On September 18^th, Toys R Us, one of the world’s largest toy store chain, filed for bankruptcy protection in U.S.

Seeing the news, I could hardly believe a company this big and popular (maybe in past tense) is forced to take such step; however, the reason that leads to its bankruptcy is not so obscure either; the rise of e-commerce has already out-competed many big brick-and-mortar retailers like Sears and Gymboree, who filed for bankruptcy protection within the past year. In addition, children’s interest moved from traditional toys onto electronics, further contributing to the slipping sales (“Toys “R” Us files…,” 2017). Indeed, without frequent design and redesign of new strategies, Toy R Us quickly lost its comparative advantages in having had a large customer base.

Will Toy R Us disappear then? Toy R Us filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, (and also equivalent bankruptcy protection in Canada,) which allows a business to continue operating but requires it to file a plan for reorganization. (Bankruptcy Rules, Fowler, 2017) I think the fact that Toy R Us filed for Chapter 11 have several implications:

1. The business has not given up on itself,

If Toy R Us doesn’t see possibilities in future operations, it would’ve filed for Chapter 7.

2. The business demands reform and is willing to change.

If Toy R Us only wants more time to pay off debt, filing for Chapter 13 could’ve been a better option.

3. There’s a chance in making future profit to pay off debt

After all, filing for Chapter 11 or 13 requires approval by a bankruptcy court, and a court will not approve if profitability is unlikely, implying that Toy R Us still has a chance.

The question remains, what Toy R Us can do to out-compete its competitors in the field.

If fit into Porter’s 4 sectors of comparative advantages (Porter’s Generic Strategies), Toy R Us would immediately opt out ‘cost leadership’ (having lowest prices), as it’s unlikely to sustain a profit at a lower price than department stores’ like Walmart’s.

The options remaining are “Differentiation” and “Focus-differentiation”, which both require making products/services more unique and attractive.

It’s insufficient to simply imitate other similar business’s strategies. (eg. Competing Amazon’s unique family service is not viable). Therefore, the focus should be on offering products/services that are innovative, attractive, and profitable.

 

For example, it’s important to increase interactive experiences(Abedi, 2017) in-store so that customers won’t turn to online shopping; new technologies like virtual reality games can attract more teenagers; and as Christmas holiday season approaches, Toy R Us could also offer pre-wrapped gift sets/packages to attract Christmas gift shoppers.

After all, I’m very curious to see what Toy R Us can actually come-up with in its reorganization plan.

 

 

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References:

Abedi, M. (2017, September 19). Will Toys ‘R’ Us stick around in Canada? And other questions, answered. Global news. Retrieved from https://globalnews.ca/news/3755327/toys-r-us-bankruptcy-protection-what-to-know/

Ligaya, A. L. (2017, September 19). Toys ‘R’ Us files for bankruptcy protection in Canada, all stores to remain open. Global News. Retrieved from https://globalnews.ca/news/3756762/toys-r-us-bankruptcy-protection-canada/

McKenna, B. (2017, September 22). Toys ‘R’ Us versus Amazon: No contest. The Globe and Mail. Retrieved from https://beta.theglobeandmail.com/report-on-business/rob-commentary/toys-r-us-versus-amazon-no-contest/article36364306/?ref=http://www.theglobeandmail.com&

M. Fowler, P. (n.d.). Bankruptcy Rules for a Privately Owned Business. Retrieved September 24, 2017, from Chron website: http://smallbusiness.chron.com/bankruptcy-rules-privately-owned-business-13635.html

Porter’s Generic Strategies. (n.d.). Retrieved September 25, 2017, from MindTools website: https://www.mindtools.com/pages/article/newSTR_82.htm

Toys “R” Us files for bankruptcy. (2017, September 23). The Economist. Retrieved from https://www.economist.com/news/business-and-finance/21729375-rise-e-commerce-did-americas-former-favourite-toys-r-us-files-bankruptcy

 

Image:

Porter’s Generic Strategies Chart [Illustration]. (n.d.). Retrieved from https://www.mindtools.com/pages/article/newSTR_82.htm

Teenagers Playing VR Game [Photograph]. (2015, May 6). Retrieved from http://www.zimbio.com/Zimbio+Recommends/articles/94cFDbIu9dt/Future+Gaming+Coming+Form+Virtual+Reality

Toy R Us [Photograph]. (2017, September 19). Retrieved from http://comicbook.com/2017/09/19/toys-r-us-bankruptcy-chapter-11-2017/