The Wayne retailer paid for some of those initiatives in its third quarter, ending Oct. 27, in which sales fell 3.4 percent, and same-store sales in the United States dropped 4.1 percent, primarily due to layaway orders, which are not counted as sales until the orders are picked up. The company, in reporting a third-quarter loss of $105 million Friday, noted that the third quarter is when it spends money to prepare for the holiday quarter.
Toys "R" Us needs a winning season during a year when it has have several strikes against it. First, competitors such as Walmart, Target and Kohl's have increased their toy marketing and discounts this year, as a way to lure shoppers into their stores, in hopes they will also pick up some higher-margin, non-toy merchandise.
Walmart typically uses sought-after toys as loss leaders every year. Gerrick Johnson, toy analyst for BMO Capital Markets, said in a holiday forecast presentation last month that Walmart had expanded its toy offerings this year, and that Kohl's had increased the number of toys it carried by 25 percent.
Walmart, in its television advertising this year, has specifically compared its prices with Toys "R" Us, pointing out its dramatically lower prices.
Kim Noland, an analyst with Gimme Credit, said in an email that Toys "R" Us faces intense competition, particularly from Walmart, which this year "is way ahead of other toy retailers with low prices."
Toys "R" Us also has been hit by the fact that "a fair portion of holiday sales are switching to online retailers such as Amazon, and although [Toys "R" Us] is emphasizing its e-business, they came to the party late," Noland said.
But she added, Toys "R" Us has instituted some good practices, such as the early opening on Thanksgiving, that could give it a boost.
Industry experts are expecting that, despite the aggressive marketing, overall sales this holiday will be 2 percent or more less than last year, driven largely by declining video game sales, and a dearth of "must-have" toys.
Johnson, in his presentation, noted that it usually takes 18 months to get a toy from the idea stage to the shelf, so the holiday 2012 toys were conceived at a time when manufacturers were worried about the economy and trying to keep costs down. "Any risky projects were likely shelved and only safe bets were brought forward," he said. "In the toy industry, safe usually means boring."
The improving economy also could be bad news for toy sellers, Johnson said, as "toy sales tend to perform the weakest when we are exiting recession." That's because parents who are feeling more confident financially may opt for a trip to Disney World, rather than buying an extra Barbie doll, he said.
Toys "R" Us also has been hit by news reports about complaints about its customer service and unfulfilled online orders that have appeared on its Facebook page. Laura Northrup, assistant editor of The Consumerist, a consumer advocacy blog owned by Consumer Reports, said Toys "R" Us is drawing more complaints about online orders this year than any other retailer.
"What's happening is one of two things," she said. "One is that the orders never get updated and they can't get any information out of Toys "R" Us." The other complaint, Northrup said, is from people who buy package deals that give them free shipping, or free merchandise when they spend a certain amount, and then are told some of the items they ordered aren't in stock and they lose the free shipping or other rewards.
"I don't know if they're more successful than they planned to be, or if they're having inventory issues due to Hurricane Sandy," she said.
Toys "R" Us spokeswoman Kathleen Waugh said the complaints reflect how busy the company's website was following Black Friday. "The number of questions to our call center and posted on our Facebook page increases proportionately with the increased business," Waugh said.
Toys "R" Us declined to comment on its holiday plans, or how the season is going so far, saying no executives were available for interviews this week.
Chairman and Chief Executive Officer Jerry Storch, in interviews earlier this year, and in September when he unveiled the first holiday initiatives, said he expected sales to get a boost from the release of the Wii U, the first new gaming console in several years, the launch of tabeo, a kid-friendly tablet computer sold exclusively by Toys "R" Us, and the company's rapidly growing Internet sales, which have been increasing by an average of 30 percent a year in recent years.
Even blockbuster results this holiday season may not be enough to get the Toys "R" Us IPO off the shelf. "The appetite for all IPOs in today's market is tepid," said John Fitzgibbon, owner of IPOScoop.com LLC, a Rahway-based research firm. He said there are very few IPOs in the pipeline, and according to IPOScoop.com statistics, of the 127 IPOs priced this year, 41 percent are down from their initial offering price.
The Nasdaq Composite Index is in a correction phase, down more than 10 percent from its rally high from Sept. 14, he said, and when that happens, "general interest just plain dries up." To get interest in a Toys "R" Us IPO, or any IPO, "you need a bull market," he said.
(c)2012 The Record (Hackensack, N.J.)
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