More than a decade after Toys R Us Inc. was acquired in a leveraged buyout, the retailer is still struggling with a chronic problem: running out of goods during the important holiday season.
To tackle the issue, CEO David Brandon, who took the helm in July, asked engineers to design an algorithm to better predict when goods will run low. He also is filling shelves with more products — a move that is counter to the get-lean mind-set of Walmart and other retailers.
Making sure Toys R Us has enough items to sell is a lesson he learned early in his career as a manager for Procter & Gamble Co., overseeing brands such as Crisco oil and Jif peanut butter.
It is also part of a larger strategy that he hopes will help get the company back on track as he prepares to take it public next year and provide its private-equity owners with a long-awaited exit.
“If a customer can’t find what they’re looking for at your store 60 percent of the time, they will shop somewhere else and never come back,” said Brandon, 63, in a recent interview. “We want our stores to be bulkier,” he said of the effort to stuff shelves with more goods. “We call it full and chunky.”
Retailers walk a fine line between having enough merchandise, but not too much. The latter requires markdowns to clear unsold goods, which hurts profits. The former results in missed sales.
According to a report from DynamicAction, a software analytics company, and research firm IHL Group, stock-outs cost retailers about $634 billion annually in lost sales.
Brandon is taking charge of Toys R Us during what appears to be a banner year for the toy industry. Sales through September were up 8 percent compared with the same period last year, according to retailers that participate in NPD Group’s tracking service, which represents about 80 percent of the U.S. retail toy market.
But the former Domino’s Pizza CEO has his work cut out for him. A string of executives have tried and failed to turn around the toy chain, which was acquired in 2005 for $6.6 billion by Bain Capital Partners LLC, KKR & Co. and Vornado Realty Trust. The company lost $292 million last year, which followed a $1.04 billion loss the prior year.
Paul Berberian, chief executive of Boulder-based Sphero Inc., maker of the “Star Wars” BB-8 Droid, one of the season’s hot toys, said he prefers to sell his products in Apple Inc., Brookstone and other specialty stores.
“Consumers want higher quality, deeper experiences,” he said. “Toys R Us is plastic by the pound.”
Brandon said Toys R Us has carved out a different position from rivals by having the broadest selection of toys. It is selling hundreds of “Star Wars” products this holiday season, including some exclusives such as an interactive Chewbacca action figure. The company is trying to enrich the store experience with events like one in October that invited children to build and take home a Lego structure.
