Problem-Solving Application Case—Toys R Amazon, Walmart, and Others, but Not Us A new company, Tru Kids Brands, is now all that's left of Toys-R-Us, the well-known toy retailer which declared bankruptcy and closed all of its stores in 2017

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Problem-Solving Application Case—Toys R Amazon, Walmart, and Others, but Not Us

A new company, Tru Kids Brands, is now all that's left of Toys-R-Us, the well-known toy retailer which declared bankruptcy and closed all of its stores in 2017. The path forward for this new company is uncertain at best, as a result of the competitive forces that killed the old brand, but a new CEO and leadership team seek to return to the playing field. This activity is important because it illustrates the important role that organizational behavior principles can play in a surprisingly common situation - reviving a company that has gone through bankruptcy.

 

The goal of this activity is to get you to think critically about how what you've learned can apply to one of the most difficult situations faced by any company in this textbook.

 

Read about the demise of Toys-R-Us and the current situation surrounding what's left of the company. Then, using the three-step problem-solving approach, answer the questions that follow.

 

Toys-R-Us has long been known as a marquee toy retailer with giant 40,000 square foot stores and nearly every item desired or imaginable for children (and some adults). A large percentage of Americans, as well as customers in international markets, can recall visiting a Toys-R-Us store.

 

Sadly however, even icons fail, especially when confronted with nearly $5 billion of debt, fierce online competition from Amazon and Walmart, changing customer preferences (video games instead of conventional toys), and technology (e-commerce). Not even three billion dollars in annual sales could surmount these challenges.

 

Sealed Fate

Some argue the company's fate was sealed back in 2005 when Bain Capital took the company private and buried it in debt to do so. Toys R Us never shed this burden.¹ The Toys R Us scenario is a familiar one. The years prior to the great recession (2006-2008) private equity firms (PE), like Bain and KKR, went shopping for retailers. They took the companies private by borrowing money for the purchase and planned to achieve high returns by making them more efficient, selling off parts, or both, and in a period of a few years take them public again. (Note: PE firms generally collect large fees associated with taking the companies public.)

 

However, the recession eroded the value of the retailer's real estate and at the same time e-commerce exploded onto the market. Online sales have more than quadrupled since 2007. For perspective, Neiman Marcus, another PE, debt-plagued retailer reaped 34 percent of total sales online in 2017. These same factors also spurred the demise of other well-known brands, like Gymboree, Payless Shoes, and Sports Authority.²

 

To compete online requires massive investments in technology and support, people, all while selling products at lower margins. In summary competition is up, debt is up, expenses for creating an online channel go up, and profits go down—a tough scenario for any retailer.³ Many have responded by only investing in safe bets and cutting products and people, which in turn has limited merchandise and degraded service.

 

For its part, Toys R Us tried bankruptcy in September 2017 to salvage the company but doing this before the holiday shopping season (when it collects a large percentage of annual revenue) hurt more than helped. Company leadership and other employees were in survival mode instead of executing and boosting sales when it needed them most. The poor timing was made even worse as its scared customers away, as they were concerned that toys couldn't be returned, and gift cards redeemed.⁴

 

Competitors Pounced

Knowing Toys R Us was on the ropes, Walmart, Target, and Amazon cut prices during the holiday season and took an ever greater share of sales. For instance, competitors sold some toys at a loss in order to get the business. This practice isn't sustainable, normally, but each of these large competitors sells many, many other products besides toys. As such, they could compensate with sales from other products while Toys R Us couldn't—It sells only toys.⁵

 

Concerns spread and a domino effect ensued. Many toy suppliers delayed shipments fearing they may not be paid if the company went bankrupt, and creditors also tightened terms making things even worse.

 

Where Now?

All is not lost. Yes, the company did technically go away—over 700 US stores closed and nearly 33,000 employees lost their jobs, but a new company—Tru Kids Brands has emerged in 2019. Investors bought Toys R Us trademarks, private toy and baby brands, its famous mascot (Geoffrey the Giraffe), Babies R Us, and other assets. The new CEO, Richard Barry, formerly the chief marketing officer of Toys R Us, hired many of the former company's leaders but none of its stores and associated employees.⁶

 

Many industry experts note that although the major competitors are indeed formidable, the demise of Toys R Us leaves a notable gap in the market. Many people still need or at least desire to shop in an actual toy store, and this is especially true during the holidays. It's nostalgic.⁷

 

New Team... New Approach

Time will tell, but at the time this case was written it is clear it will involve new employees, new stores, and a new strategy to go along with the new name.

 

Assume you are the new CEO Richard Barry and Apply the 3-Step Problem-Solving Approach to chart a path forward for Tru Kids Brands.

 

Apply the 3-Step Problem-Solving Approach

• Step 1: Define the problem.

1. Look first at the Outcomes box of the Organizing Framework (Figure 16.12) to help identify the important problem(s) in this case. Remember, a problem is a gap between a desired and a current state. State your problem as a gap and be sure to consider problems at all three levels. If more than one desired outcome is not being accomplished, decide which one is most important and focus on it for Steps 2 and 3.
2. Cases have key players, and problems are generally viewed from a player's perspective. You need to determine from whose perspective—employee, manager, team, or the organization—you're defining the problem. As in other cases, whether you choose the individual or organizational level in this case can make a difference. In this case you're asked to assume the role of new CEO Richard Barry.
3. Use details in the case to determine the key problem. Don't assume, infer, or create problems that are not explicitly included in the case itself. Only use what is provided in the case.
4. To refine your choice, ask yourself, why is this a problem? Explaining why helps refine your thinking. Focus on topics in the current chapter, because we generally select cases that illustrate concepts in the current chapter.

• Step 2: Identify causes. Using material from this chapter and summarized in the Organizing Framework, identify what are the causes of the problem you identified in Step 1. Remember, causes tend to appear in either the Inputs or Processes boxes.

1. Start by looking at the Organizing Framework (Figure 16.12) and decide which person factors, if any, are most likely causes of the defined problem. For each cause, explain why this is a cause of the problem. Asking why multiple times is more likely to lead you to root causes of the problem. In this case, for instance, how do competitors factor in to your decisions? What about the value of the brand? Expertise of leadership?
2. Follow the same process for the situation factors. For each ask yourself, why is this a cause? By asking why multiple times you are likely to arrive at a complete and more accurate list of causes. Again, look to the Organizing Framework for this chapter for guidance. Did particular policies or practices play a role?
3. Now consider the Processes box in the Organizing Framework. Are any processes at the individual, group/team, or organizational level potential causes of your defined problem? For any process you consider, ask yourself, why is this a cause? Again, complete for several iterations to arrive at the root causes.
4. To check the accuracy or appropriateness of the causes, be sure to map them onto the defined problem and confirm the link or cause and effect connection.

• Step 3: Make your recommendations for solving the problem. Consider whether you want to resolve it, solve it, or dissolve it (see Section 1.5). Which recommendation is desirable and feasible?

1. Given the causes you identified in Step 2, what are your best recommendations? Use material in the current chapter that best suits the cause. Consider the OB in Action and Applying OB boxes, because these contain insights into what others have done.
2. Be sure to consider the Organizing Framework—both person and situation factors—as well as processes at different levels.
3. Create an action plan for implementing your recommendations and be sure your recommendations map onto the causes and resolve the problem.