Toys R Us Embraces Experiential Retail and Augmented Reality to Emerge from Bankruptcy Even Stronger
Toys R Us is completely reimagining its in-store retail format to blend the benefits of digital technology with its 1600 brick and mortar locations.
Toys R Us, the pioneering toy retailer that practically invented big-box retailing in the 1950’s, is about to undergo a dramatic reinvention. After announcing bankruptcy several weeks ago, Toys R Us emerged with its plan for a new, brighter future. It’s gutting it’s previous in-store modus operandi and going for an immersive experiential and digitally integrated format.
This month the toy giant has already launched an augmented reality (AR) experience to reinvigorate its stores and make them destinations for consumers now that so much value purchasing has migrated online. AR activities project computer generated images on top of a real world environment at 13 different stations inside Toys R Us stores. The idea was sparked by the Pokemon Go craze last year, the company said.
Before its post-bankruptcy pivot, Toys R Us had been slow to adapt. And in the company’s complacency, Amazon and Walmart both rose up to take larger shares of the retail toy market. Toy shopping on Amazon increased 17% between 2015 and 2016, which transacted toys with 37+ million consumers. Toys R Us is being pinched on the other side of its competitive spectrum as well, with neighborhood toy stores thriving in this environment.
So successful in the old normal it helped establish, Toys R Us stayed stagnant while the world moved on without it. “Toys R Us, which had basically devolved into a warehouse, did not have the vision or the money to give its customers a great experience,” Howard Davidowitz, a retail consultant who worked with Toys R Us in the 1980s and 1990s, told the Washington Post. “For a toy store to survive, they’ve got to create the kind of fun that Amazon can’t.”
Hard to turn the Titanic
That’s something much easier for small operators to cultivate, which is a big reason why independent toy stores are experiencing a big revival in the new normal. The old neighborhood model that tailors so naturally to the unique demands of its local market—often with passionate, even charismatic ownership from the same area—is dominating the old big box model. It’s a kind of rediscovery and return to old norms being felt across many segments. As the age of impersonal, seemingly automatic consumption by click has risen, parents and kids are craving more stimulating, omni-sensory shopping experiences. Adult consumers have become professional comparison shoppers from the comfort of their computer or hand-held device and this generation of children may be the best gamers in history, if not the most practiced, but both demographics are feeling a gravitational pull towards real, brick-and-mortar places with much greater propensities to make a lasting memory.
At Bartons Child's Play in the Chevy Chase neighborhood of Washington D.C.—a charming community with a small village vibe that stands out in a rapidly urbanizing region—annual sales have been climbing ~3% per year. On a recent weekday afternoon, reportedly, the store bustled with children: “Their parents in tow said they come to the store regularly because they like the carefully curated selection, helpful employees, Lego-building events and the gift wrapping, which can come in handy when you drop in on the way to a birthday party.”
“On top of all that, it’s just an amazing place to hang out,” Mary Freeland, whose 8-year-old son was finding his way around a colorful parking garage, told the Washington Post. “They let my son play.”
In one of Chicago’s gentrifying neighborhoods, Logan Square, there’s enough space and amenities to attract families and children. Neighborhood toy store Play is also thriving while Toys R Us is going bankrupt. Owned by toy business consultant Ann Kienzle, Play’s reputation as a beautiful boutique toy store has been building steadily since first opening seven years ago–in the depth of the economic recovery.
“There’s a novelty of going to a toy store now. It’s certainly something that I did as a child, and so I think that taking our kid to actively go play with toys and be surrounded by all of this – it’s like going to the park with toys!” Cara Garbarino told Medill News Service. While her son toddled around the store, he found items to reach out and touch at eye level. Creating an interactive level below display tables is an intentional tactic.
“We have to make the store experience all that much more special,” Kienzle said. “We try to have so much of our products out for kids to play with, for adults to play with. We educate our staff so we have a high level of service.”
Brian Laskov, the father of two who lives across the street, said he liked to bring his children into Play even if only for 10 minutes. “They have story time here and everything,” he told Medill News Service. “Even though we might see something here that you see at a bigger box store, I’d still rather buy it here, even if it costs a little bit more.”
40% of Play’s customers on weekends are new visitors. The 60% majority are Logan Square residents who keep coming back for more (and make up most weekday traffic).
Logan Square’s intensifying pattern of infill development is playing into Kienzle’s competitive advantages at Play. Residents patronize Play because it fits their ideal of a quality small business and it meets their need to forge family experiences beyond the walls of their fancy condos.
Potent placemaking potential can make profits for small business
Linda Schmidt and Andre LeMoine, affectionately known as "The Schlemoines", are operators of another independent toy store in an up-and-coming, urbanizing area of Chicago, Cat & Mouse Games. The Schlemoines have eclectic backgrounds and are ideal toy store owners. According to their Facebook page:
“At various times we have been: a teacher, a librarian, an IT specialist, a pastry chef, parents, artists, gardeners, dreamers, geeks, travelers, and business owners. Clearly we are easily distracted and happily entertained. Mostly though, we're a couple of kids at heart who really love games and puzzles, and that's why we opened the first Cat & Mouse Games in Bucktown in 2008.”
