Toys R US Goes to Japan Case study

1. Introduction:
The giant Category Killer in toys, represents a very special kind of firm.
Category Killer is a speciality retailer that operates on a much larger scale than the typical boutique
speciality retailer.
This case shows:a) How high barriers to entry can be overcome, at a cost
b) How protected business easily become uncompetitive
c) How a new service format requires promotion that educates customers about its advantages
Toys R US Inc. is a children speciality retailer concentrating on
a) Toys and
b) Children clothing
Toys R US Inc. Head Quarter is at Paramus, New Jersey
2. Company Background
Period
Description
1940 Founded in late 1940s by an American Charles Lazarus
1966 It was first toy supermarket and was acquired in 1966 by Department store chain operator
Interstate Inc.
1978 Opened for public in 1978
1982 First kids R US stores was Children Clothing store opened in 1982
1984 First International Store was opened in 1984
1990 => Largest toy retailer in the world
=> About 20-25% => US market sales in 1990
=> About 2%
=> Total International Sales in 1990
1993
Toys R US
Sales (1993) => $ 7.9 Billion
50th largest retailer in the world in 1993
22nd largest retailer in US in 1993
2000

Daiei (Japans largest Retailer at the period 1993)

Sales (1993) => $ 14 Billion

At the beginning of 2000s:=> Encountered increase Competition form wall-mart

3. Company Strategy
Uses Category Killer Strategy which combined:
a) Strong advertising to promote name recognition
b) Discounts on the most popular items to create a perception that everything was discounted.
Stores were large and offered a wide selection of Brand Name Merchandise.
In USA, a computerized inventory system was used to track demand on a regional and store-by-store
basis to maintain low standing inventories and capitalize quickly on trends
Also owned and operated its own fleet of trucks to save on shipping
Prices on most goods were competitive with other retailer but in general they were not deeply
discounted
Some years Toys R US used coupons for promotions aggressively in the period before Christmas
to increase market share
Long term strategy => To expand in international markets
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Toys R US Goes to Japan Case study

4. Japanese Toy Market
Toy Retail market in Japan was dominated by small speciality stores and general retailers
Most popular products => Computer Games
=> Dolls or toys

Linkages to animated
television character

5. Overcoming Barriers to Entry

1989 => Toys R US first made public its plans to enter the Japanese Market Signing a high-profile
alliance contract with McDonalds Japan. (New Joint-venture)
Toys R US Japan was established with 80% share of Toys R US Inc. and
20% share of McDonalds Japan
Toys R US Japan Head Quarter => Kawasaki city
As part of the deal McDonalds had the right to establish a restaurant in any location Toys R US
picked for a store
Issues were pointed out that Japan was not Ready for Retail Revolution
Voices were raised to suggest that Japan was not ready for retail revolution
The issues took a number of forms:a) Suggestions that Toys R US would not be able to get the necessary permissions and empty
space it needed to open huge stores
b) Statements that major Japanese Manufactures would not be willing to enter into direct deals
with Toys R US instead preferring to work through middle wholesalers and preserve their
traditional trade links
c) Discount retailing was antithetical to the Japanese psyche which linked quality with prices and
so Toys R US by competing on price would class themselves out of the market
When McDonalds came to Japan => It had faced and beat the same issues of establishing
distribution and supply channels and its experience was valuable for Toys R US to draw on
6. Market penetration
December 1991 => First stored opened in Japan (Niigata in Ibaraki)
=> Economy Lapsed into recession
=> Slogan Everyday Low Prices appealing to many who were looking for value
as well as quality
=> Minimum level of service (No gift wrapping) was more acceptable as fewer gifts
were being given
Japanese govt. pushed a regional got. To waive the Big Store laws under which existing retailers
could veto the entry of a large retailer into the Area
1st store => 3000sqm offering 1800 items in inventory was the perfect example of what has come to
be called in America a category Killer
By creating an over whelming advantage it was intended to stop competitors from opening opposing
stores before they started
Retailed on McDonalds market research to target suburban areas with young families as a primary
growth base
Despite the High cost of land => The store provided ample parking

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Toys R US Goes to Japan Case study

7. Primary Advertising Media Strategy

Use of colorful inserts in newspapers rather than TV or Radio which were more expensive and
scatters not necessarily reaching the targeted Audience
Newspaper inserts for Home deliveries ensured that advertising reached the Home where mothers
and children the primary targets were more likely to see them
8. Localization
Toys R US Japan improved more than of its supply from US
Toys R US adopted a flexible strategy
a) Working through existing channels in Japan where available
b) Utilizing the central kobe warehouse as a way station to control in store inventory
Only I major Japanese manufacturer signed on to ship directly to Toys R US stores, that was
Nintendo
No other manufacturers had made a similar deal and no other toy retailer had been able to crack the
distribution network and deal direct
Toys R US stores promised => Guaranteeing that even the most popular items would be in stock
at all times which small local retailers were unable to do
E.g. Rather than being forced to get up at 4am and get in line to get the new Mortal combat 4 the day
it to Toys R US any time to be sure they could get the game
9. Threats
Two footwear dealers => Chiyodas Harrowmark chain & Martutomis BanBan
Both expanding Nationwide, offering low prices compared to Toys R US but unable to finance the
same size stores or inventories
Movement of smaller retailers to unite in opposition to Toys R US
10. Challenges (to be faced in future)
i) Increasing competition
ii) Increasing costs
iii) Possible Positioning Problems

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iv) Steady Deterioration of Japanese economy

v) Consumer spending