The End of an Era

Several industries have been disrupted by internet commerce over the past two decades. The most prominent casualties were movie rentals and music shops.  The bankruptcy of Blockbuster was the end of an era for video rental stores.  Music shops like HMV have been reduced to the minimum expression, while others have outright closed.  Now the only retail music stores you find are specialized places dealing in vinyl, or old/collectible records.

Everybody blames Amazon (NASDAQ: AMZN), but the truth is there is a lot more convenience in buying a CD online, being able to download the music and listen to it immediately while the CD gets shipped to you, and all of that in the comfort of your own home.

Until recently, toy stores seemed to have an edge.  As a parent of young children, especially those who still can’t communicate properly, finding the perfect Christmas or birthday present can be a daunting task.  Fortunately, our friendly neighborhood Toys’R’Us provided us with a playing field where our kids can go, wander around, play with the toys they like while you just take note of what they liked the most and get it for Christmas.  As they grow, they can explore new toys, and decide which ones they want in their list.

Stores like Toys ‘R’ Us have relied on the physical presence of a toy and kids access of it as a main selling point over the past decade; however, they failed to acknowledge, that parents can’t always pick up toys while their children are playing around in the store.  Parents simply make a list, and then order the items online, and receive them in the mail while the kids are in school.  Problem solved.

Besides some desperate hail-Mary sales in a futile attempt to compete with Amazon, Toys ‘R’ Us were unable to produce enough events to draw clients to the stores.  Being the major toy retailer in the world, they could have teamed up with the likes of Lego to host an annual Lego-building competition, have Mattel host The Barbie Awards, get Hasbro to do some promotions around the annual Star Wars releases that have been coming for the last 3 years, or team up with some of the gaming consoles’ manufactureres to host an annual championship of the hot-game du jour.  Any of these events could have attracted thousands of potential customers to their massive locations around the world and while they watch how some people participate in the competitions, they will browse around the stores to see what’s new.  At best they would increase sales without massive cost increases, at worse they would have increased traffic to their shops and get people talking about what’s available, not forgetting about last-minute impulse purchases.

Whoever ran marketing for Toys ‘R’ Us dropped the ball epically and a while ago.  I mean, how hard can it be to come up with these ideas? I am a finance guy and was able to think about them while writing this blog, you would expect some highly paid marketing experts to have those and many more ideas.  No budget? come one! Hasbro (NASDAQ: HAS) and Mattel (NASDAQ: MAT) would be happy to split the bill in order to help preserve their main outlets open.  This is lack of vision at its utmost or simply a gross case of sleeping in one’s laurels and not getting on with the times

So what now? Well, I think it’s too late for Toys ‘R’ Us.  Their debt burden has ballooned, and there is no angel investor in the horizon.  The demise of the debt-burdened toy store signifies the end of an era for brick-and-mortar toy retail.  But there are lessons to be learned:

People are fearing Amazon’s entering in the food market.  But there is still a case to be made for food stores: No self respecting chef will allow an Amazon packer to pick your groceries, fruit or vegetables and pack them for you (unless you are running the galley for the army or a prison).  People still need to understand the level of ripeness of the fruit, see the meat and decide if it is properly aged, etc. and there is no way Amazon can replace that. But there is a whole other area in the grocery business (packed, canned, and bottled products) that can be bought in bulk and delivered.  There is where Amazon can truly disrupt the market, and it is already doing so.  If you don’t believe me, ask Walmart (NYSE:WMT).

take care of your customers, and your customers will take care of you

To conclude, Amazon is not the devil, it is just someone taking advantage of opportunities in the market.  It is cheap, fast, and has the best customer service I’ve seen in a long time.  At the end of the day the motto: “take care of your customers, and your customers will take care of you” still applies  Fail to acknowledge it at your own peril.