{Toy Story 2009: Where will America buy toys this holiday season?}

Let us take a stroll back in time to see how America has bought toys during the holidays in years past.

In the 1990s, Toy R Us was the category leader. The holiday toy sales started the weekend of Thanksgiving, with Toys R Us newspaper insert, in which America learned about the coolest toys of the year. Also in the newspaper insert was coupons for the hottest priced toys of the season. America used to wait in anticipation for the insert and then rush to Toys R Us. Toys for holidays was synonymous with Toys R Us. They were the information leader, the price leader and the “place to go” for toys.

In 1998 the toy industry had its first major shakeup. Internet was becoming more mainstream and America did not need Toys R Us to know what were the coolest toys of the year. Americans also did not need to wait till Thanksgiving to learn about the coolest toys of the year. And WalMart did the unthinkable.

WalMart realized that if toys can become a commodity, then the price leader will be the category leader. WalMart also realized the 80-20 rule, where 80% of the sales comes from 20% of the toys. In 1998, WalMart decided to extend its toy selection to carry top selling toys and discounted them right after Halloween, nearly four weeks before Toys R Us started their thanksgiving promotion. And when Thanksgiving 1998 came, a sizable part of the population had already purchased their toys. Toys R Us was ambushed.

At the same time, in order to grow the category, Toys R Us had launched Kids R Us and Babies R Us. Kids R Us eventually went out of business. Babies R Us still exists. But instead of trying to create three brands, Toys R Us should have focused on answering the question “Why Toys R Us?”

- Do you get toys that are exclusive to Toys R Us?

- Do you get toys released at Toys R Us before they are available anywhere else?

- Is the toy buying experience totally out of the world that kid must go there and no where else?

If it is none of the above, then a toy is a toy and buyers had no hesitation to go to the closest and cheapest retailer of toys. And WalMart had everything to gain as buyers went this direction. Another gainer from this has been the online retailers. For toy occasions that do not need an instant gratification, they started to become the best option.

In 2008, the toy war has gone to the next level. WalMart Announced in October its 100 Toys For Just $10 sales. Based on WalMart’s internal research, “70 percent of consumers report planning to start their holiday toy shopping before Halloween, and 2 out of 10 will have finished by that time,” (WalMartStores.com)  Toys R Us responded by “setting up 350 temporary stores and toy boutiques that will stay open during the holiday season, in many cases taking over shuttered retail space in shopping malls” (Wall Street Journal).  But what does this strategy mean? Is Toys R Us conceding the price war to the buying power of WalMart? Is Toys R Us trying to outplay WalMart by being the most conveniently located toy retailer? Even Toys R Us succeeds in becoming the most conveniently located toy retailer, they have to watch their marginal returns, taking into account the costs for the new 350 temporary locations. They also have to worry about branding. Will these new temporary locations be branded the same way as their regular stores or look like nameless pre-halloween retailers who pop up every year. If Toys R Us takes their eye of the branding, five to ten years from now, we will be telling our next generation about the magical toys store, with a cute giraffe as their icon, a magic land that simply became extinct.