Time: For a child, the Toys "R" Us store in Phillipsburg, N.J., is a wonderland. Just browse the aisles -- Transformer toys over here! A talking Elmo over there! Charmin toilet paper! Dawn dishwashing liquid!
Hey, Toys "R" Us is starting to feel pretty grown up.
Sure, kids may not want to see this stuff at their favorite toy store. But in this economy, Toys "R" Us is betting that Mom and Dad do. On Wednesday, Toys "R" Us will announce the opening in 260 of its 585 stores a new convenience section called the "R" Market, which will offer an assortment of consumables and household items such as cereal, macaroni and cheese, canned food, granola bars, cleaning supplies, paper goods, hand soap, juice boxes and nonperishable milk. The "R" Markets will also offer a wider variety of diapers, baby food and other infant supplies for Toys "R" Us consumers. The company will open "R" Markets in additional stores by the end of the year.
These new stores-within-a-store aren't a total snore for the toddler set. "R" Markets will also sell decidedly nonessential, kid-friendly products like Pez dispensers, gumball machines and a host of other candy brands that will keep dentists employed for a millennium. Plus, most products have a kid-friendly feel -- Elmo and Grover on the juice boxes, food packaged as "P'Sghettti Loops," toddler toothbrushes and such. Still, the intent of the "R" Market is clear. With nondiscretionary products like toys more vulnerable to consumer-spending swings, Toys "R" Us needs to give parents more reasons to shop at its stores. "Certainly, we believe this is right for the times, or we wouldn't be rolling it out," says Gerald Storch, chairman and CEO of Toys "R" Us, which was taken private, for $6.6 billion, in 2005. "This direction is very consistent with economic trends, very consistent with the overall recessionary environment."
Storch is quick to point out that while the economy has heightened the urgency of the "R" Market initiative, the company has been preparing for its launch for the past few years. He emphasizes that Toys "R" Us isn't shifting its focus from the fun stuff. The percentage of square footage dedicated to the "R" Markets will be in the "single digits," according to Storch. In the Phillipsburg Toys "R" Us, for example, manager Mark Schantz estimated that the "R" Market took up just 1,300 of the store's 30,000 square feet -- that's just 4.3%. Storch also insists that the company won't clear shelf space dedicated to toys in order to build these mini-supermarkets. Instead, Toys "R" Us will cease selling clothes for kids over the age of 4. The company will use that space for the "R" Markets and realign aisles to sell even more toys. "It essentially replaces an unproductive business," Storch says. "We never want to lose our way. This is an enhancement, as opposed to a strategic shift."
To many retail analysts, the Toys "R" Us tweak makes a ton of sense. After all, if Wal-Mart and the Targets of the world can sell toys, why shouldn't Toys "R" Us sell food and paper towels? "Sometimes the fence swings both ways," says Marshall Cohen, an analyst at the NPD Group. Consumers are willing to pay for convenience, say the experts, especially when grabbing items that they really need. "Is it a good idea? It's the only idea," says Howard Davidowitz, chairman of Davidowitz & Associates, a retail consultancy and investment bank. "Mothers are going to the store with their children, and to the extent you give mothers another reason to shop, you win. I compliment them for reacting. Doing nothing is not an acceptable answer."
Although the toy industry isn't sinking as much as other businesses, it's not exactly fun these days. The company's U.S. sales were essentially flat in 2008. KB Toys, a tough competitor, was liquidated. Bottom line: all retailers need some kind of response. "It's nice to see someone try something besides cutting prices," says Sean McGowan, a retail analyst at Needham & Co.
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