Disney and DeSantis: Who wins?
With Disney canceling its plans to spend $1 billion on a new Florida campus, this is Disney’s first salvo lobbed directly at Ron DeSantis. Can Florida survive this fight? Let’s explore.
Ron DeSantis is Playing with Fire
Tourism in Florida accounts for more than $40 billion each year. Tourism also generates massive tax revenue; tax revenue that grosses $11.4 billion in state and local taxes and $13.3 billion in federal taxes annually. DeSantis and Florida clearly stand poised to lose hard when Disney pulls the plug on its Florida Disney resort properties entirely. Yes, “when”, not “if”. The United States also stands to lose a lot of federal tax revenue as well. This article, however, intends to focus primarily on the ramifications to Florida.
Once DeSantis makes Florida’s actions so punitive that Disney can no longer make money in Florida, Disney WILL pull out and leave Florida. DeSantis has wrongly assumed that Disney will remain in Florida. That’s a completely wrong assumption. When state legislators make doing business in a state a major problem to the bottom line, corporations have to make hard, but necessary choices. Some of those hard choices may involve leaving that state.
Musk and Tesla made that choice after California and Gavin Newsom made doing business in California almost impossible for Tesla. Tesla moved its headquarters to Texas and is likely poised to cease all of its operations in California eventually, manufacturing or otherwise. Even though Musk has made a small move to bring some portions of Tesla back to California, that doesn’t mean Musk embraces California for its business structure. Moving a portion of Tesla’s engineering staff closer to Twitter is likely more of a strategic and convenient business arrangement than it is embracing a move back to California. Musk is simply attempting to keep Twitter from collapsing most likely by leveraging Tesla software engineers when possible to do double duty between Tesla and Twitter. Dividing work time between two separate companies is not a job I’d want to do. We digress.
Disney’s stance, after cancelling its $1 billion campus project, is now crystal clear. Disney is on the verge of making a similar hard choice that Tesla was forced to make. Nothing says that Disney’s entertainment parks must remain in Florida.
Disney’s Contributions to Florida
Disney properties are responsible for generating at least $1.1 billion in tax revenues annually TO Florida. Ten percent (10%) of the entirety of gross taxes generated in Florida are generated by one single entity, Disney. Yes, that’s 10% from Disney alone. When factoring in all of the non-Disney owned businesses which exist because Disney drives massive tourism to Florida, such as restaurants, hotels and transportation, tax revenue attributed to Disney’s presence in Florida could account for as much as 40-50% of all of Florida’s tax revenue. Meaning, when combining Disney’s income with income generated by all other businesses which rely on Disney remaining in Florida, that’s a number that could literally tank Florida’s economy were it to dry up overnight.
Putting a number on it, this equates to between $4.6 billion and $5.5 billion of tax revenue lost were Disney to close shop and leave Florida. On top of the tax base lost, Disney closing shop would definitely cause most, if not all of Disney’s 75,000 Florida workers to lose their jobs. Further, the loss of Disney’s tourism industry would have massive repercussions on tertiary businesses which partially or fully rely on Disney remaining open in Florida. Thus, Disney leaving Florida could potentially cause the loss of another 100,000 or more Florida jobs simply BECAUSE Disney has left Florida. That’s just the beginning of Florida’s woes. Disney leaving Florida would likely cause a massive recession in Florida, followed by major unemployment in Florida, which, in turn, could potentially trigger a massive recession around the rest of the United States, particularly around tourism. This at a time when tourism is just beginning to rebound from COVID.
Because Airlines carry so many passengers to and from Florida almost entirely for Disney’s tourism, such a closure could mean almost certain problems for the whole of the United States. In fact, a Disney Florida closure could potentially even bankrupt some smaller airlines; airlines which may rely on as much or more than 20-40% of their business ferrying tourists to and from Florida. Car rental companies could also be impacted. The gasoline industry might even be impacted as far fewer people hop onto the roads to visit Florida. Even national and state parks could be impacted as fewer RVs show up due to a Disney closure. There are too many industries that wholly or partly rely on Disney’s continued operations in Florida. Without Disney parks, what incentive is there to visit Florida?
This right here 👆 is exactly how Ron DeSantis is gambling with Florida and the rest of the United States economy.
