Live from eTail: Toys ‘R’ Us Plays to Win

Feb 16, 2007 5:44 AM  By

Palm Desert, CA—Back in the early 1990s, Jerry Storch, now the CEO of Toys ‘R’ Us, took it upon himself to find out what Internet merchants were doing that was making them so successful. Visiting a warehouse in San Francisco where the walls and ceilings were painted black and employees wore sunglasses—inside—Storch said, “They were so cool.” But when he began questioning them about their economic positioning of offering rock-bottom prices regardless of their margins—or lack thereof—he realized their business model didn’t make economic sense. “It came down to either you believe or not. That was a bizarre time,” Storch said of the Internet bubble.

The Internet is transformational, but not any more than the automobile, the printing press, or airplanes, Storch told attendees during his Thursday morning eTail general session. Those inventions were certainly transformational but did not make their predecessors obsolete, he said. “They made what we do even better.”

Storch said he believes the Internet is about communication and the ability to present unlimited product information and creativity. “It’s more about building relationships than anything else,” he said, although he noted that a profit-and-loss statement is still necessary to ascertain if the online channel is successful.

When it comes to following other toy retailers and chasing the lowest price, Storch said that’s a bad idea: Although your customer is happy, you’ve allowed your product to become a commodity and are making only a slim profit, if any. To avoid falling in to that trap, merchants need to sell something that’s different and better than the competition. Toys ‘R’ Us, for example, competes with a wooden Thomas the Train set by offering a wooden train set under its own Imaginarium brand. The set is equipped with an RFID chip that causes various things to happen, such as a whistle blowing, as the train runs along the track.