TRU Outlines Transformation Strategy
Toys “R” Us, Inc., outlined the four steps of what the chain is calling its Transformation Strategy. Antonio Urcelay, chairman of the board and CEO, Toys “R” Us, Inc., and Hank Mullany, president, Toys “R” Us, U.S., provided a comprehensive assessment outlining the go-forward priorities and actions that will drive the strategy.
“As we look to the future, our strategy will establish a path to sustainable business growth, building upon the company’s unique strengths. Toys “R” Us is one of the most recognized brands in the world with a strong international presence and a large and loyal customer base,” Urcelay said. “Our global network of stores generates strong profitability, and together with our $1.2 billion global e-commerce business, is integral to our growing omnichannel capabilities. And, as the world’s leading dedicated toy and juvenile products retailer, we have well-established relationships with our manufacturing partners, and can provide them with a year-round distribution outlet that showcases the broadest selection of their products in 36 countries around the world.”
Urcelay continued. “Our 2013 performance was, no doubt, disappointing. While this was partly driven by macro conditions, such as the decline in birth rates since 2007, which has contributed to stagnating overall toy and baby industry sales, and the rapid growth of online shopping, we cannot blame these factors. We believe that several execution issues also impacted these results. Over the past several months, we have undertaken a comprehensive analysis and diagnosis of the business, and believe we have four main issues to resolve—improve the customer experience in-store and online, make progress on changing price perception, put disciplines back into inventory management, and right-size our cost structure on a global basis.”
Mullany said, “Our TRU Transformation Strategy is grounded in consumer research and customer insights, and is anchored by three guiding principles—Easy, Expert, Fair. Among our highest priorities will be to deepen our focus on the customer, build meaningful relationships through loyalty and targeted marketing programs, and improve the shopping experience both in-store and online. This will include putting more emphasis on the distinct needs of our customer base of new and expectant parents and gift-givers.”
For 2014, the objective of TRU Transformation will be to slow the company’s sales decline, stabilize cash flow, and improve EBITDA to effectively position the business to grow revenue and profits in 2015 and beyond.
TRU Transformation will focus on four key priorities:
1. Transform the shopping experience in-store and online.
TRU has already implemented changes such as cleaning up existing stores and improving in-store execution; improving out-of-stocks and the speed of checkout; solidifying customer relationships through strengthened loyalty and targeted marketing programs; improving price perception by developing a clear pricing strategy and simplifying promotional offers; and optimizing the e-commerce experience by capitalizing on the online shopping growth and omnichannel integration with stores.
2. Collaborate with business partners to drive differentiation, innovation, and value.
TRU will leverage business partner relationships in the U.S. and abroad to drive category leadership and effective differentiation in products, events, and services, and create exciting shops and product statements in-store.
3. Develop high-performing, highly engaged, diverse talent.
Internally, priorities will include reviewing the organizational structure, creating an infrastructure that promotes talent development, maintaining a culture of productivity and accountability, driving training in the areas that matter most for customers, cultivating a culture of engagement, and enhancing the ability to hire and retain great talent.
4. Become fit for growth.
TRU will focus on improving operational and financial performance, while positioning the business to capitalize on future growth opportunities through the implementation of a right-sized cost structure, a strong focus on disciplined inventory management, and the deployment of capital to key growth initiatives.
A. Right-size the cost structure. TRU is in the midst of a renewed assessment of its operations and business structure to determine where greater efficiencies can be created and where additional resources can be allocated to help best serve customers. As part of this evaluation, in a comprehensive review of functional areas throughout the organization, a number of opportunities were identified to streamline functions and reduce headcount. In total, throughout its U.S. and International operations, TRU has now eliminated more than 500 positions across all functions.
TRU says it may close some stores during the year primarily due to lease expirations. At this time TRU says it has no plans to close a significant number of stores. After a thorough evaluation of its current fulfillment capabilities in the U.S., the company has made the decision to close the McCarran Distribution Center in Storey County, Nevada effective June 1, 2014. Over the past few years, TRU has expanded its omnichannel capabilities and the ability to ship online orders from stores and distribution centers that serve stores, resulting in the ability to flex inventory more efficiently, leverage underutilized space, and ship from points closer to customers. The company will continue to open stores and expand fulfillment capabilities in markets where it makes the most sense, including in China where growth has accelerated.
B. No near-term debt, strong balance sheet, ample liquidity. TRU ended the year with a strong liquidity position of approximately $1.8 billion and reduced its total long-term debt by $322 million to $5 billion. In addition, it successfully refinanced its $1.85 billion senior secured revolving credit facility in last week, a key component of the company’s capital structure. The execution of this transaction ensures the company’s ability to appropriately fund the working capital needs of its operations at rates that are significantly lower than the prior revolving credit facility. TRU says it has no material outstanding debt repayments due until 2016, providing a large window to grow and develop new strategic initiatives.
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