Juggernaut without Federal Response
At this point, Biden and the feds need to step in and stop DeSantis from further meddling with Disney. The longer this DeSantis vs Disney fight drags on, the more likely Disney will consider moving its operations somewhere else, thus ceasing operations in Florida. Worse, the more DeSantis pokes at Disney’s Country Bear Jamboree, the more likely Disney is to perform a knee-jerk reaction by shutting it all down instantly… leaving Florida, the tourism industry and the rest of the country reeling.
As with most types of shutdowns like this, it won’t be felt instantly around the nation. It’s one of those slow trickle economic problems. Florida, particularly around the general vicinity of Disney’s campuses, will feel the closure pinch almost instantly. The unemployment of Disney workers will throw a huge crimp into Florida’s unemployment statistics. From there, like a juggernaut, it will continue to roll downhill gathering momentum and growing bigger, expanding its damage across Florida, then across hotels, airlines and transportation as a whole and finally affecting the whole of the United States.
The stock market will reel at first over Disney, but then those stock losses will expand into the tourism industry as a whole, including the entirety of both the transportation and tourism sectors. Even restaurant chains like Olive Garden and McDonald’s alike, chains which at least partly rely on Disney to keep their restaurants full in the immediate vicinity of Disney’s properties, will also likewise begin to feel the pinch; first at the cash register, but later as Wall Street outlooks dim over Florida’s economy.
Disney as a Global Entity
The loss of revenue from Disney will be immense as Disney ceases its Florida operations. There is no doubt. However, moving Disney’s Florida properties to a new location is definitely possible. Disney isn’t beholden to anyone to maintain its Florida resort properties other than Disney and Disney shareholders. If Disney cannot maintain appropriate income under Ron DeSantis’s oppressive government ideologies, Disney will have no choice but to close down its properties and move to a better location.
For example, Texas would likely welcome Disney with open arms, even though Greg Abbott has the potential to become just as oppressive to Disney as Ron DeSantis. Disney would have to weigh the risks of moving its operations under a Greg Abbott controlled Texas as a result. For Texas, out of the frying pan and into the fire comes to mind.
What this might ultimately mean is Disney could choose to move its biggest resort property outside of the United States entirely. It could find property in Dubai, for example. Don’t think that Disney doesn’t have a task force actively searching the globe for possible properties to replace its Florida resorts at this very moment. If Disney finds a property that’s an equal or better value to the deal it formerly had (past tense) with Florida, Disney would be stupid not to choose to move to that new location, leaving Florida’s economy and, by extension, Ron DeSantis reeling.
The best way for Disney to fight Ron DeSantis is not to fight with him at all. Instead, closure of all of Disney’s Florida properties would say all that needs to be said. It might be just the trigger that causes a massive United States recession, but that’s not Disney’s concern. It is the concern of the Federal Government, however. Disney’s concern is to continue to make money at its resorts. If Disney is unable to do this because of an oppressive government leader, the only choice is to move on and find a new, better property to again house its resort operations.
These are the matches 🔥 to which Ron DeSantis feels compelled to light and throw at Disney. Ron DeSantis, be careful throwing matches because when fires start, someone gets burned.
As a Florida resident then living under a massive recession after a Disney closure, just remember that it is you who chose to vote Ron DeSantis into office.
Can this situation be defused? Yes, but don’t think that it also can’t escalate for Florida? We’ll simply need to wait this one out.
Who Wins?
No one, not even Disney. If Disney closes its Florida properties as a result of DeSantis’s meddling, this closure has the potential to be the catalyst which causes a United States recession.
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Fallout 76: Vault 94 to close
Vault 94 was to be one of the first “group dungeons” (i.e., vault raid) to come to Fallout 76’s Wasteland. Vault 94 is scheduled to close when Wastelanders opens. Let’s explore.
Group Raid Areas
With every online game that Bethesda has produced, at some point during the game’s online lifecycle, Bethesda introduces higher level group dungeons. These dungeons usually entail the need to be at least level 50 or higher and you’ll need pretty decent weapons and armor to survive. So, with that, Bethesda introduced Vault 94 as a group raid area within Fallout 76 sometime around August 20th of 2019. No, it hasn’t been open for every long at all. When something is bad, though… *shrug*
Hodge Podge
After having visited Vault 94 myself, I can conclusively say, “It’s a mess.” Oh, and what a mess it is… in more ways than one. Not only is the plant life overgrowth abundant throughout the vault, finding anything in the disaster of a vault is an absolute chore… and that’s even if there weren’t a single enemy down there. What’s worse is the reward, but we’ll come to that topic soon enough.
