Jerry Storch of Toys R US Speaks his Mind at PlayCon

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Jerry Storch
Jerry Storch, CEO and Chairman of the Board for Toys R Us
had a message for the PlayCon audience. 
He stated that he had never seen an industry that was as poor at channel
management as the toy industry. 
  He
didn’t sugar coat it; he put it right out there.  Jerry had other things to say but it was that
comment that stood out for the boldness of how it was stated.

First, however, let’s step back and define “channel
management.”  The Rubicon website defines
it as well as anyone:  “The process of
balancing allocation of product inventory and pricing across distribution
channels.”

In terms of the toy industry, channel management means how you balance
distribution to the various channels (mass merchandisers, ecommerce, toy
stores, supermarkets, drug stores, etc.) in such a way that you maximize
distribution without hurting brand value. 

What Mr. Storch was pointing out was that the toy industry tends to sell
into all channels at the same time; flooding the market with goods;
crushing
the retail price structure; damaging profitability for everyone and ultimately
shortening the life of the product.

Anyone who is familiar with the toy industry recognizes
the truth in what Jerry has to say. 
Simply
put, the life cycle of toys has largely become reduced to months instead of
years.   By flooding the market with
goods, the excitement of product shortages and the frenzy they can create
dissipates into shelves of post-Christmas markdowns.  Heavy discounting by retailers who see toys
as loss leaders drives down prices and damages margins for those who depend
upon toys for their living.

How should the toy industry’s toy companies manage
distribution?  Mr. Storch suggested that
specialty toy stores and, yes, Toys R Us, get exclusives in the first
year.  In the second year he suggested
that the product be pushed out to other retailers. 
This would, he suggested, lengthen the
product cycle; expand profits and keep consumers interested.  It would, in the long run, enhance brand
value and generate greater revenues with fewer markdowns.

Some expressed to me that they thought Mr. Storch was
correct but that his speech was self-serving in that his company would benefit
greatly from such an approach.
  I recall
him saying


that he recognized that what he was saying was self-serving but
none-the-less he believed he was correct. 
I agree; you can be self-serving and right all at the same time.

Would everyone benefit; well yes and yes.  Certainly Toys R Us would benefit and so
would the specialty toy industry.  The
big discounters would have to wait a year but there is also a benefit for them
in knowing how the product did in year one. 
It would certainly result in sharper buying and less inventory
carryover.  They would not be the only
ones who would benefit.  Toy companies
would conceivably be better able to manage their product rollouts with a longer
horizon bringing better controls and hopefully greater profits as well.

Jeremy Bentham, the great utilitarian philosopher
stated:  “It is the greatest good to the greatest number of people
which is the measure of right and wrong.
”  Based upon that way of looking at it,
better channel management looks more right than wrong. 
What do you think?

 

8 thoughts

  1. Jerry’s comments are 100% correct.
    I have been spruiking the same subject for years and unfortunately it simply falls upon deaf ears.
    The strategy is difficult to implement due to the declining specialty volumes, speed to market by the competition in the same space and copies from China.
    You have to make a stance and at some point decide when your brand is going to be decremented.
    There is a famous pre school brand going through that soul searching at the moment.
    Tomy can do it with their various brands (one can argue that some of the major accounts dont have space for them) and Lego is famous for channel managing (and coincidentally has had the largest compound growth in the Industry for the last five or so years.)
    The major accounts CAN put the special back into specialty but they really need to drive it.

  2. As I didn’t attend PlayCon, I’ll have to limit my thoughts to Richard’s post and subsequent comments. Channel management was a sound strategy and one I embraced for years, beginning in the Gift industry and continuing into the Toy industry. At face value, it makes perfect sense. Extend the life of the product by introducing it to the independent channel, slowly add in the mid-tier retailers and finally, let it make it’s way into the mass market. You’ll lower the retail as demand allows, taking advantage of the production economies of scale along the way. Love it.
    Key word here…”was”. 20 years ago, it made sense. In today’s market, there’s almost limitless access to consumer info and incredible pressure on all parties (manufacturers and retailers) alike to grow sales and grow them as quickly as humanly possible. Most retailers(independent, mid-tier and mass) want to trump their competition. How to do that? Typically price is the first option thought of. I would love to see more retailers follow the Marbles model, and to Lisa’s comments above, cater to the shopper most interested in the toy/game shopping experience, essentially asking the sales associate to, “Please help me decide what game/toy is best for me and my family”.
    So – we can’t stop the flow of product info available and none of us would want to. But, are we willing to pay a little more as a consumer?
    Or, maybe more importantly, are we able to create a company that isn’t forced into breaking the channel management strategy and still pay our bills?

