Seven Stunning Lessons From How Toys “R” Us Failed To Handled Disruption

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Why do some companies not see disruption coming while others harness the power of disruptive innovation?

I remember my first visit to a Toys “R” Us store in New York. I was impressed with their product endcaps, massive inventory, and spectrum of merchandise.

In the end, nostalgia couldn’t save them.

Instead, the once-mighty retailer struggled to keep up with changing consumer trends, environment, and technology.

As a result, the company lost $2.4 billion in 2017 and filed for bankruptcy in September 2018.

Like Toys “R” Us, Blockbuster, and many other entrepreneurs, we see more companies missing the disruptive innovation opportunity while others thrive in an environment of unsettled disruption.

What happened to Toys “R” Us?

What lessons can entrepreneurs, businesses, and innovators learn from how Toys-R-Us failed to handle disruption in the consumer marketplace?

This article will uncover seven lessons from how Toys “R” Us failed to handle disruptive innovation.

1. Disruption is about anticipating trends

Change can happen at any time, and the bad news is that it usually does. It’s not that companies don’t know about the potential of disruption.

The problem is that they often get stuck in their metrics and fail to see how disruption trends are exponentially evolving. Toys “R” Us was a victim of its success, with a decade-long growth streak fueled by a healthy baby boom after World War II. Unfortunately, the company became complacent after years of success, overlooking the potential disruption that was around the corner.

Which disruption did trends make this change happen?

  • Speed of technology
  • Changing consumer preferences
  • New generation purchasing habits

As a result, the company lost $2.4 billion in 2017 and filed for bankruptcy in September 2018.

2. Disruption typically triggers a decline in sales

Change can often result in short-term declines in sales unless you are ready for it.

Toys “R” Us recognized early signs of disruption but chose not to act on them.

They even made some proactive efforts, such as in 2015, Geoffrey’s Toy Box was launched as an online and in-store pop-up shop that allowed Toys “R” Us to test new ideas and products with loyal customers.

However, it seemed like this might be held off again until the product was perfected instead of immediately trying it out for feedback which is a great business strategy and idea.

As the industry shifted, they still had time to stay ahead of the competition and reinvent themselves. But, instead, they chose to sit back and let the decline set it.

3. Disruption requires absorbing the pain of change

Most people don’t like to take a pill if they don’t have to.

If there isn’t a pain-filled disruption, then why would consumers switch?

So, the rise of digital retailing caused a sharp decline in their market share and revenue.

As more retailers began selling toys online, Toys “R” Us could no longer afford to keep up with changing consumer trends, environment, and technology.

Statista Charts 2016

4. Digital disruption is a tidal wave

For every company that says, “we aren’t going to worry about getting our hands wet in digital disruption,” many more people say they want to go where the water is warm.

Every year, the pace of digital disruption is accelerating.

The Internet offers enormous potential for convenience and efficiency, but it also creates new challenges you must address to survive.

For example, Toys “R” Us was slow to build a robust digital strategy while Amazon grew to be one of the largest retailers in the world.

5. Disruption is about survival

If you ignore where your industry is heading, there won’t be a reason for your company to exist. Toys “R” Us couldn’t come to grips with the fact that they were facing disruption.

Instead of completely reinventing their brand, they operated as if nothing was wrong.

Photo by Chris Hardy on Unsplash

Toys “R” Us had a lot of company resources and talented employees but could not leverage them in ways that would have made a difference.

In 2001 Toys “R” Us launched its flagship store as an interactive play center that included video kiosks and computer stations where children could play and learn more about their favorite toys and future purchases.

This was a great idea, but unfortunately, it did not draw people in. Instead, they needed to innovate more quickly and combine the online shopping experience with actual stores for further success.

6. Disruption requires empathy

Disruption requires anticipating consumer needs.

It almost seems too obvious that companies need to anticipate what people will need in the future.

How do you feel about your customer?

Most companies don’t take the time to stop and listen.

Toys “R” Us could have changed its strategy before it was too late if it had taken the time to understand what people wanted from them.

Instead, they continued thinking about their own needs and objectives instead of their customers.

“I don’t think it’s fair to say that we were slow in understanding the impact of e-commerce. When you start something new and innovative, it doesn’t happen overnight.” said Jerry Storch, former chief executive officer of Toys “R” Us.

The company was not — and perhaps could never be — a digital pioneer. But it was not too late to change course and become an online pioneer.

Toys “R” Us continued to take steps that did not seem enough for their consumers’ needs or demands.

They attempted projects such as Geoffrey’s Toy Box, but they did not try them out with any speed or urgency, which could have allowed them to test out ideas with customers.

If Toys “R” Us had listened to what their customer wanted, they would have seen that playing in stores is still a big part of the buying process for children today.

This makes sense because how else are kids going to touch and feel different toys or try them before they buy?

7. Disruption is about self-disruption

Amazon has always been a thorn in Toys “R” Us’s side.

As soon as toys became available on Amazon, the company could not react fast enough. As a result, rather than developing an internet strategy, they purchased eToys.com for $350 million in 1999.

While it appeared like a good idea at the time, it failed to catch up.

The story didn’t end there. In 2000, Toys “R” Us and Amazon formed a 10-year relationship in which the e-commerce giant was to be the retailer’s only vendor of toys. Amazon receives $50 million per year plus a cut of sales as part of the Toys “R” Us deal.

The toy store was a success, prompting Amazon to develop its toy category further. Toys “R” Us’ rivals were also included by the big e-commerce firm.

Toys “R” Us filed a lawsuit against Amazon and won, allowing the company to terminate the agreement.

However, the money secured in court could not compensate for years of development spent on its online presence and e-commerce strategy.

When Toys R Us launched an e-commerce website, it was too late to make a difference, and it was beset with technical difficulties that annoyed consumers.

You can never go back, or maybe yes?

Trying to transform disruptive businesses with past strategies rarely works.

Toys “R” Us attempted to rebrand itself in 2009 after e-commerce emerged as a significant force, but it failed to turn the company around.

So instead of making plans for more growth, they focused on returning to their old success patterns.

Source: https://www.flickr.com/photos/opengridscheduler/28953071717

Toys “R” Us is now betting on the power of nostalgia by opening its first new shop in East Rutherford, N.J., in 2021, hoping that a well-known retail brand will entice customers who are more accustomed to buying things online.

In 2021, Toys “R” Us joined forces with Macy’s to relaunch its digital store. It will begin opening Toys “R” Us shop-in-shop shops in Macy’s stores.

By 2022, it aims to have over 400 of those shops inside Macy’s locations.

Unsettle Disruption or Die

Toys “R” Us’ history provides several lessons for businesses looking to disrupt their industry.

First and foremost, it’s essential to constantly listen to your customers and adapt your strategy in response to their feedback.

It’s also crucial to move quickly when implementing new ideas, as competitors will not hesitate to overtake you if you’re not aggressive enough.

Finally, trying to resurrect a past success pattern is usually a fruitless endeavor — companies must be willing to innovate and experiment to stay ahead of the curve.

Any business and entrepreneur can learn from these mistakes and avoid falling into the same trap as Toys “R” Us.

How can we unsettle disruption?

👉 This blog is part of the new disruption series inspired by my book Unsettled Disruption: Step-by-Step Guide for Harnessing the Evolving Path of Purpose-Driven Innovation.

👉 You can also join the waiting list to get the Unsettled Disruption Companion Course and get the FREE Innovation Level Up Guide ‘7 tools to kick-off your Innovation Project’

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