Throw on top of the fact that the entire interior is an unmitigated disaster of a design, you have a never ending smorgasbord of enemies thrown at you continually. From Ghouls to Mirelirks to Mirelirk Kings to pretty much you name it and it’s in down there. I’m surprised they didn’t throw a Yao Guai, Mothman and a Scorchbeast in, too.
Lag City
It’s not so much that there shouldn’t be enemies there, it’s that the enemies are so densely packed in that space that, when combined with the overly detailed plant overgrowth 3D environment, the game’s engine simply can’t keep up. It gets so laggy, you can barely even run and shoot. I can’t even imagine taking a team of 4 people down there with miniguns. The entire run would come to a crawl. It would become so laggy, it would be pointless to try. It’s bad enough with two people down there.
Bethesda way overcompensated with this vault and pushed the engine way beyond its limits. It’s also quite clear that Bethesda didn’t even bother to run any performance or gamer tests to determine how badly this challenge ultimately failed. Yes, if you’re really diligent and patient (and can wade through the myriad of problems), you can complete the dungeon and get your ending reward. The problem is, that end reward so very much sucks. It’s honestly one of the worst reward drops I’ve seen from Bethesda.
The point is, this raid is ultimately pointless. It’s overly difficult with the number of enemies thrown at you, but it’s made much more difficult by the fact that the interior frame rate lags so badly that you sometimes have to give up and leave. It’s just that bad.
Reward?
The biggest part of the problem with Vault 94 is actually its final reward. A great reward is the only reason to even consider going into Vault 94. Sadly, the weak reward and laggy play actually gives us no reason to go there. Without a reason to go down there, it’s a pointless exercise. Let’s get to it, then. The rewarded power armor skin is absolutely hideous. It’s not even the slightest bit “cool looking”. It’s so ugly, in fact, that that’s the sole reason no one wants to make this vault run. The armor set looks just like the interior of Vault 94, covered with overgrown plants. It’s not something that most people would want to wear, unless you want to look like an armor covered Poison Ivy from various comic books.
Why spend all of that time and effort fighting with the crap ton of enemies in a badly designed vault under HEAVY lag only to receive a hideously ugly PA skin as a result? It is a crappy skin worth less than 500 Atoms. You’ve spent a crap ton of your ammo and stimpaks to make that run and then you get an ugly worthless skin? Really? Clearly, no gamer wants to spend their time and resources doing this, just as Bethesda’s stats support. Bethesda needs to rethink its reward system. If you can’t make the reward worthy of spending the time, effort, ammo and stimpaks, no one will make the run. That’s exactly what’s happening with Vault 94.
It’s not even like power armor is actually very useful in Fallout 76. Bethesda has nerfed the usefulness and strength of power armor so much that you can actually do better out of power armor than you can in it. It also costs way too much to keep power armor repaired and then there’s the fact that you burn through Fusion Cores every few minutes now… when early in 2019 a Fusion Core could last you several days. Yeah, making the Vault 94 run is so not worth it. Locating 100% topped up Fusion Cores is nearly impossible unless you’re willing to take on the challenge of a possible PVP activity by taking over the Poseidon, Thunder Mountain or Monongah power plant workshops. This on top of Vault 94’s crapfest reward? Yeah, no. Even then, Bethesda could cause these workshops to begin dropping Fusion Cores of random lower charged amounts even from a Fusion Core Processor in the future, thus making Power Armor even more worthless than it already is.
In fact, not only is Bethesda continually nerfing every part of Fallout 76, making it worse and worse and requiring longer and longer grinding efforts, they’re also nerfing quest end rewards giving us less and less value at the end of each new quest. Instead, they choose to put those “great looking” things in the Atomic shop where you have to pay for them… instead of placing the items into the game as reward drops. Come on, Bethesda. You can seriously do better. If you can’t give us a reason to want to make a vault run, we’re not going to run it and you will simply have wasted months worth of programming efforts on nothing. You must make the end reward drop worth our time and effort and worthy of draining us of our ammo, thus giving us solid reasons to make that run!
Closure
From Bethesda’s January 16th’s Inside the Vault:
Through community feedback we’ve received and our own monitoring since that time, we’ve decided that Vault 94 and its Missions are not delivering the quality of experience that we had hoped to provide. As a result, we are currently planning to shut down Vault 94 alongside the release of the Wastelanders update.
