Background
The American-based company Toys R Us (TRU) was once a well-established business enterprise that deals with the sales of toys since its establishment around 1948 by Charles Lazarus. The retailer mainly sold baby products, clothing, dolls, and video games and operated in the USA and other parts of the world. The company stayed on top of the competition for a reasonable period before the sudden decline in sales.
Initially, the company was successful due to the large collection of commodities available within its stores. The arrangement format of supermarket-like style gave the buyers easy time to outlook the toy brands around. Furthermore, the firm had a good image and a strong position in the consumers’ minds. In addition to the distribution network, the industry was more efficient in delivering its services to clients. It thus attracted a massive number of consumers for the children’s play dolls. The paper’s focus is to analyze how changes in market demand affected the sales volume of the giant TRU retail shop.
Causes of the TRU Failure
Seasonal Sales
TRU targeted significant holidays like Christmas to get a big market for their products. During such periods, most people would buy the products as gifts, thus raising the sales ratio. This dependency made it difficult for the firm to achieve the expected financial outcome as revenue income varied from time to time, depending on the period of the season. It, therefore, resulted in poor operating results as profit targets were not mostly met.
Lack of Competitive Advantage
Retail companies like Walmart, Costco, and Amazon have strategized their market operations by giving a range of offers to their clients, for example, home deliveries, lower prices for commodities, and other enticing packages (Sanny et al., 2018). This method has lured customers to shop with retailers leaving TRU stranded with limited consumers for their goods. Without unique offers, the firm could not beat competitors in the market for toys.
Competitors
The toy industry has a good number of retailers providing similar products. The competition level increased and thus became a fundamental threat to the TRU brand. The large number of suppliers made consumers have several stores or different shops to buy the dolls at a much better price making the company experience a decline in sales of its commodities. On the other hand, online competitors played a significant role in increasing the number of toy games, thus adding stress to the toy market.
The Constant Change of Consumer’s Behavior
The trend of customers’ tastes and preferences kept changing that required the firm to keep track of the alterations to meet the clients’ needs (Dadkhah & Vahidi, 2018, p. 435). TRU could not evolve quickly to sustain the rapid development needs of the people. This made it lag in satisfying the needs of the loyal consumers, making them opt for other providers of the toy products like Amazon and Target.
Going Bankrupt
The TRU industry incurred losses in its operation that prompted the management board to seek and sign protection from such dismal performance (Morgan & Nasir, 2021, p. 460). The firm was operating under a debt of about $5 billion. Such great losses created low trust and confidence amongst the vendors. Moreover, the managers did not anticipate and initiate an early move to secure the growing platform of eCommerce in the current business system (Gilliard, Hoffman & Baalbaki, 2019). The late call in the movement gave added advantage to its competitors who grows stronger hence keeping it below into the market of online retailers.
PESTEL Analysis
The analysis tend to look into political, social, economic, technology, legal and environmental factors that relates and define the operation of TRU business firm. Cost of labor imposed by the US political laws made the industry spend a good fortune on wages, causing a reduction in its profit margin. Further, the main international revenue source for TRU products was China’s suppliers; political trade misunderstandings between the two countries resulted in financial turbulence and trade restrictions (D’Agostino, 2018). The tension caused challenges in business operations between the nations. The currency translation exposure also contributed to the fall of TRU since its overseas equities and assets reduced in value following the denomination of the country’s currency. Reduced customer target, safety controls and the increasing innovation majorly influenced the industry’s performance.
SWOT Analysis
The firm’s strength included continuous development of unique brand products that would constantly attract clients to their shops, availability of different merchandise, popularity in the market due the large number of outlet shops and its effective distribution method. TRU had weaknesses like failing to offer unique packages and total dependency on seasonal sales. The company also had opportunities like expanding its private labels products, venturing into upcoming markets and forming joint business operations. On the other hand, it faced competition threat from other well-developed retailers.
Porter’s 5 Forces
To ensure the formulation is working, the TRU managers should identify where the company’s potential lies, weaknesses to fix, and possible threats to avoid. Identifying the power of buyers enables the industry to know how consumers can influence the low prices of the product. Knowing the buyers allows the firm to have control of the market prices (Bruijl, 2018). Additionally, establishing the bargaining power of suppliers will make the company influence and determine how vendors can shoot up the prices. TRU should also know about substitution threat, availability of substitute goods allows the consumers to have a choice depending on the price of the related product. The firm must be aware of new entries into the market (Pervan, Curak & Kramaric, 2018, p. 4). If the market of toys tends to be profitable, the chances of many players joining the market are high, assuming no barriers to entry. Another effective force is the competitive challenge; several competitors with different undifferentiated goods lower the desirability of the market resulting in a reduced profit.
The 3 c’s
Ascertaining the progress of the strategy, the company should always have its customers in mind, their preference, population structure, their buying decisions, feedback concerning the service delivery, and what they like about the commodities. Furthermore, managers should determine the position of the firm with respect to related firms (Sai, Sevruk & Tunitska, 2018, p. 185). They have to identify the unique selling points of the competitors, the size of their market coverage, and related indirect competition they create. Lastly, the TRU should evaluate itself to examine and comprehend major factors that would result in successful business operations. It should analyze the strengths and weaknesses and determine whether the business structure supports the laid down strategy and its cost-effectiveness.
When assessing the impacts of the strategy, customers’ level of satisfaction should be determined based on feedback from consumers. The overall increase in sales or net sale income will also show positive impacts. Employees’ commitment to offering services and the company’s effort of providing training and effective and reliable decision-making by the stakeholders will all serve as key measures of the performance of the strategy initiated by the industry. Market demand is generally a great challenge, which should be addressed keenly by the organization’s management to facilitate proper financial performance.
Reference List
Bruijl, G.H.T. (2018). The relevance of Porter’s five forces in today’s innovative and changing business environment. Web.
Dadkhah, A. and Vahidi, B. (2018). On the network economic, technical and reliability characteristics improvement through demand-response implementation considering consumers’ behaviour. IET Generation, Transmission & Distribution, 12(2), pp.431-440. Web.
D’Agostino, J.L. (2018). The impact of e-commerce on brands: An analysis of Amazon and a plan for the future. Doctoral dissertation. University of Oregon. Web.
Gilliard, D.J., Hoffman, D.L. and Baalbaki, S. (2019). The Toy industry is declining? How can Mattel, Inc. survive?. Journal of Marketing Development & Competitiveness, 13(3). Web.
Morgan, J. and Nasir, M.A. (2021). Financialised private equity finance and the debt gamble: The case of toys R Us. New Political Economy, 26(3), pp.455-471. Web.
Pervan, M., Curak, M. and Pavic Kramaric, T. (2018). The influence of industry characteristics and dynamic capabilities on firms’ profitability. International Journal of Financial Studies, 6(1), p.4. Web.
Sai, D.V., Sevruk, I.M. and Tunitska, J.M. (2018). Competitive strategies in retail industry: Development and implementation in conditions of modest economic growth. Scientific Bulletin of Polissya, 2, 1(13), pp.183-190. Web.
Sanny, L. et al. (2018). Business strategy selection using SWOT analysis with ANP and Fuzzy TOPSIS for improving competitive advantage. Pertanika Journal of Social Sciences & Humanities, 26(2). Web.