The Demise of Toys “R” Us—Is Amazon Really to Blame?
Many commentaries about the demise of Toys “R” Us zero in on one culprit: Amazon. But is the rise of online retail really to blame for the shuttering of the beloved toy seller, which announced last month that it would liquidate its stores after filing for bankruptcy last September?
Yes and no. While competition from Amazon and other online retailers certainly contributed to the toy chain’s decline in recent years, the turning point occurred much earlier, in a more complicated and contingent way, than many post-mortems acknowledge. The deeper problem, meanwhile, was that Toys “R” Us management had forgotten what made the company revolutionary in the first place — not choosing the right products but its very way of selling.
Toys “R” Us owed much of its early success to the post-World War II baby boom. Founder Charles Lazarus, who passed away at age 94 last month, just a week after the chain announced liquidation of its stores, launched his vision in Washington, D.C. in 1948. Initially devoted to selling baby furniture, Lazarus soon added toys to his store’s inventory in response to customer requests. He shifted to focus exclusively on toys in 1957, renaming the store Toys “R” Us — including the soon-to-be-iconic backward “R,” meant to look as if a child wrote it.
Lazarus’s timing was ideal, as demand for toys skyrocketed with the baby boom. New brands like Barbie and Mr. Potato Head—made possible by the explosion of plastic production in the 1940s—exploited this vast new market by embracing the newfound medium of television advertising, including crossovers with popular new shows like the Mickey Mouse Club that gave narratives to the characters that the toys portrayed.
Consumer culture thus shifted as brands advertised directly to children, who requested the toys they had seen on TV. Their parents — who had money to spend thanks to the booming post-war economy, and who wanted to give their kids the childhood they themselves had lacked during the Great Depression — obliged.
But it was Lazarus’s way of selling toys that let him capitalize on this confluence of forces. In a nutshell, he helped pioneer the big box movement, filling giant warehouse-style stores with low-priced inventory acquired at deep discounts. Lazarus saw that a new generation of children and their parents would embrace the chance to browse endless aisles packed with thousands of toys, all in one place.
By the 1960s, Lazarus had created what journalist Robert Spector called a “category killer”— a retailer that focuses on a particular class of merchandise and becomes utterly dominant therein, driving out the competition. Indeed, Toys “R” Us was such a force that it changed the cycle of toy-buying in the U.S., turning it into a year-round habit rather than just a seasonal activity that happened in the lead-up to the holiday season.
Of course, Lazarus was not the only retailer to dream up the big box category killer, but he was one of the first. Other big box chains would eventually recognize his insight —including Sam Walton, who appointed Lazarus to the Walmart board of directors in the 1980s.
So what changed?
The decline of Toys “R” Us began not with the dominance of online retail in the 2010s, but rather with the company’s response to the dot-com era. In fact, the chain initially embraced the internet. Its website was so inundated with online orders during the 1999 holiday season, for example, that it fell behind on shipping and was fined by the FTC. But this led to a fateful decision: Rather than improve its own e-commerce and shipping capabilities, Toys “R” Us in 2000 signed a 10-year agreement with Amazon, then an e-commerce upstart. In exchange for becoming Amazon’s exclusive provider of toys and baby products, Toys “R” Us selected its most popular toys to be sold on Amazon, surrendering its online autonomy in the process — its website redirected to Amazon.
The deal hit a sour note just three years later when Toys “R” Us sued Amazon after the online retailer added competitors’ toy products. The two companies battled it out in court, with Toys “R” Us coming out ahead and earning the right to terminate the contract early. It reopened an independent website in 2006.
By then, however, the damage was done. Toys “R” Us had fallen so far behind in the digital realm that it could not catch up. Its problems snowballed in the mid-2000s, when its debt was downgraded to junk status and it had to be rescued by private equity (which failed to save the chain last September after the bankruptcy). Even the condition of its stores was allowed to deteriorate.
Would Toys “R” us still be with us, then, if it had turned down the partnership with Amazon in 2000 and cultivated its own e-commerce platform and brand, as other still-thriving big box chains did?
A counterfactual is impossible to prove. Still, it is tempting to wonder what would have happened had Toys “R” Us, looking at its history, recognized that its essential identity lay not in selecting the most popular toys but in providing the most convenient and widest selection of toys to its customers. With that insight born of self-awareness, it might have recognized e-commerce not as something worth trading away but as the logical next step in its evolution.
Toys “R” Us, in other words, was not a victim of Amazon and the rise of e-commerce. There was nothing inevitable about its demise. Rather, its decline was the result of particular choices at particular moments. Perhaps, if the company had drawn on a fuller understanding of its own identity, Toys “R” Us would itself be at the forefront of online retail — just as it was a leader of the big box movement decades ago.
Arielle Gorin, a Saybrook consultant, specializes in the history of the US and Canada. She is currently researching a history of the Ford Foundation.