It’s no wonder then that Bethesda’s recent stats show that Vault 94 barely has any visitors. Vault 94 is a crapfest extraordinaire. Not only is the reward incredibly bad, the dungeon itself is a horrid laggy mess. Bethesda would actually have to try harder to actually make a worse group dungeon than Vault 94.
Sometimes you just have to say, “Good riddance to bad rubbish” and with Vault 94, it’s far too long in coming. This dungeon needed a redesign the day it arrived. Yet, Bethesda entirely ignored gamer complaints. Unfortunately, we don’t know the exact release date of Wastelanders, so we don’t know the exact date of Vault 94’s closure.
Oh, and Bethesda states they will move that sucky power armor skin reward to some other location so we can get it in some other way after Vault 94 closes. Yeah, like we all want that ugly power armor skin? I don’t think so. Here’s what Bethesda states:
When the Vault is disabled, we are planning to make all of its rewards, including the exclusive Power Armor sets and Vault Steel, achievable through other means.
As if we’re going to be anywhere close to excited for that power armor skin or vault steel when it becomes available “through other means”. Don’t think so.
If you really, really personally love this lagfest of a vault, then you’ll want to make sure to run it a few times before it disappears. Personally, the last time I was in that vault is the last time I’ll ever be in that vault. Yes, it really IS that bad.
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Did Toys “R” Us have to fail?
If you’ve read various articles including this Bloomberg article, you might come away thinking that all of what happened to Toys “R” Us began a decade ago (i.e., the early 00s). In fact, you would be so wrong… and so would Bloomberg. Let’s explore.
The 80s
Around 1981 or 1982, I worked at Toys “R” Us. Even at that time, Toys “R” Us ran a questionable business model. A business model that, I might add, even store managers recognized and thought was unsustainable. In fact, after having discussions with store managers at my store, I got an earful about how they thought that the chain would likely fail within a decade if they kept on using that business model. This was the early 80s.
What business model?
Toys “R” Us sowed the seeds of its own destruction at least beginning in the 80s, perhaps as early as the 70s. What questionable business model is this? The model chosen was to operate the stores in the red (otherwise known as losing money) through 80-90% of the year (aka, “90 in the red”). Then, the management hoped to recoup those losses in the final 1-2 months of the year during holiday season sales. It didn’t always work out.
While this model seemed to work to keep most Toys “R” Us stores afloat through the 80s and 90s, it served to keep the company from really turning a solid profit and, ultimately, led to the company’s massive debt load. What that model meant to the stores is fully stocked shelves every day of the year. This was readily apparent walking into any Toys “R” Us store. The stores were not only full, they were positively brimming over with the latest toys. This also meant putting itself into massive debt each year in inventory and then hoping to pay off that debt at the end of the year when most of the stores finally ran “in the black” (read, turning a profit for the year).
Keep in mind that many of the stores didn’t turn a profit, but so long as enough stores did, they could cover for the debt they had been incurred company wide, or at least so that was the idea. Even the store manager at my Toys “R” Us location could see the handwriting on the wall in the early 80s. This store’s business model was not sustainable and I was, even as an standard employee, told this by various managers. These managers didn’t hold back their thoughts.
Bloomberg, Fads and Sustainability
What Bloomberg got right was that even a decade ago, TRU’s debt load had put them underwater. What Bloomberg didn’t address was that this debt began almost 2 decades earlier of overbuying, followed by hoping that a “hit toy” would kick them over the profit line at the end of every year.
“Hit Toys” were Toys “R” Us’s hopeful thing. They needed that Tickle Me Elmo or Nintendo Wii or Lazer Tag or Cabbage Patch Kid fad toy to carry the chain into the new year with profit on the books. Throughout the 80s and 90s, there were a string of these hit toys practically every year. Fad toys which flew off the shelves and brought Toys “R” Us to profitability each year. It was a risky move for Toys “R” Us to bank on a hot fad each year, but there it is.
Unfortunately, relying on this kind of yearly toy fad to sustain a business every year was not only risky, it began to burn Toys “R” Us as these yearly fads began to die off by the late 90s. Even during mid-late 90s, these fads were much less intense than they had been just a few years earlier. By the mid-00s, these fads were practically non-existent. Sure, there were hot toys, but no where near the levels of sales that Tickle Me Elmo or the Cabbage Patch Kid fads offered to Toys “R” Us’s bottom line… particularly when Best Buy, Walmart and Amazon concurrently began diluting the toy profits of TRU.
