People with children between the ages of 3 and 20 are going to feel bad for me in just a second. I went to Toys "R" Us
I wouldn't have been more surprised if you'd told me that Californians brushed their teeth with bacon.
I agreed to tag along with my wife to Toys "R" Us in order to do a little ground reconnaissance -- to see whether the store was busy, whether the cash registers were ringing, and whether the closing of the local Zany Brainy and FAO Schwarz was having any positive effect. After my last trip -- some three years ago -- to the same store, such ulterior motives would be about all that could get me to go back.
It's no secret that Toys "R" Us struggled mightily against competition from Wal-Mart
But one thing made me take another look -- I was lamenting the loss of the flagship FAO Schwarz store in New York, and a friend of mine who lives there responded that the new Toys "R" Us flagship would MORE than compensate for the loss. Given my own experiences, I found this quite impressive. I thought it was time to take another look.
And the experience was night-and-day different. Toys "R" Us brought in new management, and they've finally focused not on competing on price with the mass retailers, but on staying in the price ballpark with them and offering something they cannot -- a toy-store experience. We all loved toy stores as children, why would the largest toy retailer in the world turn going to one into such misery?
The answer is equal parts brutal competition and incompetence. By the time I abandoned our local Toys "R" Us, the store and the entire company had a funereal feeling -- it was all over but the dirges.
The company's financials have shown some marked improvement, with Toys "R" Us posting positive free cash flow in 2003 to the tune of $180 million. This was achieved in spite of massive physical plant upgrade expenditures, which should ramp down in the next year. Toys "R" Us still faces phenomenal competitive pressures and is certainly not out of the woods.
But it takes time for once-burned shoppers to notice that a store is doing things differently. Should more people notice, the result could be quite positive for investors who stuck it out when things looked grim.
Bill Mann holds shares of Costco.