November 18, 2012 4:38 pm

Toys R Us chief tries to energise stores

Toys r Us©FT

Toys R Us’s pick of the 15 hottest Christmas toys does not include any Star Trek merchandise this year, but Jerry Storch, its chief executive, turns to the sci-fi show to defend his business model.

In the face of predictions that bricks-and-mortar chains will be rendered extinct by ecommerce, he says that his stores will retain a vital role until the day when toys can be beamed home with a Star Trek-style teletransporter.

Retail charts

Retail charts

“And the reason is because it’s very expensive to ship product,” he tells the Financial Times as he seeks to debunk a few “myths” about the growing dominance of online-only retailers.

He is sat in a meeting room overlooking the toy cornucopia of his store in New York’s Times Square, which on Black Friday this week will swarm with consumers on the US’s biggest shopping day of the year.

“The internet’s transformational, not transcendent,” says Mr Storch, who became chief executive in 2006, a year after it was taken private for $6.6bn by Bain Capital, Kohlberg Kravis Roberts and Vornado Realty Trust.

“Of course [the internet] changes everything. It doesn’t necessarily replace everything,” he says.

Ordering a product from a home computer and having it shipped from a warehouse to your front door – the classic Amazon route – is just one way of shopping.

Shoppers can also order products via their smartphones, their local store or a store where they are travelling. Products can be sourced from the local store, another store that serves as a warehouse or direct from a manufacturer. And shoppers can pick up the products at the local store, another store or have them sent home.

In total there are over 80 possible permutations, says Mr Storch, and in different circumstances different consumers will want different ones. That’s why physical stores still matter.

He stresses that he is not out to “slam” anyone. He says Jeff Bezos, Amazon’s founder, is “brilliant” and Toys R Us continues to sell his Kindle devices, which Walmart and Target have pulled. Toys R Us online sales last year grew 29 per cent to $1bn – total sales were $14bn – and many were delivered to people’s homes. “And that’s OK,” Mr Storch says.

His point is that business models are bound to converge.

“Established store retailers add more internet, and the internet-only guys add stores and other physicality,” he says. “It’s so clearly the future model that it almost seems ridiculous that we’re debating it.”

In a first last week, Mr Bezos said that he “would love to” open physical stores if it could make them distinctive.

Mr Storch says bricks-and-mortar stores still offer an immediacy that cannot be matched, in spite of a shift towards same-day delivery for online orders.

He says analysts have exaggerated the corrosive impact of “showrooming”, whereby shoppers use bricks-and-mortar stores to check out products before buying them online.

The reverse is also true, he says, citing his own printer-hunting experience one Saturday. He did research on the internet, checked prices and chose a Hewlett-Packard model, then purchased it at a Staples shop.

“I bought it, left happy, spent an hour or two installing the software and all that, and everything was done.”

Toys R Us does not disclose its own profits, but Mr Storch says that in general internet-only retailers are less profitable than their traditional rivals. Last month Amazon reported a quarterly net loss.

“So the odd thing is you have . . . an approach that’s making less money, but which people feel somehow is the way of the future,” he says.

“The winners in the end . . . will be those who are strongest at the core skills of the industry,” says Mr Storch. In his business that means selecting the best merchandise.

This Christmas its hot picks include a Doc McStuffins doll and a Furby. When the FT called the Times Square store to ask if it had any Star Trek toys the answer was no. “You could look online,” suggested an employee. “Somewhere like Amazon.com.”

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