customers walking to the entrance of a Toys R Us store
Toys R Us filed for bankruptcy this week due to the lingering after-effects of a bad business decision made in 2000 PHOTO: Mike Kalasnik

Toys R Us, the iconic Wayne, NJ-based toy retailer, has filed for bankruptcy protection in the United States — and its historically lackluster attempt at digital transformation may be to blame.

To understand Toys "R" Us’s current position, we have to go back to the year 2000.

Feeding the Ecommerce Hand That Bites You

In 2000, the internet still had its training wheels on.

Toys R Us made a move that year that suggests it fully understood the internet's potential early on: it partnered with Amazon. The partnership essentially made Amazon the de facto online retailer for Toys R Us. Toys R Us promised to keep the toys coming, and Amazon was apparently obliged to remain exclusive to Toys R Us when it came to toys. 

The partnership included ToysRUs.com redirecting all traffic directly to Amazon’s website.

At the time, it may have seemed like a shrewd move for both sides. Toys R Us had the toys, Amazon had the online presence. But as the years passed, it became clear that Toys R Us was feeding the hand that eventually bit it.

Bill Davis has been involved with ecommerce since 1994, starting as an early employee at NetMarket. He told CMSWire Toys R Us made a mistake placing its trust in Amazon. As far as Davis is concerned, “Amazon got to watch firsthand what was selling, when it was selling and what wasn't selling.”

By 2003, Amazon began selling toys from other retailers — much to the dismay of Toys R Us. The toy retailer argued Amazon was violating the exclusivity agreement between the two companies, and followed up the accusations with a lawsuit in 2004, seeking $74 million in damages.

Amazon met the lawsuit head on, countersuing Toys R Us for $4.71 million, claiming the company had failed to keep toys in stock on its website.

Although the judge awarded no monetary damages, Toys R Us eventually won the case. It launched its own website in 2006, but it may have been the case of too little, too late.

A Slow March to Digital Transformation

By waiting until 2006 to take the ecommerce world seriously, Toys R Us came late to the party. According to Bill Davis, “underestimating both ecommerce and what Amazon was focusing on — retail domination —  started [Toys R Us] down the path they are on.”

Praful Saklani, CEO and founder of Brisbane, Calif.-based Pramata, an agency that digitizes and operationalizes commercial relationship details, also spoke to CMSWire.

According to Saklani, “Toys R Us failed because it didn’t have a coherent digital strategy to pair with a unique high-touch experience.”

“The commerce winners are companies that have a beat on their customers because they capture proprietary data on their customers. This enables real-time marketing based on that proprietary data; [which involves] offering what's relevant to a customer based on their preferences and online buying habits, and offering a continued experience in store,” he said.

Saklani continued by saying that without knowing who buys what, when or why, “old retailers like Toys R Us are stuck doing commerce the old fashioned way — by housing stocks of your products and looking for patterns based on incomplete data.”

What's Next for Toys R Us?

So how (and can) Toys R Us regroup?

Davis once again shared his take:

“[Toys R Us] need to focus on cementing its position as the number three toy retailer and work [hard] to defend that because it isn't going to overtake Amazon — that train left the station,” he claimed.

“Its company culture [also] needs to shift and that can't be done just by spending on ecommerce and technology,” Davis said.

Saklani insisted Toys R Us has the right tools at its disposal, it simply has to realize it:

“If it understands the importance of digital transformation — [and by that I mean] capturing proprietary data from its customers, the tools and strategies are there to transform its business based on the findings. Once the light bulb goes on, it can quickly take its years of data and start to create intelligence on its customers. This will give it a good starting point, [giving it what it needs to] intelligently build a strategy around its proprietary data sets and in-store experiences,” he said.

CMSWire also spoke with Eric Hansen, CTO and founder of Boston-based CX solutions provider SiteSpect on the issue. He sees the potential for a silver lining here:

“Just this year, about 20 stores have filed for bankruptcy. While it may seem like a drawback or 'the beginning of the end,' this could actually mark the start of Toys R Us transformation into the next generation of retail,” Hansen said.

To join that next generation, Hansen echoed Saklani’s point, saying Toys R Us would need to start by, “digging into its customer segments and gaining a deep understanding of how different consumers interact with a brand in different ways.”

Once Toys R Us is equipped with those detailed insights, Hansen continued, it can, “leverage data analytics, to create personalized shopping experiences and anticipate customer needs based on previous interactions, making for a seamless ecommerce experience, that doesn’t just drive sales, but also builds customer loyalty."