The Toys "R" Us board Wednesday chose interim Chief Executive Officer Antonio Urcelay as chief executive, and will pair him with a former Wal-Mart executive as the head of the Wayne-based company's U.S. retail operations.
The announcement follows an eight-month search that followed the resignation of former CEO Jerry Storch in February. Urcelay, who previously headed Toys' global operations, was named interim CEO soon after Storch stepped aside, but has kept a relatively low profile in the interim position.
Hank Mullany, the former CEO of The ServiceMaster Co., and a former executive vice president of Wal-Mart-U.S. was named president of Toys "R" Us, U.S., effective Nov. 5.
Industry experts expect Mullany will run the day-to-day operations of Toys while Urcelay will focus on global markets.
The Toys board said Mullany will oversee all merchandising, marketing, e-commerce and store operations for the company's 878-store U.S. division.
"It sounds like Mr. Mullany is going to be running the day-to-day operations of Toys," said Jim Silver, editor of Timetoplaymag.com, and a veteran toy industry expert. He said it is likely that Urcelay's focus will continue to be the global markets, which are becoming an increasingly important part of Toys' business strategy.
By tapping Mullany as president of Toys "R'' Us, U.S., the board is recruiting from the camp of its archrival Wal-Mart, the discounter that over the past 15 years has replaced Toys as the biggest seller of toys in the United States.
Mullany, 55, was at Wal-Mart from 2006 to 2010. When he was promoted to head of Wal-Mart's northern U.S. operations in 2008, he had to sign a non-competition clause barring him from working for a rival retailer. In 2010, when Mullany was hired to head the pharmacy unit of CVS, Wal-Mart sued to block him from taking the job, arguing that Mullany had a "roadmap or blueprint for the entire company's operations in the U.S. in 2012."
At Wal-Mart, Mullany was responsible for 1,300 stores and 28 distribution centers in 19 states that generated $90 billion in revenue and oversaw 400,000 employees.
After leaving Wal-Mart, Mullany became CEO of Memphis-based ServiceMaster, a commercial and residential cleaning and maintenance company, from March 2011 to April of this year.
Urcelay, 61, has been at Toys since 1996. At Wednesday's announcement, the board said he would "continue to provide worldwide leadership in driving key strategies and growth initiatives in the company's more than 1,500 stores in 36 countries" around the world.
The team of Urcelay and Mullany will have a hard job following Storch, who remained as chairman after he left as CEO.
Storch, a former vice chairman at Target Corp. who arrived at Toys seven years earlier, won praise from manufacturers and industry experts for his passion for Toys and his "playing to win" philosophy that caused him to work round the clock. That work pace and a micromanaging leadership style irked members of his executive team, causing high turnover among his top deputies.
While Storch was credited with improving operations and boosting earnings at the 65-year-old toy retailer, he failed to accomplish the task he was hired to achieve, which was positioning the company for a successful stock offering. The plan when Storch was hired by the three investors that own Toys _ Vornado Realty Trust, KKR Inc. and Bain Capital LLC _ was he would return the company to public status within three or four years, thus rewarding their investment.
The economy, however, sank into a recession in December 2007, complicating that plan. Many in the investment community believe the strategy would have failed even if the economy had been booming during Storch's tenure, because the public had lost its appetite for stock offerings involving leveraged buyouts.
As a result of the $6.6 billion buyout by the three investors, Toys was saddled with more than $5 billion in debt, most of which is still on its books. While Storch was able to boost the company's EBITDA, or earnings before interest, taxes, depreciation and amortization, to more than $1 billion, and to the highest levels in the company's history, he was not able to show results that were robust enough to satisfy Wall Street.
The day Storch announced his resignation, Sean McGowan, a longtime industry analyst with Needham & Co., said Storch had left Toys "in a better position, by almost any metric," with greater market share and margins, and improved stores.
But Storch's departure, McGowan said, underscored "that doing all that isn't enough in a low-growth or perhaps declining business, where you have competitors that don't need to be profitable in this category." McGowan was referring to competitors such as Wal-Mart and Target, who sell toys at a discount during the holidays to draw shoppers to their stores.
Sales at U.S. stores that were open at least a year rose during the all-important holiday season in Storch's first five Christmases with the company, but declined by 1.1 percent in 2011 and 4.5 percent in 2012.
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Original headline: Toys 'R' Us names CEO
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