Toy’s “R” Us Goes To Japan

S. Hart ShowalterAnthony Spencer

Amy Gomez

Section I: Relevant Facts

Toys “R” Us first told the public about their decision to enter the Japanese toy

market in 1989. A lot of critics worried that Toys “R” Us would not be successful in this

new and foreign market. They raised several issues that they believed proved the

Japanese market was not ready for the marketing and retailing strategy that Toys “R” Us

offered. They stated that the Japanese culture and beliefs were too different from that of

the United States and Europe for Toys “R” Us to be successful. Toys “R” Us

incorporates a “category killer” strategy (Johansson 181). In this marketing strategy they

use mass advertising in order to make brand recognition, which in turn helps consumers

remember and want to shop at their store. They also discount some of the popular items

at certain times which give the consumer the impression that everything at their store is

inexpensive or discounted. Some critics said that this strategy would clash with the

Japanese consumers, since Toys “R” Us competes on price and the Japanese culture links

quality with price. Another concern was that Toys “R” Us Japan would not be able to get

ample permission and space to build their large toy stores. Toys “R” Us has a policy that

none of their stores can be less than 3,000 square feet. This is a problem when entering

the Japanese market because they have laws against big stores and land is so expensive.

Also some Japanese toy manufacturers said that they would not sell directly to Toys “R”

Us, but instead would only deal through middle men.

Even with the critics telling them everything that could be standing in their way,

Toys “R” Us saw a great amount of opportunity in the Japanese market. Japan is one of

the top three wealthiest markets in the world for leisure products, United States and

Europe being the other two (Johansson 183). Seeing as Toys “R” Us had already

successfully dominated the market in the United States and penetrated the European

market they saw that it could be beneficial for them to expand to Japan.

In 1991 Japanese people spent $25 billion dollars on leisure products. Their toy

market was dominated by small specialty toy stores and small general retailers. Only 500

larger general retailers made a significant portion of their income from toy sales. On the

other hand, U.S. stores like Wal-Mart and K-mart had a significant percentage of sales.

By seeing this they realized that Japanese consumers shop mainly at specialty stores for

their toy purchases, not at general retailers. This was a huge upside to the Japanese

market.

In order to penetrate the Japanese market Toys “R” Us signed an alliance contract

with McDonald’s Japan. Being that they knew little of this foreign market, the signing of

this contract was an enormous aid. In the contract it stated that McDonald’s Japan would

own 20% of Toys “R” Us Japan, while Toys “R” Us would control the other 80%

(Johansson 183). Another section of the contract stated that McDonald’s Japan could

place a restaurant anywhere a Toys “R” Us Japan was located. Toys “R” Us Japan hired

almost solely Japanese employees. There were also no foreign employees at their

headquarters. The combination of these two companies’ skills would prove to be heavy

competition for local businesses. Toys “R” Us knows how to successfully enter foreign

markets and they also have a remarkable marketing strategy. With the combination of

McDonald’s Japan’s know-how of the Japanese market Toy “R” Us Japan was set in

motion.

When McDonald’s expanded to Japan they changed their restaurant to suit

Japanese rules but kept their innovative nature (Johansson 183). Toys “R” Us learned

from McDonald’s and realized that they would have to change their company to suit this

new market without changing their style of store. Toys “R” Us kept their slogan,

“Everyday Low Prices.” This turned out to be a very beneficial decision. When their

first store opened in 1991 there had been a recession in the Japanese economy. The

Japanese consumer was looking for low prices but also wanted good quality in their

products. Therefore they found this slogan to be very appealing. They also made some

changes to their policies. As stated earlier, one of their policies doesn’t allow any stores

to be less than 3,000 square feet. When entering the Japanese market they had to change

this rule, since some of the stores in Japan are less than 2,800 square feet.

Their transition was also assisted by the Japanese government. They waived laws

which prohibited larger retailers from coming into the area. With this help the first store

that Toys “R” Us opened in Japan was 3,000 square feet. It was opened outside of

Niigata in Ibaraki Prefecture in December 1991. By 1993 the company had opened 15

more stores in Japan (Johansson 184).

Section II: Additional Facts

Toys “R” Us was founded in 1948 by 25 year old Charles Lazarus. It started as a

baby furniture store in Washington D.C. and was opened at just the right time. World

War II had just ended and Lazarus’ store hit the market just in time for the baby boom.

