Toys R Us to Close 25 Stores, Improve Design, Display
In a bid to boost sales in a more competitive environment, Toys R Us said it will close 25 poorly performing stores, reduce inventory and make improvements in store design and display.
The Paramus, N.J.-based company said it will take a $270-million fourth-quarter charge to carry out the store consolidation, which targets 15 U.S. stores and 10 in Europe. The company has not yet identified the U.S. stores to be closed, but it said 12 are Kids R Us clothing stores and three are Toys R Us toy stores.
The announcements were made as Toys R Us prepares to report earnings for its fiscal year ending Saturday. The company said in November that for the nine months ended Oct. 28, earnings were $55.1 million, a drop of 55%. The retailer’s sales suffered in 1995 partly because no single toy generated sales comparable to the 1994 demand for the Mighty Morphin Power Rangers line.
In addition, Toys R Us faced stiff fourth-quarter competition from Wal-Mart Inc. and Kmart Corp., discount chains that lured customers with deep price cuts during the disappointing holiday sales season.
In response, Toys R Us has been lowering prices and offering a broader array of increasingly popular educational toys and computer games. To stock more of the better-selling toys and games, Toys R Us said, it will reduce the variety of merchandise in its stores.
“They’ll be reducing the number of items from 15,000 to 11,000 per store,” said Richard Nelson, an industry analyst at Duff & Phelps in Chicago. “That also means the stores will be less cluttered and easier to shop. That’s important because the stores look old, and these crowded stores aren’t exciting shoppers.”
Toys R Us said it will use a design called “Concept 2000” at 12 stores in 1996; three of them will be redesigned existing stores and the others will be newly built. The Concept 2000 stores will include separate departments for educational toys and toys licensed by Warner Bros. and Walt Disney Co. If the new design is successful, the company said, it will make similar changes at its other stores.
“As a result of this move, the company should be in a stronger position to generate significant earnings gains in 1996,” said Michael Goldstein, the retailer’s chief executive.
Investors responded favorably to the announcement. Toys R Us shares rose $1.50 to $23.50 on the New York Stock Exchange.
Toys R Us also said it has reached new foreign-licensing agreements that will allow it to open 55 more stores. The company has 337 stores abroad, 653 U.S. toy stores and 213 Kids R Us clothing stores worldwide.
