profit, sales, loss, competition

Giant toy retailer Toys 'R' Us is considering leaving the toy business. Once a leader in toy retail sales, with 25% of the market in the 1980s, the giant's market share has fallen to 15% currently. It reported that same-store sales fell 5.1% in the last fiscal year.

Why the downfall? Most importantly, Wal-Mart. Wal-Mart has used toys as loss leaders in its stores, pricing toys at lower than cost to lure customers into the stores and consistently undercutting other toy retailers' prices. Wal-Mart now holds a 25% market share for toys. Secondly, children are turning to electronic games at a much younger age, leaving Toys 'R' Us behind in favor of Best Buy, Electronics Boutique, and other electronics retailers.

Toys 'R' Us plans to focus more on its Babies 'R' Us store format, selling everything from diapers and strollers to baby furniture and beginning toys. This format has been hugely successful for the firm. Profits from this component of the company have steadily risen over time by about 16%. Toys 'R' Us has also shuttered all of its Kids 'R' Us clothing stores, and all Imaginarium stores. There is no telling how long this strategy will work for it, though, since Wal-Mart and Target Stores are both focusing on the baby goods industry as well.

(Updated September, 2004)