These fading fads were responsible for killing other toy stores chains as well, such as Kay Bee Toys and even the once high flying, high end FAO Schwarz. These fading fads also left Toys “R” Us holding a huge mound of debt.
Walmart
While Walmart did usurp the title of top toy seller from Toys “R” Us, that’s primarily because Toys “R” Us prices were always on the higher side. Walmart did carry toys, but not all toys. If you wanted something you couldn’t find at Walmart, you went to Toys “R” Us and it was pretty much guaranteed they would carry it (even though it might be out of stock). Walmart didn’t even stock many of these. The toy section in Walmart was always small by comparison. Sure, you could find better deals at Walmart, but only from the toys that they chose to carry.
Walmart was also not very kind to collectors in the 90s. If a collector showed up to buy toys, Walmart would try to do everything to keep that toy item away from the collectors… sometimes even going so far as to banning them from the store simply for buying toys. Does it really matter whose dollars are buying an item? Granted, I wasn’t particularly happy that a collector had gone to Walmart to buy out all of the “good” stock leaving tons of “peg warmers” sitting around that no one wanted. But, that’s how toy collecting worked in the 90s.
The whole collector market kind of died off with the advent of places where collectors could buy case packs, like Entertainment Earth. Instead of having to rummage around Walmart at 3AM (when they stocked new merchandise), you could order a full case of figures, guaranteeing that you’ll get at least one “rare” figure. This meant that the once Walmart and Toys “R” Us shopping locations for collectors became a thing of the past. Collectors took their money online to buy cases and stopped buying at Toys “R” Us. Buying case packs is easier, more convenient and doesn’t require the hassles of dealing with surly underpaid Walmart workers.
Toys “R” Us Kids Grew Up
Kids of the 80s became collectors in the 90s and became families on the 00s. The once popular collector market throughout the 90s fell apart into the 00s because the collector market changed and Toys “R” Us failed to understand this important change. The collector market is (or at least was) also a huge market that kept Toys “R” Us afloat in addition to the end-of-year-fads. However, brands like Hasbro and Mattel didn’t grow with the collector market. Sure, Hasbro tried, but the toys they made were tiny improvements over their (sub)standard toys. Mattel also tried with its collector Barbies, but, again they failed to understand the critical quality needed for what collectors really yearned.
In essence, the toy brands themselves didn’t grow to provide what collectors wanted… which left Toys “R” Us mostly without collector money. However, collector brands did grow up for the collector market outside of Toys “R” Us, including Sideshow and Hot Toys brands. These brands are now considered the premiere collector “toy” brands for adult collectors. These “action figures” are some of the highest end, most expensive, most collectable toys out there, yet these are not sold at Walmart, Target or even Toys “R” Us (before they closed). Though, you can find them on Amazon via third party sellers. This is where Toys “R” Us failed to keep up with the kid-turned-adult collectors. Hot Toys figures cost anywhere between $150-350 per figure; a price point that collectors are more than willing to pay to get that level of craftsmanship. A price point that Toys “R” Us never carried. A quality that not Toys “R” Us nor Walmart nor Target ever carried.
While Toys “R” Us continued to sell these low-end toy products to kids, it failed to grow up and to sell high end collectibles to adults. Ironically, this runs counter to their jingle. The most prestigious type of collectibles that Toys “R” Us sold were the collector Barbies and McFarlane figures, offering price points at $15-40. A price tag that cannot provide the levels of detail, paint jobs and overall craftsmanship that goes into a Hot Toys or Sideshow figure. Adult collectors want high end figures and Sideshow and Hot Toys fill that niche. Toys “R” Us management never recognized this growing trend.
“I don’t want to grow up, I want to be a Toys “R” Us kid”
This jingle is ultimately the rationale that appears to have led Toys “R” Us management down the wrong path. Instead of singing the praises of not growing up, the toy store should have realized that kids grow into adults; adults who still want to buy collectible toys, but who don’t want the junky, low priced Hasbro and Mattel versions. They want premiere brands like Hot Toys offering highly detailed, highly realistic, meticulously crafted and painted figures… not Hasbro’s now antiquated, poorly painted, robot-style 12 inch figures. You might give these cheap toys to your kids, but you wouldn’t display them in a display case.