This impeccable timing set Toy’s “R” Us up for more success than Lazarus could have

ever expected (toysrus.au). The store started out with just baby furniture but soon the

customers were asking for toys and as the children grew, so did the range of products

offered at the store. The products grew from “infant, to preschool, to kids and then

teenagers” (toysrus.au). By responding to the needs and wants of his customers Lazarus

had turned his store into a “full-scale toy store extravaganza.”

By 1957, Lazarus had revolutionized the toy retail market by opening the first toy

supermarket with a HUGE range of kid-focused products (toysrus.au). Today, Toy’s “R”

Us is an $11 billion business with approximately 1,500 stores worldwide (toysrus.com).

Doing business in other countries is very different than doing business in

America, and Japan is probably about as different as it gets from American business

culture. Japan is a country on a relatively small island with over 127 million people

whose ancestors have been living there for centuries. Japan’s culture embodies peace and

harmony, and is very collectivistic relying heavily on the tradition of its people for

centuries. “Japan has formed a distinct model of hierarchy, honor, and etiquette that is

still reflected in many social and business practices today” (communicaid.com). Japan’s

culture relies on three basic values and principles: the concept of “wa,” or harmony; the

concept of “kao,” or saving “face” which stems from pride; and the concept of

“Omoiyari,” which relates to a sense of empathy and loyalty (communicaid.com). These

values and principles shape the way that almost all business is conducted and to

successfully do business in Japan you will need a thorough understanding of these

principles and how they shape business relationships (communicaid.com).

Toys’ “R” Us falls in the industry of retailing, specifically, toy retailing.

According to a retail industry profile on About.com, retail is the second largest industry

in the U.S. in terms of establishments and number of employees and one of the largest

industries worldwide. In the U.S. the retail industry generates $3.8 trillion in sales, which

is approximately $12,000 per capita (about.com - retail). The Toy sector of retailing

generates about $22 billion of that (about.com – toys). Though Wal-Mart is the worlds

largest retailer with over $312 billion in sales annually, Toy’s “R” Us is one of the largest

toy retailers with $11 billion in sales annually. Single-store business accounts for 95% of

all retail business in the U.S., it only accounts for around 50% of the retail sales, which

shows how powerful the chain retailers such as Toy’s “R” Us truly are. The gross margin

for retailers typically is between 31% and 35% but varies in terms of specific types of

retailers (about.com - retail). One thing that is really helping the toy industry is the

internet, with toy stores representing 20% of all online transactions and generating over

$1.3 billion in sales in 2005 (about.com – toys).

As stated above, in the beginning Toy’s “R” Us started with just baby furniture,

and as their customer’s children grew so did the range of products offered at the store.

Toy’s “R” Us now offers products in many different categories. They offer baby

products, such as music, games, and yes, still furniture. They also offer action figures,

dolls, and stuffed animals as well as preschool toys such as learning toys and toys that

spark the children’s creative side. Toys that help children learn have become very

popular with kids and parents alike which has sparked Toy’s “R” Us to carry toys for

early development, electronic learning toys, toys to help kids learn to read and write, as

well as puzzles and science play sets. They typically have a large arts and crafts section

in their stores as well with craft kits, and drawing and sculpting items. They’ve also

started carrying large items such as bikes, scooters, skateboards, sports items, pools, and

water games for some elementary school aged children. More recently Toy’s “R” Us has

expanded to be a leader in video game sales offering all the leading systems, the games

for those systems and any other accessory that may be needed (amazon.com). Toy’s “R”

Us has also expanded outside of their own store, and created other avenues for them to

get their specialty products to the public. They have opened up stores overseas creating

Toy’s “R” Us International where they aim to please parents and children all around the

world. They have also opened up chains of Kid’s “R” Us which specializes' in children’s

clothing, from newborns to 16, with their own brand clothing as well as recognized name

brand clothing. Another avenue they have taken is to open many chains of Babies “R”

Us where their mission is to offer high quality baby products and a knowledgeable,

friendly staff that will make your baby shopping experience as pleasant as possible.

Lastly, in recent years they have teamed with Amazon.com to create ToysRUs.com to

meet the needs of busy shoppers, or people that prefer that mode of shopping for their

children. Even ToysRUs.com has expanded to include BabieRUs.com for baby’s needs

and Imaginarium.com to offer the finest learning toys available at an easy way

(toysrus.com).

