How a Giant Retail Chain Toys R Us Creates Its Market Value - Term Paper Example

Table of Contents Introduction 2 About the Company 3 International Expansion 5 Locational Factors 7 Cultural Dimension 9 Conclusion 10 References 12 Introduction Retailers play an important role in the distribution channel since they are mostly the ones who come into a direct relationship with the ultimate customers and convert the potential customers into real customers. Creating market value is of prime importance in any business operating in today’s world. Customer experience adds to the marketing value of an organisation and its products and services offered. Organisations constantly keep trying to add values in their products and services offered to boost up sales, create brand image, generate higher profits and most importantly deliver customer satisfaction and best value to their products (Johnson, 2001). It is to be noted that retailers and health companies are often regarded as the best in the business environment to deliver value in their products and services offered. Organisations give special preference and design marketing strategies accordingly to create market value of their products. Marketing value can be measured both in quantitative and qualitative aspects. On qualitative side, it is perceived gain that an organisation achieves by customer satisfaction and which helps in building the brand equity of the organisation considering various social, economic, cultural and environmental factors. The quantitative aspect of marketing value is actual gain achieved by the organisation in terms of profits and higher mark ups and other financial numbers. Here, in this assignment we shall study a complete detail considering various factors of how a giant retail chain “Toys R Us” creates its market value and deal with different environmental problems taking into account its internal expansion strategies, locational factors affecting the business and different dimensions of culture affecting the business in both local and international environmental situations. About the Company Toys R Us as the name suggests deals in various kinds of toys from wooden toys to educational toys, staple toys to electronic toys etc. Toys R Us was founded in the year 1948 with its headquarters in Wayne, New Jersey, United States. Toys R Us had emerged as the world’s largest toy speciality retailing chain with a huge earning of above $500 million and revenue in excess of $8billion.Toys R Us has been successfully launching different brands under its name such as Kids R Us, Babies R us, Toys R Us International, FAO Schwarz and Toys R Us Express.It operated as Children’s Supermarts till the year 1957 and then was named as Toys R Us in 1957 (Johnson, 2001). The organisation operates above 875 stores of Toys R Us and Babies R Us in United States alone and above 625 international stores covering around 35 countries around the globe with above 140 licensed stores. The organisation deals in products related to toys, kids clothing and baby products and achieved success in all the three segments of its products both locally and internationally (Jennifer, 2000). Toys R Us stores during the period of 1969-1989 were designed specifically which had a brown roof with vertical rainbow strips and each stores had a front entrance and a side exit. Some of them still exists however many had been painted with different colours. The first “Kids R us” store was opened in the year 1983, New Jersey, which mainly offered kids clothing of best quality and latest trend. The organisation opened its first “Babies R Us” in the year 1996 and it offered speciality baby products which was a grand success. Today the company operates in more than 260 locations throughout the country since its very inception. It was in 2009, that the company acquired toy retailer FAO Schwarz and even this expansion strategy of the organisation tasted success. Finally it was in the 2009 itself that the organisation came up with “Toys R Us Express”, which are smaller stores than its usual stores to attract larger customers. These stores are usually located in big shopping malls and offer all toys, clothing and baby products as per the market demand. However, the stock is much lesser than the stand alone stores of Toys R Us (Mike, 2001). With the changing world and technological advancements where internet has become a global hub and people like spending and purchasing products from their home without moving into malls and stores. Toys R Us had successfully adapted to the changing requirements of the customer needs and operates a portfolio of sites to build on its e-commerce business. It had launched many sites such as toysrus.com, babiesrus.com, eToys.com and FAO.com which has helped the organisation to compete in the field of e-commerce and has further helped to boost up its sales and profit margin with higher revenues and higher operating profits. Toys R Us has always ensured to maintain their prime objective to deliver quality products at reasonable price. Customer value has been always the first target of the organisation and the company has always developed its marketing, strategic and business ideas keeping in mind its objectives. Customer experience a convenient shopping experience in the stores of Toys R Us and customer satisfaction level is always on an increase with its rapid development (Maraianne, 2001). Toys R Us has been serving its customers for nearly 60 years and dealt significantly in all customer complaints in a smooth manner. It offer quality toys which are non-toxic in nature and has always been a favourite destination of kids and grown-ups for its latest technological products which is always a treat to use and includes toys, games, learning aids, children apparel, electronics and juvenile furniture. Toys R Us has been successful in its international expansion strategies and able to achieve huge success internationally which has been discussed as under. International Expansion Toys R Us anticipated the feasibility of going global in the year 1984 and for the same established a separate unit of its own named as “Toys R Us International” to take the advantage of the opportunity available to it and opened its first wholly owned store in Canada. The organisation tasted success in its first move of international expansion and soon started exploring its business into Europe and Asia. The organisation crossed the local boundary of United States and soon captured a market in global front with