In 2014, Cat & Mouse added a second location in the heart of another one of Chicago's rapidly developing and family-friendly West Loop neighborhood. Another relatively spacious and amenity rich area–including world-class restaurants on Randolph St. and walkable or single transit stop distance to the central business district (“the Loop”)–the West Loop is experiencing a population boom. The West Loop was one of Chicago warehouse districts, still with several operating meatpacking operations hanging on today. It’s big lofty buildings, historic charm, wide sidewalked boulevards and surprisingly good schools is attracting thousands of new residents, many of them families. Several private elementary schools and daycares have sprung up in a once gritty and smelly part of town in between the Loop and the old Chicago Stadium. The city is currently nearly doubling the size of the highly sought-after Skinner Elementary School, which is opposite a large park from magnet high school, Whitney Young, which you have to test into and where Michelle Obama went to school.
On highly-trafficked Madison Street, Cat & Mouse’s second location in the West Loop “proved to be the perfect location for a store chock full of fun,” according to the Schlemoines. “So perfect in fact, that we quickly doubled the size of that store and added a whole slew of new playthings.” Cat & Mouse has found its sweet spot and enjoys every minute of it.
It’s sidewalk chalkboard is redone every day with the day’s events, encouraging the neighborhoods growing residents to drop in. Community engagement is a primary operating principle. It recently tweeted: “We're on an event spree. No really, we can't stop playing. You should come play with us!”
A few neighborhoods over at Play, Kienzle is also keen on the idea that community is key to the future of her small business. Recalling a moment soon after opening Play with Medill News Service, Kienzle said: “The Farmer’s Market next door was open, and a lot of customers came into the store. Parents were chatting, and children were playing. That was what I had envisioned for the store. I wanted the store to be a kind of community meeting place.”
Still in “growth mode,” her next goal is to maintain a more consistent presence in the strengthening of local schools. On Dr. Seuss’s birthday two weeks ago, she and the nearby pie shop owner read “Green Eggs and Ham” at the St. John Berchmans School. If small businesses are like children, then Kienzle has as much as stake in the quality and ultimate success of her community as any parent.
The bigger you are the harder you must turn
Toys R Us won’t be taking the same inside-out approach to growth at the community level, but it can evolve into a new space. By fully embracing technology, the toy retailing giant hopes to capture growth again by pioneering a new frontier of in-store shopping–just like it did in the 1950's and 1960's.
Toys R Us’ AR plan was already in development before the company filed for Chapter 11. Bankruptcy will allow the company to deal with $5 billion in long-term debt it’s built up fighting a losing battle with the stale strategies. And this should give it the financial flexibility it needs to redevelop its ~1,600 stores into a more interactive and immersive experience.
"It's going to transform the experience of coming into a Toys R Us bricks and mortar store and turn it into something that’s quite different and a lot more fun,'' CEO Dave Brandon told USA TODAY. "We believe that’s going to drive a lot more traffic into our stores which will ultimately put us in a position where we can be more successful at growing our sales and our company.’’
Toys R Us has upgraded its website to emphasize its toy expertise and is reformatting its stores into hubs of activities that go well beyond the regular shopping experience. When you go to a reimagined Toys R Us store, Geoffrey–the Toys R Us mascot–greets you virtually and politely tells you what to do. Young shoppers are guided by flashing icons and stickers on the floor that point their handheld device towards signs on the shelf. When a sign is scanned, then each toy or activity comes to life. As USA TODAY writes:
“All you have to do to feel the rush of racing a truck, watch wildlife while on safari, and nab a shark while fishing is head over to your local Toys R Us store. ...in the baby doll aisle, a cooing, virtual version of a doll on the shelf can be adopted, given a name, and even have its dirty diaper changed. in the basketball station, kids can sweep a ball into the hoop with a swipe of the screen, and compare their scores with others on a leaderboard.”
These activities aren’t one-offs or fire-and-forget engagements. Each one racks up stars for the players, and the more they earn, the more experiences they can unlock just like a game. Call it Toys R Us’ gamified loyalty program.
So, don't forget your handheld device. You need the app to play and work through the 13 AR stations in the new Toys R Us experience.
Just like Amazon Go, the cashless grocery stores with no lines Amazon rolled out late last year, only the app will afford you the convenience of shopping in a grocery store nearly as easy as you can walk in and out. "Four years ago we started to wonder,” begins Amazon’s Go’s announcement video, “what would shopping be like if you could just walk into a store, grab what you wanted, and just go."
Barely a year later, and we’re starting to wonder how long before the rest of the retail sector fully embraces the future—or go bankrupt like Toys R Us.
A season to embrace change
But Toys R Us isn’t betting it all on augmented reality. This fall the company plans to open playrooms at 42 stores where children can try out games and gadgets, and toy demonstrators will be standing by. The opportunities are as obvious as the parallels to other segments where in store demonstrations are known to work well, particularly in grocery. So, it’s not like Toys R Us or anyone else must necessarily invent a brand new wheel. Just adapting to catch the way the winds of interest, growth and ultimately profits are blowing.