Section III: Suggested Actions

The long-term strategy for Toy’s “R” Us was to expand in international markets

(Johansson 183). Now just by reading the title of our case study “Toy’s “R” Us goes to

Japan” you can grasp the amount of energy that it took to get the company there. And

believe us, it wasn’t an easy task. Toy’s “R” Us had huge successes with the North

American and European markets. And since Japan is also on the list, for the top three

wealthiest markets in the world for leisure products, than why not expand and conquer

the market?

Entering a foreign market has its set backs, and all actions have to be taken with

precautions. Toy’s “R” Us, had to put on the foreign entry-“export manager hat.” They

had to learn how to evaluate other countries markets qualitatively and quantitatively. For

example, by teaming up with McDonalds Japan they were able to use their research to

help them evaluate the new environment. And by understanding the foreign customers

needs and preferences in terms of products and services they knew how to layout the

store. But after doing some research and seeing how Japans market keeps going in and

out of recessions they may need to change how retail is done in Japan. In April 2001 the

company introduced a system of “sales associates” in 13 Japanese outlets (Johansson

253). Sales associates were something Japan had never invested in; they thought it was

an inefficient service. But in order to grow through new customers and continue high

revenues the company must change how service is being done. They would soon see the

changes in increased profits. And this prediction by our group was seen in April 2001

with the hiring of sales associates who would simply help the selling process.

Another suggested action that we saw was the way Toy’s “R” Us Japan handled

advertising. Advertising in the US is a huge deal. Millions of dollars a year are spent

specifically on “getting the word out,” and we thought that Japan would soon come to

realize the importance of advertising and its relationship to sales. It was stated in our

case that “the primary advertising media strategy was the use of colorful inserts in

newspapers” (Johansson 184), which were then hand delivered to homes with mothers

and children. Being that this is their target market it would makes sense to ensure that

these particular groups of people see these ads. Japan decided not to broadcast any

advertising on Television or on the radio since they feel that it was too scattershot and too

expensive. But as marketing students we know the value of advertising and we feel that

if they continue this simple route in advertising than the company will see decreases in

sales and profits. We feel that Toy’s “R” Us Japan needs to invest more money into

advertising, by taking advantages of the viewers who watch or listen to the T.V/radio.

We suggest that it would only benefit sales and profits if they would invest more money

into advertising using other sources besides hand delivered mail inserts.

Another suggestion that we foresee as an upcoming problem is Japans views on

quality and price. As noted above, Japan’s culture relies on three basic values and

principles: the concept of “wa,” or harmony; “kao,” or saving “face” which stems from

pride; and “Omoiyari,” which relates to a sense of empathy and loyalty

(communicaid.com). All these values and principles are directly related to why Japan

favors quality over most possessions in life. It is important for the U.S. to see this, and to

take it into consideration whenever doing business in Japan. But what we are also aware

of is competition and we worry that Japan may need to balance the two concepts of

quality and price. The future holds competition and Toy’s “R” Us needs to keep in mind

that their target market (the youth) may not be able to afford their products if other stores

carry the exact same item at a lower cost. And if they stem too far away from their

original concept of quality over price and start only carrying cheaper items in order to

compete, then consumers will assume there store has nothing to offer them since it is all

cheap items. So this juggling act is something they need to accomplish before it’s too

late.

We also waned to spot out that they imported more that half of its supply from the

U.S (Johansson 184). Finding potential suppliers within Japan was something they didn’t

think too much about and it became an issue. By importing large quantities of goods they

would profit from the cheap dollar (Johansson 184) but they need to keep in mind that

cheap land, cheap money, and cheap imports has to end at one point in time (Johansson

184). By finding local manufacturers/distributors then they will help the localization

process and continue to stay own the retail market for leisure goods.

As long as Toy’s “R” Us looks at the challenges they may be faced with for the

future and they have a plan then we feel they will stay on top. Things Toy’s “R” Us

needs to continue to be on the look out for are: competition, increasing cost, possible

positioning problems, and the steady deterioration of the Japanese economy and

consumer spending (Johansson 185). By being prepared and having a plan of action for

all these setbacks they will be able to dominate the retail market in Japan.