its stores available in Australia, Canada, Netherlands, Germany, France, Portugal, Spain, United Kingdom and other countries of the world. Today the company has expanded to almost 35 countries in the world with more than 600 stores internationally and over 140 licensed stores (Johnson, 2001). Toys R Us was facing increasing competition from many discount stores such as Wal-Mart, Coles, K-MART etc and also felt that its market in the United States is at the saturation level so it decided to go global in order to maintain its sustainable double digit growth rate. During its initial internal expansion it tried to explore more of European Markets from 1984 to 1994 and opened more than 184 stores in European market and also successfully opened around 24 stores in Japan despite the cultural and operational challenges faced by it. It is a remarkable achievement on account of Toys R Us that since 1993, international store opening has succeeded the number of new stores opening locally in the United States. International sales now account for over 25%of the revenue of Toys R Us (Maraianne, 2001). It is to be noted that as a part of its successful expansion strategy globally, Toys R Us entered Scandinavia market in1994 opening a store in Denmark and three stores in Sweden. However it faced fierce Union Opposition in Sweden as it refused to sign the collective bargaining agreement with the retail worker union of Sweden. The workers as a result went on tostrike. The matter further worsened on account of Toys R Us when it underestimated the strength of the Handels and its leader. Finally it signed a changed bargaining agreement but to no surprise the damage had already occurred and the reputation of the organisation was affected badly in the country of Sweden. Toys R Us had to finally suspend its expansion plan in Sweden and it effectively dropped its control in Sweden by handing over its stores to Top Toy, which was Denmark’s largest toy retailer (Sara-Louise, 2001). However, with its failure in Denmark the organisation did not lose hopes or suspended its global expansion in other countries. In the year 2006, it celebrated 25 years as an international toy authority in Japan with more than 170 stores operating in the country as of now. The company continued its global expansion at a rapid pace and reached Poland in 2012 where it has opened its two exclusive owned stores (Maraianne, 2001). Also it went into a joint venture with Li & Fung Retailing to capture the untapped market of Greater China and South East Asia and acquired major stake in the previously licensed stores operating in those areas. It is to be further noted in year 2012 when e-commerce has dominated the market globally, Toys R Us,Inc adapted to the changing requirements and launched many official websites to even capture market globally in the field of e-commerce. It launched many sites such as toyrus.com, babiesrus.com, eToys.com etc which further helped in boosting up the sales and revenue of the company. Toys R Us has also recently announced mobile applications for convenient shopping experience to its customers in around 11 markets around the world including countries like Austria, Canada, France, Germany, Portugal, Japan etc as well as Netherlands where the company still does not have any physical store present (Sara-Louise, 2001). Toys R Us has thus very smoothly and smartly captured the globe and continued to deliver same quality products and real value to its customer in terms of its products provided and services offered globally. Locational Factors Locational factors play an important role in any business that operates in the environment since a setup of business which has been flourishing in one location may not be successful in other location due to certain constraints imposed by local factors. Further retail business involves direct relationship with its potential customers so setting up of stores in the correct location is indeed an important management and strategic decision. We had already discussed in the international expansion that how the company failed to expand its business in Sweden in which locational factor was an important issue for the failure of such expansion. It is to be noted that Toys R Us has a strong potential to have its stores in most developed and developing countries of the world. Selection of right location is however a complete managerial decision keeping in mind the demand and supply of the products, cost structure of the product, macro environmental factors, social factors, legal factors and other external factors which supports the feasibility of the business in a new location (Jennifer, 2000). Through 1995, Toys R Us has more concentrated in tapping the market of Japan and Europe and achieved success in such markets due to its marketing value and product quality with customer satisfaction delivered at its very best. The company has huge scope and infrastructure facility to explore its market beyond that. Toys R Us should look to expand in areas such as South America, Central America, Thailand, Korea and India. Special attention is however required and Toys R Us should definitely conduct a complete environmental analysis and SWOT analysis to grab the untapped opportunity available in these markets as recently these markets have shown huge potential for retail marketing and there is ample scope for a larger giant like Toys R Us to tap the market and swipe off local competitors to boost up its sales and revenue and further its market area (Sara-Louise, 2001). It is to be further noted that locational factors cannot be considered in isolation since it is linked with other external and internal factors. Cost structure of the organisation definitely plays an important role as no business flourishes or make strategies in areas where the cost is higher than the returns. Further legal factors and government intervention plays an important role in selecting a perfect location. A location with little or no government intervention and suitable labour laws is always preferable by Toys R Us for setting up its stores and making an expansion in its market area. Demand of the product and economic development and infrastructure of the country are some other factors that affect locational factor and can in no situation be left unattended. Cultural Dimension Cultural dimensions play an important role in the success of Toys R Us in both its local market and international market. Excellence through diversity is not just a philosophy for