September 17, 2010
On Wednesday of last week, Ann Zimmerman of The Wall Street Journal reported on my former employer, Toys “R” Us, which is planning to open up 600 temporary “pop-up stores” in anticipation of the holiday shopping season. The WSJ describes it as a super-sized bet while the company maintains it is a proven strategy. Like most prospective retail decisions in this uncertain economic period, it is likely a mixture of both.
Ann certainly has some legitimate weight behind her assertions:
- The space in which the pop-up stores will reside is distressed for a reason. Who can guarantee that a watered-down version of Toys “R” Us will be able to overcome inherent issues such as poor foot traffic or a bad location?
- Toys “R” Us has historically experienced issues with inventory; the majority of it never turns and Toys "R" Us often sells out of its best sellers before the season comes to a close.
- While trends show improvement, there is no guarantee of economic rebound for the holiday seasons. This could spell disaster if Toys “R” Us moves forward with 600 new shops.
However, there is a method behind the madness:
- If the stores succeed, there is an opportunity to convert the temporary stores into permanent ones, which is exactly what happened with one-third of the stores last holiday season. It’s a short-term play with potentially lucrative long-term implications.
- Toys “R” Us has lost share of the market to Walmart and Target for years – this is a strategic play to take some share back, and in many non-Northeast locations that do not usually host the toy giant.
- Costs are low: The landlords are simply happy to be renting the space so deals are coming at a premium, and with little overhead other than already-hired store associates, this is coming at a lower expense than one might expect.
The economic outcome of autumn is likely to dictate the success of this initiative. 2009 experienced an uptick in total shoppers but an 8% decline in total spend (NRF, 2010). Conversely, the National Retail Foundation predicted a 2.5 increase for total retail spend during 2010, a figure that would likely only become a reality deep into the holiday season.
No matter the outcome (at least not for us onlookers), this play by Toys “R” Us represents a bold move in the retail world – moving away from the formerly automatic superstore approach toward a less risky, more localized version of the space it once defined.