Brandon told USA TODAY that he doesn't believe that “any one of these programs that we're both testing and rolling out is a silver bullet . . . that’s going to dramatically change trends.'' But "bringing our stores to life and creating engaging experiences for our customers is a business strategy… that strategy was in place before we filed to restructure the company, and it will be one that will continue with increasing amounts of investment as we move forward.’’
It’s hard pivot and big reveal is a shock and awe strategy that might save the future of the company, and might also help build a buzz that pulls shoppers into Toys R Us stores this holiday season notwithstanding its bankruptcy filing. Its success will depend on its ability to develop and consistently offer up an experience proposition compelling enough to entice the digital generations to get out of the house. Nearly every retail store not lucky enough to co-locate with a tremendous traffic generator must create its own gravitational pull. The consumer’s default shopping behavior is no longer geographically extroverted. They must be compelled off the comfort and convenience of the couch.
"It’s vital for Toys R Us to give consumers reasons to visit its stores,'' Neil Saunders, managing director of retail for the consultancy GlobalData, told USA Today. "This can only be achieved by spaces that offer experience and excitement. The current big warehouse type model just doesn’t cut it. It offers no compelling reason to visit over buying online.''
Retailing in the New Normal
It’s a theme that’s rattling on the strategy boards of every major brick and mortar retailer. Instead of generating retail gravity all on its own, legacy retailer Kohl’s rolled out a completely different adaptation strategy this month. The 'Amazon Experience' has gone live at 10 Kohl's locations, which are now selling Amazon devices and accepting Amazon returns. The symbiotic partnership aims to help draw more shoppers to Kohl's stores, while also making it easier for Amazon's customers to bring back unwanted items at more, and often familiar, locations.
Kohl's and Amazon have been collaborating since the spring, Kohl's chief merchandising and customer officer, Michelle Gass, told CNBC. This is seen as the first step in a long term partnership. "I really do think it's an example of two companies that can leverage each other's strengths," said Gass, "we're leaning into our store base, which is a competitive advantage for us."
The kiosks selling Amazon products, such as the Echo or the Kindle, in Kohl's stores will be run entirely by Amazon. "[Kohl's] is one of the few department chains not closing stores, they're operationally focused, and they have a broad swath of stores with potentially a little extra space now," an analyst told CNBC.
Kohl's laid out plans earlier this year to whittle its square footage over time, but that doesn't entail shuttering stores altogether. Chief Executive Mansell has said that trading in some of Kohl's larger stores for pint-size locations would help the company maintain its presence in different markets and operate more profitably. The plan has led to speculation it’s making more room for an Amazon "testing grounds" in the near future.
The symbiotic strategy could allow Kohl's to hold onto its portfolio of physical locations, but simultaneously trims back inventory and cut costs. Leasing the leftover space to Amazon, which is moving into fashion with its own labels and runway shows, will be more profitable and give Amazon the department store shelf space and showroom potential that its acquisition of Whole Foods cannot.
Soon there will be 82 Kohl’s with Amazon kiosks and returns, but these are the first ten:
Bucktown, 2140 N. Elston Ave., Chicago, IL 60614
Harlem-Irving, 4220 N. Harlem Ave., Norridge, IL 60706
Chicago Ridge, 9700 S. Ridgeland Ave., Chicago Ridge, IL 60415
Highland, 10353 Indianapolis Blvd., Highland, IN 46322
Elmhurst, 303 S. Route 83, Elmhurst, IL 60126
Tinley Park, 7500 W. 191st St., Tinley Park, IL 60477
Huntington Beach, 7777 Edinger Ave., Ste. 140, Huntington Beach, CA 92647
Upland, 1923 N. Campus Ave., Upland, CA 91784
Redlands, 27540 Lugonia Ave., Redlands, CA 92374
Torrance, 25375 Crenshaw Blvd., Torrance, CA 90505
Can these retail adaptations keep stores relevant? Enabled by technology and big partnerships we’re about to see solutions come to market at scale. For Toys R Us, it could not put off recalibrating its broken business model any longer and bankruptcy could be a healthy springboard.
Whether through experiential formats, strategic alliance or other stratagem, every retail store must draw sufficient foot traffic to survive. On the other side of an epochal shift, with clearer trends coming into focus and consumer behavior patterns taking shape, it should become easier for larger players to reinvest and reinvent themselves—or, at least get their boards and investors on board (ultimate success TBD).
Not everyone will survive, as we have seen. But with consumer spending at all-time record highs and the biggest holiday shopping season ever projected coming quickly through the pipeline, the U.S. will open a record number of retail stores this year. So, retailers could hardly hope for a more opportune environment to overhaul their models, refresh their technology and rehab their physical stores.
For legacy retailers who survived the great retail restructuring so far, the light at the end of the tunnel may be within reach. Physical retailing can’t be dead, after all, Amazon is getting into the brick and mortar business. It now has hundreds of physical stores with plans to open hundreds, perhaps thousands more.