(3 of 3)
To address the chain's problems, Nakasone's predecessor last January ballyhooed "Concept 2000," a revitalization plan calling for, among other things, less cluttered, brighter, cleaner stores. But only a month later, Nakasone took over, and in September he replaced the plan with something he calls "C-3." (Don't ask.) It targets service improvements as well as inventory reductions. It promises a $500,000-a-store renovation that will include an oval "racetrack" layout providing 18% more selling space. And it envisions a diversification into products such as clothing and electronics, which Nakasone hopes will attract more customers outside the busy holiday season.
Industry analysts are skeptical, especially about the diversification plans. "If there's one thing I can tell you about apparel, it's that we do not need any more capacity in the U.S.," says Peter Caruso, a Merrill Lynch analyst who covers Toys "R" Us. Caruso also doubts that the company's dubious reputation for service will attract many buyers of electronics, who want sales personnel with up-to-date knowledge of competing products' features.
Nakasone counters that the naysayers underestimate his company's strengths. "We have an enormously strong brand," he says. "The idea that we're on the balls of our ass is ridiculous. We are a very profitable company." To be sure, Toys "R" Us last year posted earnings of $490 million on revenues of $11 billion. But it is the trends in market share and earnings that have analysts concerned. Earnings for the most recent quarter were just 5[cents] a share, down from 13[cents] a year ago.
One reason can be seen at 3:15 on a sunny weekday afternoon at KidsWorld, a two-acre Toys "R" Us superstore in Elizabeth, N.J. There are barely a dozen cars in the parking lot. The aisles inside the store are spacious, well lighted--and empty. A row of 20 cash registers stands idle while a lone clerk in a red apron and braids rings up a diaper sale for Kim Essen, 29, and daughters Samantha, 21 months, and Alana, 6 months. As Kim wheels her cart out of the store, she turns and says, "I like shopping here because it's always empty." That's one competitive advantage that Nakasone will be glad to lose.
--With reporting by Daniel Eisenberg/New York, Timothy Roche/Pensacola and Richard Woodbury/Denver