  3. How can Jerry’s comments be self serving??? He’s no longer at TRU. As an industry, we need to open our ears and listen. Major public toy companies who care for the bottom line , from quarter to quarter, have no choice but to flood the market . But, is this good for long term health of toy industry and brands and innovations? The same goes for the major retailers who fill up the shelves with the latest hot toy to grab market share and then come to vendors for mark down.

  4. If we were not short on time Wednesday morning at Play Con, I would have loved to have had the opportunity to challenge Jerry Storch on a number of fronts and let a lively debate ensue:
    * The kind of Channel Management he espouses is not an option for brand launches that require TV. It only works for non-promoted business, which is a smaller part of the category at mass.
    * Furthermore, his example of Nike shoes does not take into consideration the substantial investment in tooling that many toys require. Amortizing that upfront fixed expense across the miniscule volume represented by specialty and TRU initial orders is financially unsound. Add in the more extensive product development costs of toys versus apparel and footwear and the picture gets worse!
    * Toys R Us is notoriously bad at launching new brands because they are still not getting the basic blocking and tackling of operational excellence right. Their retail execution is abysmal–the buyers know it, and they are resigned to not ever seeing it get fixed. We have to achieve success IN SPITE of poor retail execution. If they are the only mass outlet for a launch, good luck in ever getting the consumer to find you.
    I love the idea of channel management for large established brands that can afford to play the game. We dramatically grew the Barbie business in the 90’s behind a channel management strategy. For most of us, however, it merely sounds good in theory, but can’t deliver a profitable promoted business.
    The new brand launch model is broken and we are still looking for a new paradigm. Stay tuned for my article in Toy book in June on this subject!
    Nancy

  5. I just read a survey today that validates that consumers still love shopping at stores, but they love it for the reasons that Toys R Us does not provide: awesome customers service, delightful product assortment and suggestive selling by knowledgeable sales staff.
    Thanks for sharing a synopsis of the speech, and read Brian’s comment with interest. You guys are pretty smart!

  6. Storch obviously felt more freedom to express his opinions and judgements than ever before. Realistically, there is a downside to our industry’s “throw it all at the wall” mentality. If the TRU team backs up Storch’s views, as they should, the first, best step would be to implement via owned brands and upcoming exclusives.
    Ultimately, the substantial takeaway from the PlayCon event was that our industry institutionalizes its own failings. Learning from those lessons is what makes PlayCon so vital. The event kicked off with a presentation by a 2 decade Walmart staffer articulating the greater-good nature of low, low pricing for the future of our industry. He said this with a straight face. He seemed like a smart guy and undoubtedly knew statistical evidence presented following his own segment would invalidate virtually every point he made.
    The amazing info provided by NPD and The Family Room substantiated clear evidence that price-matching is not the sole interest factor for customers, even if perhaps it is integral to Walmart’s business plan. Why else would Walmart flail about trying and failing to find ways to compete with price leader Amazon and other e-commerce sites? Do we really think storage lockers are going to even the score? Or crowdsourced shipping?
    I hope Walmart paid specific attention to NPD’s revelation that price and sales have lessened in importance to customers in 2012. And other factors are in play for the hearts of customers and the contents of their wallets.
    Sure, Storch’s request for specialty exclusives is self-serving. But nobody commented on the Walmart rep’s assertion that price is king? Even though all evidence suggests this is not the case?
    Does anyone think there is a win for brick and mortar retail if price is king? Amazon will win, hands down, every time.

  7. Hard to argue with the logic. I also think the emphasis on a toy store as a destination (rather than a portion of an aisle or a few pages out of a web store) does a lot to define its role in our society. Adults and children alike crave those magical experiences.
    The flipside, of course, is that toy stores are not as prevalent as they used to be. More and more consumers may be pushed to online retail or alternative products and away from toys and traditional retail if they can’t find what they’re looking for in their own communities. Restricting channels is a hard practice when there is unsatisfied demand in the market.
    A shift in channel management makes the most sense if the industry can collectively build demand for toys and games in excess of what department stores and mass market are willing or able to stock. Specialty retail and Toys R Us then become a critical channel to satisfy consumers.

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