It's a typical weekend morning at the local Toys "R" Us. Legions of seasoned extortionists, masquerading as adorable children, are dragging their parents through the cavernous store, registering their demands: Nintendo games, Ninja Turtles, Monopoly sets, Barbie dolls, Barbie everything. Under threat of tears and tantrums, the beleaguered parents cave in--and cash registers begin to jingle. General manager Thomas Shek finds the scenario pleasantly familiar. " Every Sunday is just like Christmas," he says.
A uniquely American experience? Well, not exactly. The scene is Toys "R" Us, Hong Kong, one of the newest landmarks on Toys "R" Us's ever-expanding world map. Over the past few years, the New Jersey company has ventured where no other American retailer of its size has dared to go, replicating its winning formula from Singapore to Leipzig. This January, amid pomp, ceremony and a visit from President Bush, it opened its second Japanese store; by 1997, analysts say, it will have 406 international units producing sales of $4.2 billion annually (chart). While company chairman Charles Lazarus is still dodging roadblocks along the path to globalization, he believes his high-volume, low-price approach is an easily exportable commodity. After all, he says, " Kids are the same all over the world. They all know what Nintendo is; they all know what Ninja Turtles are."
Toys "R" Us has been keeping tabs on kids-and their toys-for the last 35 years. Founded by Lazarus in 1957, the company became one of the first of the so-called "category killers," snatching away an entire segment of retailing from department stores and other chains. The company has since grown into the nation's largest toy chain, racking up sales of more than $6 billion in fiscal year 1992 and capturing more than 20 percent of the domestic toy market. As the company moves abroad, Lazarus doesn't let language barriers stand in the way of divining his young customers' preferences. "You just watch kids tugging at their parents' coats and you know what they're saying: 'If I don't have this toy, I will die'."
To cultivate such loyalty, Toys "R" Us is globalizing its time-tested strategy: creating huge, warehouse--like stores, packed floor to ceiling with everything from paper party hats to infant formula. In all the locations, the company's trademark cradle-to-grave marketing strategy prevails; by offering consumers cut-rate diapers and formula, it hopes to win over young parents as customers for life. The potential for that is great: many of the countries it is entering offer the same kind of blockbuster upside the United States did 10 years ago. Dominated by small specialty stores, they are absent of K marts and toy superstores that could push down prices with high-volume business. Japan holds an even more attractive lure: millions of consumers used to paying high prices for playthings.
Not every country has greeted the Toys "R" Us invasion with unbridled enthusiasm. The Germans seem to fear Toys "R" Us much like Americans fear Japanese automakers. When the company opened its first German store in 1987, it encountered open hostility from local toymakers, who feared Toys "R" Us would cut everyone's profits by underpricing other stores. Other German merchants launched a campaign warning about Toys "R" Us's "dangerous" self-service concept. News releases cautioned parents about buying a jungle gym or other potentially hazardous items, because "toy experts" weren't on hand to advise customers about possible injury. Recalls Toys "R" Us International president Larry Bouts: "We weren't given very good odds we'd make it."
Even tougher barriers to entry stood in Japan. Toys "R" Us officials spent three years negotiating the maze of Japanese bureacracy. The largest obstacle was the infamous large-store law, designed to protect the country's shopkeepers from big retailers. To protest the regulations, which saddled companies with a cumbersome review process, Toys "R" Us joined forces with McDonald's Co. (Japan). Together they appealed to both the Ministry of International Trade & Industry--the Japanese gatekeeper for foreign business-- and U.S. Trade Representative Carla Hills.
The efforts finally paid off in April of 1990. MITI agreed to limit the approval process for large-store applications to under 18 months. After four meetings with an 18-member Commercial Activities Council, Toys "R" Us finally got the go-ahead. The final condition: that they close their doors for 30 days a year, like many other Japanese stores.
Having broken through trade barriers, Toys " R" Us has set to work at conquering cultural barriers. In most locations, officials must still walk a tightrope between preserving their American-style structure and deferring to local custom. One of the first hurdles was the company logo. With its backward " R" in the middle, the curious moniker can be confounding to the nonEnglish-speaking world. To compromise, overseas stores continue to display the well-known American logo but add the local version of the name as well. Thus, Hong Kong shoppers visit Big Toy City, and Germans go to Spielwaren das sind wir. In France the name is Les Jouets C'est Nous, but customers Frenchify the English roughly as "toiyz air uze."
Foreign stores are also playing to local tastes. Managers now stock favorites like porcelain dolls in Japan and wooden toys in Germany. Hong Kong Toys "R" Us stores sell a version of Monopoly that replaces Boardwalk and Park Place with the swank Hong Kong suburbs of Sheko and Repulse Bay. And in France, young railroad enthusiasts can buy scale models of that French technological success story, the TGV high-speed train.
Sometimes the company even breaks its own rules in order to fit in. Toys "R" Us managers in Singapore decided to waive the requirement that all employees undergo drug testing, when they learned that drug possession in the country is punishable by death. And London store managers had to rethink the typically American practice of having cashiers stand, when they discovered it went against common European practice. "In every country we enter," says Toys "R" Us vice chairman Robert Nakasone, who has masterminded the company's expansion, "we try to think globally and act locally."
Can the Toys "R" Us global campaign continue? Some analysts cite Japan's bureaucracy and high real-estate costs as downside risks in that country. Such factors make Japan a "pimple in the scheme of things," says Dillon Read's Cathleen Mackey. But most experts are prone to unrestrained effusiveness when speaking of the company's potential. After the initial start-up costs, they expect many overseas stores to be 50 percent more successful than those in the United States. Indeed, market share in the United Kingdom and Germany has already leaped from less than 3 percent in the mid-1980s to the double digits today, says Prudential Securities' Deborah Bronston. But Toys "R" Us may soon be looking over its shoulder. Some analysts speculate that K mart is poised for an overseas expansion of its own. In which case, the price wars that have rocked America's toy industry could one day go international.
Revenue from Toys "R" Us international stores should more than triple by 1997.
Projected Sales (in millions) 1992 $1,347 1997 $4,246
SOURCE: PRUDENTIAL SECURITIES