Denationalization of Toys R Us Company
Toys R Us for 27 years had been a public company until 2005 when a buyout was announced. Over the years, it was rated the largest and the best toy seller in the US. The performance however had been deteriorating and it has been losing to a major competitor such as Wal-Mart Stores Inc. (Clifford & Lattman, 2012). It is now privately owned by Kohlberg Kravis Roberts & Co. and Bain Capital LLC and Vornado Realty Trust; they acquired it at $6.6 billion (Clifford & Lattman, 2012).
Before it was denationalized, it had lost 182 Kids R Us stores and several Imaginarium stores and besides that, about 3,800 employees lost their jobs. With the denationalisation, the performance of the company has improved with over 1,300 toy stores and over 220 Babies R Us stores created (Clifford & Lattman, 2012). The company was announced unfit for public company status on realization that it could only make profit in the fourth quarter. On privatization, a 2 cents rise in shares was recorded in the afternoon of the first day in the NY Stock Exchange (Clifford & Lattman, 2012).
The reported improvement in the profits of the company is attributed to a low expense structure as one of the driving force. The low expense structure includes a self-service atmosphere which is high-tech but efficient and affordable. These marketing strategies have worked in winning customers over competitors including Wal-Mart, Child World and K-Mart (About.com, April, 2006). Toys R Us competitive advantage is having latest toys in store and an everyday low pricing (EDLP) system. EDLP is enabled by their procurement process which involves purchasing directly from manufacturers and buying in bulk thus saving on unit cost (About.com, 2006). The two factors are core in the productivity loop of the company which results in more customers and increased sales. The determination of the company to rise and be prosperous again is also seen in the management of their returns from sales; they do not share all profits, instead they invest back into the company.
The company has utilized technology immensely, especially in reaching customers; namely, it has been made possible for customers to place orders online and delivery is later done at no extra cost to their retail stores. Still with the use of technology, e-commerce has led to addition of distribution centres and this has caused the widespread of Toy R Us products globally (About.com, 2006). This e-commerce initiative has helped the company to go through tough economic environment. Automated state-of-the-art distribution systems and in-store technology are also utilized by the company with an aim of providing shoppers with a variety of shopping options (About.com, 2006). This innovation in technology is an outstanding move since it is one step towards appreciating privatization; a move which is rare in federal assets.
According to Board of Directors during a press statement on the stepping down of Gerald Storch as the CEO, over the past seven years the company has achieved an exemplary performance in its history (Bhasin, 2013). It was also reported that during Storch’s term, the company has been able to make several strategic acquisitions with the major ones being the China and Southeast Asia acquisitions (Bhasin, 2013); more stores have been integrated all over the world.
Currently, there are over 800 stores in the USA and more than 600 stores in other parts of the world and this has played a significant role in repositioning the company. During the presentation of the first quarter 2012 report, the CEO Jerry Storch stated that the company was increasing profitability and that there was a 1.1% improvement in the gross margin as a percentage of net sales (Business Wire, 2012). The results were attributed to investment on e-commerce and an emphasis that has been put on omnichannel (Business Wire, 2012).
As it usually happens in case of denationalization, denationalization of Toys R Us products have fostered competition both in the international and the local markets; this has in due course been the reason behind lower prices and improved quality of toys in the global market; a situation that is leaving consumers with greater choices. Toys R Us is in retailing industry and as it is well known, retailing industries have many establishments which mean more employment opportunities (About.com, 2006). The establishment of Toys R Us stores in the USA and branches oversees such as in Europe and Japan (About.com, 2006) has increased employment opportunities in those countries.
Denationalisation of Toys R Us Company has affected both local and international economic environment; to begin with, at local level the change of status from a public to a private company has meant that the company has had to restructure in order to fit in the market. Being a well known company for its past performance, competitors have had to prepare to face competition from the company. While at international level it has created a new market where it competes with new competitors.
The denationalization of the company has spurred economic growth in spite of the setbacks it is experiencing in recovering its status. The creation of new markets has especially played a significant role in the global economy as more entrepreneurs has welcomed the opportunities brought by the company. Additionally, privatization of the company has had major impact on the supply chain not only in the USA economy but also globally; this is because the aspect of monopoly by federal government has been exempted and competition with similar companies has become healthy (About.com, 2006). Innovations have also been easier to make when the company has received the private; this has improved efficiency in the company operations and has also given way to improvement of products to fulfil customers’ satisfaction.
In conclusion, denationalization is the best choice for companies which continually perform poorly in the hands of government but they are predicted to do better if left to private owners who have confidence in restoring them. Nonetheless, denationalization of an almost collapsing company gives the new owners a hard time while rebuilding it, as it has been witnessed with Toys R Us Company. However, determination and confidence is what takes the private owners to the next higher level just like in the case with Toys R Us.