Can Toys "R" Us Sell Toilet Paper?

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Toys "R" Us

Toys "R" Us will begin to sell consumables and household items in addition to toys

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. (See pictures of grocery store auctions.)

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." (See 10 things to buy during the recession.)

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.

Over the past few weeks, Toys "R" Us has been quietly testing the "R" Market in select stores across the country. Sales "are running ahead of where we expected," says Storch. However, customers at the Toys "R" Us in Phillipsburg, a town that sits on the New Jersey–Pennsylvania border, were for the most part unimpressed. Over the course of two hours on a Friday afternoon, only a handful of customers even wandered over to the "R" Market, which had been open for about two weeks. Granted, the store wasn't exactly packed in the toy aisles either. And up till this point, Toys "R" Us hasn't publicized its new initiative, so some customers might not even have been aware of it. Still, the new department was visibly positioned at the front of this particular store. Any reasonable retailer could expect a few more visitors.

Why weren't customers shopping for snacks at Toys "R" Us? First of all, some mothers simply refuse to torture their children. Think about it: you're a kid. You take a trip to heaven, a.k.a. Toys "R" Us, once every two months or so. And with all those bikes, trains and video games surrounding you, Mom brings you to the Clorox aisle? Talk about temper-tantrum central. "As you can see, he doesn't want to be here," says Jennifer Meade, whose 7-year-old son Logan is fiddling with a Nerf Blaster in a shopping cart, looking like he'd rather be anywhere but the food aisle (though he did perk up when he saw candy). The only reason Meade was in the "R" Market, in fact, was that I asked her to check out the products. She didn't anticipate coming back. Says another shopper, Erin Miczulski, who was in the store to pick up some items for her niece and nephew: "I just want to stay focused on the toys." (See pictures from a toy fair.)

The other major challenge facing the "R" Market: prices. Like many Toys "R" Us stores, the Phillipsburg outlet is dangerously close to a Wal-Mart — in this case, only a two-minute walk away, in the same shopping plaza. Sure, it's convenient to one-stop shop at Toys "R" Us. But after glancing at the prices — the Stauffer's Whales snacks, juice boxes and bottled water are all cheaper at Wal-Mart — Meade said she'd get that stuff there.

In Phillipsburg, Toys "R" Us is more price competitive with Wal-Mart on diapers and baby formula. But an 8.9-oz. box of Cheerios at the Phillipsburg Toys "R" Us cost $3.49. At the Phillipsburg Wal-Mart, you get 21.06 ounces for $3.98. At Toys "R" Us, a 52-load container of Tide with Febreze costs $16.49. At Wal-Mart, you get 78 loads for $19.97. Not a huge difference, but cash-strapped consumers are searching for every kind of bargain these days.

It's not surprising that Wal-Mart offer lower prices than Toys "R" Us on consumables, one of the retail giant's core competencies. What should be more disconcerting for Toys "R" Us is that Wal-Mart often beats the toy company at its own game. For example, a collectable Lighting McQueen, the main character in the hit Pixar movie Cars, costs $2.97 at Wal-Mart. At Toys "R" Us, he and other key characters go for $3.59. Monopoly is $10.44 at Wal-Mart and $12.99 at Toys "R" Us. Here's a real shocker: at Wal-Mart, a "Surf's Up" Barbie doll — basically, Barbie in a bathing suit — costs just $5.44. The retail price at the Phillipsburg Toys "R" Us: $19.99. (See pictures of Barbie over the past 50 years.)

Don't dismiss the "R" Market's potential, however. The company would never have rolled it out if it hadn't tested well. It should be a haven for impulse purchases: "I want to get that Wiggles guitar for my son, but oh yeah, I just remembered we're out of toilet paper and toothpaste too." The "R" Market offers far more toddler food and snack options than typical supermarkets, and the presentation of the Phillipsburg shop, for one, was neat, tight and bright. "I'll definitely use it," says Jennifer Stroka, a veterinary technician and mother of a 4-year-old girl. "It's like one-stop shopping. It looks great, and will make my life easier." If there are enough moms out there thinking like Stroka, Toys "R" Us may be gift-wrapping itself the perfect present: profits.

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