Toys R Us

Toys "R" Us Japan (A) and (B)

By

Mark J. Kay

Assistant Professor

of:

Montclair State University

LOGISTICS CASE STUDY

DEVELOPED FOR:

COUNCIL OF LOGISTICS MANAGEMENT

Toys "R" Us Japan (A) and (B)*

Abstract

The cases describe the growth of Toys "R" Us (TRU) as the leading U.S. toy retailer to its

international expansion and entry into Japan. Access to the Japanese market was made possible

by adjustments to the Daitenho or "Big Store Law," described in Toys "R" Us Japan (A). Toys

"R" Us Japan next had to develop the distribution and logistic linkages to suppliers in support of

the low price, wide selection, and in-stock retail strategy. This is examined in Toys "R" Us Japan

(B). TRU expanded rapidly to 27 stores, but as the case ends, management needs to quickly

respond to the crisis of losing its distribution center in Kobe.

Toys "R" Us Japan (A)

Tuesday, January 6, 1992, Toys "R" Us (TRU) Grand Opening in Kashihara, Naraken,

Japan. Arriving by helicopter, U.S. President George Bush appeared at the opening

ceremonies for the second TRU store in Japan. Attending were Minister Kozo Watanabe of

Japan's Ministry of International Trade and Industry (MITI), U.S. Commerce Secretary Robert

Mosbacher, U.S. Ambassador to Japan Michael Armacost, Japanese Ambassador to the United

States Ryohei Murata, Toys "R" Us Chairman Charles Lazarus, and the local governor and

mayor. About 2,000 Nara-ken policemen and students from local police academies were

mobilized in a massive security measure. About 5,000 people came to witness the event, many

of them waved small Japanese and American flags1 .

President Bush thanked the gathered officials and praised the progress of the Structural

Impediments Initiative (SII) to remove economic barriers to trade, create more jobs in America,

and bring the Japanese consumer world-class goods. He continued,

"And what makes me so happy here today is that we see here the beginning of a

dynamic, new economic relationship. One of greater balance. There is much that

we can do for the world based on a forward-looking global partnership between two

great nations, two powerful economies and two resourceful innovative peoples. And

together we will go far..."2

Few Americans would attach a great deal of significance to the public appearance of

politicians at ceremonies such as these. Surprising to TRU, however, the showcase appearance of

the U.S. President at Nara had an immediate impact upon Japanese toy industry vendors in the

weeks following the event. Negotiations suddenly improved between TRU Japan and its

Japanese suppliers. Japanese vendors apparently began to take seriously the previous

announcement that TRU Japan intended to open 100 stores in the next ten years and become the

major toy retailer in Japan.

Toys "R" Us Japan (A)

3

Company Background

The first TRU store was opened in Washington, D.C. in 1957 by Charles Lazarus. Three

stores opened over the next 10 years and Lazarus sold his ownership stake for $7.5 million to

Interstate Stores in 1966. When problems with other Interstate divisions drove the corporation

into bankruptcy proceedings, Lazarus regained control in 1978 through a management-led

buyout.

The TRU strategy is based upon price, selection, and keeping stores in-stock. As Lazarus

explained, "When a customer walks through our doors with a shopping list, we better have 95

percent of what's on her list or we're in trouble."3 The EDLP (every day low prices) strategy and

in-stock image stimulates purchasing year-round instead of primarily during the Christmas

season. Baby diapers and formula are sold at or below cost, in hopes of winning over new

parents and keeping them as customers as their children mature. This strategy has won TRU a

steadily increasing share of the retail toy market, rising to about 22 percent in 1995.

TRU shifted its goals for expansion dramatically in 1983. The firm entered the children's

clothing market with Kids "R" Us and established the International Division. Joseph Baczko was

recruited from his job as chief executive of the European operations of Max Factor to lead

international expansion.

Baczko perceived that there were increasing global opportunities in the toy business. In

an article in 1986 for the industry trade magazine, Playthings, he noted that customers overseas

had higher disposable income, were more educated, and had more free time. Moreover, these

buyers were