critically about how technology and innovation are creating opportunities — but also dangers — to your business model.
It’s a lesson we’ve shared in this space before. But apparently, it’s worth repeating. We’re not going back to the pre-e-commerce days. Either start innovating, or start buckling up — it’s going to be a bumpy ride.