Toys R Us. Toy R Us, has maintained a cultural diversity in its customers, products, services, employees and suppliers. Different culture has different demand for toys ranging from lifestyle, education level in case of educational toys, backgrounds, religions and age factor. Designing products as per cultural dimensions requires innovation and the success of the product has ahigher chance (Sara-Louise, 2001). Toys R Us achieved success in its international expansion since the cultural dimensions of such countries were quite similar and so the products were absorbed smoothly. One of the reason for failure of Toys R US expansion strategy in Sweden was importation of an employee handbook which was considered as “culturally intensive” imported from the stores of United Kingdom and which has worsened the situation that the company has to finally revert back from Sweden (Jennifer, 2000). Toys R Us has to further look towards using different dimension to measure the influence of culture like Hofstede Cultural Dimension will help to understand the cultural aspect better and will look to ascertain the following Toys R Us should definitely look to expand its business in Thailand, India, Korea, Norway etc which has almost similar cultural dimensions as shown from the chart above. Even though a country like India has diversity in its cultural environment however these countries had been one of the most developing counties in the world which shows huge potential of products offered by Toys R Us. Cultural dimension is basically a psychological factor that may largely affect the demand of products in a region. Equal importance has to be given to cultural factors since not entertaining the same may hurts the sentiments of the customers in a region and may even lead to complete closure of the business in a particular location or area. It is to be noted that cultural dimensions influences social changes since it includes values and ideologies of a community or a group. It is rather the values of an individual and it influences consumer behaviour to a great extent which indeed affects the marketing value of an organisation. For a retailer cultural factor is of great significance since a consumer buying habit is dependent of the cultural values of the consumer. Toys R Us usually develop products as per the cultural dimensions since its stores has both luxurious goods which is targeted for the higher income group of the society and reasonable price goods for the middle class income group (Mike, 2001). Thus, we see cultural dimensions is a major factor that affects the society at large and an organisation being a part of society inculcate special marketing strategies in its objectives to deliver value to its products and services offered without defying the cultural values of the society in which the business operates. Toys R Us had been doing the same since past 60 years and is continuing to develop marketing values and strategies accordingly to ensure a sustainable progress in the success of the organisation taking into account the cultural factors as per the requirement of the location in which it operates its business globally. Conclusion Toys R Us had been successful in its international expansion strategies and has anticipated the prevailing opportunity in the economic environment at correct time. The company however failed in its international expansion in Sweden due to ignorance of cultural dimension to a certain extent. However, the company still has ample scope and potential to capture the untapped market of countries like Norway, India, Austria, Korea, Thailand and other Asian countries (Mike, 2001). Delivering marketing value and customer satisfaction to its customers had always been the prime objective of the company and company is doing well in maintaining the same. However, in order to further expand its business and boost up the revenue of the business Toys R Us should impose special checks to maintain its stocks in the stores and eliminate the underperforming stores and further streamline the company's operations. The organisation should also endeavour to focus on what the customers want as per the cultural dimensions operating in different countries where the company already has a store or is planning to open one in the near future. It should provide its customers value for money and best selection of brand name mechanise and toys in depth at its existing and new stores and ensure higher customer service and customer satisfaction from its products and services offered. It is to be further noted that the toy industry is changing fast with the changing environment not only in the type of products that are sold but also where the products are sold. Thus, locational factors play an important role in the success of toy industry. Toys R Us had stumbled slightly in the recent past due to cultural differences, low customer service and disorganised stores in wrong locations. Toys R Us had been successful in giving all their attention to existing customers and converting the potential customer into real customer. Their international expansion strategy has proved to be a lesson to all companies in the competitive field and it is often taken as the benchmark by other companies looking for global expansion. Out of a Swot analysis conducted by Toys R Us recently in ten most potential markets internationally, Norway shows the best market and most potential market for an expansion and reports say that the company will definitely be exploring Norway market soon. Thus in a nutshell, Toys R Us has definitely emerged as the world’s largest retail chain owing to its marketing value that it creates and delivers it to its customer. The company has been changing with the changing environmental needs which can be easily seen through its response to adapt the e-commerce market by launching its websites on a global front and also its endeavour to adapt the mobile technology by soon coming out with its own applications to make shopping a convenient experience. References Johnson, E. (2001). Learning Toys from Toys; California Management Review, 43 (3), 72-87 Jennifer, N. (2000). Wal-Mart & Toys R Us: The Best Of The Century. Discount Store News; New York Mike, T. (2001). Toys R Us plans to maintain market share gain. DSN Retailing Today; New York. Maraianne, M. (2001). Toys R Us takes Manhattan. Chain Store Age; New York Sara-Louise, B. (2001). Reinventing Toys R Us, Corporate Finance, Retrieved on April 17, 2013 from www.toysrus.com Read More