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2. Toys “R” Us Alan B. Eisner Keeley Townsend McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

3. Toys “R” Us Icebreaker Questions  How many of you have shopped for toys or children’s gifts or baby products?  Have you ever been in a Toys “R” Us store?  What about Wal-Mart?  In general, do you shop for gifts in a store or online?  Does it make a difference to you if the online store also has a brick-and-mortar equivalent?  What are the differences in the customer experience?  What about differences in the customer experience at a specialty retailer and a discount store? McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

4. Toys “R” Us 1.Analyze Toys “R” Us’ external environment.  What are the general environmental factors that have impact on this retail industry? McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

5. Toys “R” Us 2.What are the external forces of competition affecting this retail industry? McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

6. Toys “R” Us 3.Analyze the Toys “R” Us internal environment.  What does the Toys “R” Us value chain look like?  What about its resources?  How would you evaluate its strengths, weaknesses and synergies? McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

7. Toys “R” Us 4.What business level strategy does Toys “R” Us appear to pursue?  What niche (cost, differentiation, focus) do they fill in this highly competitive retail industry?  Is it sustainable? McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

8. Toys “R” Us 5.What corporate level strategy does Toys “R” Us appear to pursue?  Is it sustainable? McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

9. Q1. Industry Environment McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. SUPPLIERSBUYERS SUBSTITUTES POTENTIAL ENTRANTS INDUSTRY COMPETITORS Brick & Mortar: mall retailer and discounter growth; Internet: increasing capital requirements in tech. infrastructure Both Brick & Mortar and Internet: no real supplier power evident Both Brick & Mortar and Internet: general lack of product differentiation, absence of switching costs, consumers buy in small quantities Brick & Mortar: Internet, including online auction environments Brick & Mortar: market share and profit margins being squeezed; Internet: extreme rivalry; lack of industry concentration/high level of tech. change

10. Q2: Toys “R” Us Value Chain McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Value Chain Activity How does Toys “R” Us create value for the customer? What challenges does Toys “R” Us have in its value chain, in both Brick & Mortar and Internet environments? Primary: Inbound logistics Both: Toys “R” Us traditionally strong in both selection & procurement of toys. Challenges include competing with Wal-Mart in distribution/supply chain Operations Brick & Mortar: operations happen at store level, with real-time control and monitoring. Internet: operations happen in tech. based “back rooms” where algorithms do the monitoring. Outbound logistics Brick & Mortar: no real challenges here. Internet: could be a highly value added function if customer delivery is accurate and expedited. As in above, Amazon controls part of process Marketing and sales Brick & Mortar: in-store promotions, TV and print ads. Internet: referrals/key word searches Service Brick & Mortar: customer contact immediate, problems resolved at store. Internet: customer removed from the experience

11. Q2: Toys “R” Us Value Chain (cont.) McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Value Chain Activity Secondary: Procurement Both: strong long-term relationships with suppliers Technology development Both: in-store layout design and Internet environment design need specialists, either on staff or through contact work Human resource management Both: strong mission/vision statement can create energy and commitment General administration Both: innovative and energetic new management can create an edge

12. Q2. Toys “R” Us Resources McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Tangible Resources  Financial: economies of scale, purchasing power, long- term investments, access to capital  Physical: extensive brick & mortar real estate  Technological: existing Internet presence, access to expertise  Organizational: experience in handling a specific customer segment means specialized processes exist: i.e., inventory and customer relationship mgt., procurement & prod. selection Intangible Resources  Human: partnerships with experts like Amazon.com  Innovation & creativity: history of innovation  Reputation: long-term relationship with some customers  Organizational Capabilities  Specific Competencies/Skills: expertise in specific markets: babies, toys  Capability to Combine Resources: synergies exist between brick & mortar and Internet business

13. Q4. Business Level Strategy McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Cost Leadership: not likely since Wal-Mart and other discounters are main competitors on price. Amazon partnership makes this unlikely in the e- business format.  Differentiation: Brand identity (Babies “R” Us, Kids “R” Us and Imaginarium); differentiate the shopping experience itself; lack of resources to differentiate in the e-business environment.  Focus: Initially Toys “R” Us could focus on children/babies – no longer sufficient.

14. Q5. Corporate Level Strategy McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Horizontal diversification – the decision to expand the brand into “Kids”, “Babies”, and “Imaginarium”  Internet business? Did this leverage existing competencies?  Amazon partnership is an admission that Toys “R” Us does not requisite capabilities. Internal development to partnership.  Now struggling to find a competitive niche – significant environmental challenges