We feel that Toy’s “R” Us Japan had also made great decisions when entering the

Japanese market. High barriers is something Toy’s “R” Us saw right away as a hurtle

they had to get over. And to help them enter the country they decided on a joint-venture

with McDonalds Japan with their 20%/80% relationship. In doing this joint-venture they

were able to use McDonald’s successful international marketing research. This research

is so important in order to enter foreign countries. The joint-venture gave them a great

advantage and a strong foot in the door.

Another positive aspect that Toy’s “R” Us Japan had on their side was the timing

of their first opening. And as Dr. Tong always says “In order to be successful you have

to come up with the right product, at the right place and the right time.” From these exact

famous words you can see how entering Japan at the right time was perfect for Toy’s “R”

Us. Their slogan of “Everyday low prices” was not seen as a cheap store to get cheap

things, but seen as a blessing during their recessions.

Overall, we feel that this case study helped us relate what we have learned in

international marketing. It is such a benefit for us students to apply things to real life

situations, and to see how marketing globally can benefit a company if it is done right.

The key here is to remember that we are all human and we all make mistakes but it is our

mistakes that we can learn from and to make our business a successful one.

Section IV: Lessons To Be Learned

Many lessons can be learned from the case of Toy’s “R” Us going to Japan. First,

this case shows us how high barriers to entry can be overcome. For this, Toy’s “R” Us

had a huge advantage, they signed on with McDonalds Japan to make this a joint venture

with Toy’s “R” Us owning 80% and McDonalds owning the remaining 20%. This was

quite an advantage because McDonalds had been so ingrained in the Japanese market that

they were seen to many as being a Japanese company (Johansson, 183). “Toy’s “R” Us

was able to utilize McDonalds in-depth market knowledge and research skills as well as

the communication lines to the target groups of children and young families” (Johansson,

183).

Another lesson learned from this case is how the government can be helpful in

starting your business in a foreign country. In this case there was a law in Japan that

restricted the “big store” from opening. The Japanese government, in an effort to create

good PR, waived the law and allowed Toy’s “R” Us to open a 3,000 square meter

building offering 18,000 items. This was a big advantage for Toy’s “R” Us being that

there were no other stores of that size. “By creating an overwhelming advantage, it was

intended to stop competitors from opening opposing stores before they started”

(Johansson, 184).

One more lesson learned from this case study is that you must tailor your

advertising to what is more accustomed in the new environment. You would think that a

major company such as Toy’s “R” Us would advertise on television and radio to most

effectively reach their target market; however, in Japan, radio and television are far more

expensive and scattershot. What they found to be most effective in Japan was colorful

inserts in newspapers that could be home delivered to ensure that children and mothers,

which is their target market, would be reached. Overall, this case examines differences

between U.S. and Japanese retailing systems, and what these differences imply for U.S.

firms hoping to enter the lucrative Japanese market (caseplace.com).

Section V: References

About.com. (April, 2006). Toy Retail Sales. Retrieved April 9th, 2006, fromhttp://retailindustry.about.com/od/seg_toys/a/toy_sales.htm.

About.com. (April, 2006). Retail Industry Profile. Retrieved April 9th, 2006, from http://retailindustry.about.com/od/abouttheretailindustry/p/retail_industry.htm.

Amazon.com. (April, 2006). Toy’s ”R” Us Categories. Retrieved April 9th, 2006,from http://www.amazon.com/exec/obidos/tg/browse/-/491290/ref=amb_center-5_118151101_1/102-3120516-0137765.

CasePlace.com. (April, 2006). Toy’s “R” Us Japan. Retrieved April 10th, 2006, fromhttp://www.caseplace.org/cases/cases_show.htm?doc_id=96427.

Communicaid.com. (April, 2006). Japanese Business Culture. Retrieved April 9th,2006, from http://www.communicaid.com/japan-business-culture.asp.

Johansson, Johnny K. Global Marketing. 4th ed. Boston: McGraw Hill, 2006. 181-185

Toy’s “R” Us Australia. (April, 2006). About Us. Retrieved April 9th, 2006, fromhttp://www.toysrus.com.au/site/default.htm.

Toy’s “R” Us Corporate. (April, 2006). About Toy’s-R-Us Inc.. Retrieved April 9th, 2006, from http://www.toysrus.com.au/site/default.htm.

Toy’s “R” Us Mexico. (April, 2006). Home Page Logo. Retrieved April 10th, 2006,from http://www.toysrus.es/home.htm.