This collectible market began with highly detailed military figures, but branched out into licenses with Marvel, DC, Star Wars, Warner Brothers and various other large movie franchise brands. Toys “R” Us failed to latch onto this market and, thus, failed to capture the once Toys “R” Us kid who had grown into an adult and now desires these highly detailed collectible toys. As kids grow into adults, tastes change and people want more sophisticated products. Hot Toys and Sideshow found that niche for sophisticated adult tastes. Yet, Toys “R” Us failed to recognize this niche.
If Toys “R” Us had realized this mistake and had added brands like Hot Toys to its shelves, it might have been able to entice the collector’s market back into its stores and pay down some of its debt. Every discount retailer has, so far, failed to realize the adult collectible toy market. However, this lack of foresight hurt Toys “R” Us the most.
Kid Tastes
Additionally, kids tastes have also changed as a result of brands like Hot Toys and products like the iPad. Kids don’t want want to buy Leap or other “toy” or “fake” tablets when they can ask their parents for the real thing. Kids also want the higher end Hot Toys than the poorly crafted Hasbro Ironman figures. While Toys “R” Us did begin carrying Apple products, the stores really thought of these more as a toy rather than treating them as something useful. Best Buy always treated their Apple section with the best possible displays. Toys “R” Us displayed its Apple tablets right next to random other tablets as though they weren’t anything special. I’m not even sure that I’d have felt comfortable buying an Apple tablet from Toys “R” Us. Not only did they have no one versed in this technology on staff, what they carried could have been 2 or even 3 generations old. Toys “R” Us just didn’t treat these products with the respect that they deserved.
As a result of kids changing tastes and higher levels of sophistication, kids really didn’t want much of what was in that toy store after a certain age. This meant that Toys “R” Us was primarily for kids of a certain age and below (probably 8-9 or younger). Even still, these ages were growing up faster.
Toys “R” Us Closure
Did Toys “R” Us have to close? Yes, it did. Without a management team capable of fully understanding the downsides of running its stores using the “90 in the red” model throughout the year (and failing to accommodate the changing tastes of adult collectors), the stores ultimately succumbed to closure. It was inevitable.
What tipped the scale, though, was 2005’s $6.6 billion leveraged buyout of Toys “R” Us by the KKR, Bain Capital, and Vornado Realty Trust; a purchase that saddled the corporation with at least $5 billion in debt, in addition to its already mounting toy inventory debt each operating year. There was simply no way Toys “R” Us could recover from and pay down that debt considering its interest each month.
In fact, it was this very same leveraged buyout that not only trashed Toys “R” Us, it also lost its original private equity investors at least $1.28 billion. Even these private equity firms were ignorant of Toys “R” Us’s “90 in the red” model. You’d think that between three different private equity firms, one would have had brain among them. I guess not. Toys “R” Us was not worth buying strictly because of that business model… and it was especially true when considering saddling an already debt overburdened company with even more debt. It was an insanely stupid buyout made more stupid because of the lack performing even the most basic of fiduciary responsibility. Those private equity firms got exactly what they deserved out of that deal. Make the wrong deal, get the wrong results.
If I had been sitting in the room when this buyout deal was being considered, I would have put the kibosh on that deal pronto. If managers of stores could recognize how badly Toys “R” Us was operating in the 80s, why couldn’t a bunch of suits at three different private equity firms see this before plopping down $6.6 billion?
Overvaluation
If anything, 2005’s TRU sale is a cautionary tale. There are way too many buyouts that are purchased at way too high a value. I’ve seen it happen time and time again. Companies worth maybe $500 million sell for $3 billion? It’s just insane the money that’s being overspent. Would you walk into Walmart and offer to pay $25 for a $5 tube of toothpaste? I don’t think so. So, why do these investors think it’s okay to spend $6.6 billion on a company worth maybe $1 billion at its best… and it was then likely actually worth much less considering the debt that it already carried. Its insane business model should have further reduced its value.
Could Toys “R” Us have been saved?
Probably not. At least, not with its status quo business model. But, it might have been saved IF Toys “R” Us had adopted a more balanced approach to its store sales and more sane merchandise ordering in combination with letting managers actually handle full store merchandising instead of relying on nice looking, but misguided corporate-standard planograms.
Only stock enough merchandise in a specific store that that store can actually sell. Let managers move stock around on shelves and place the merchandise in their store where it’s most likely to sell. Additionally, don’t send stock to a store where the buying demographic isn’t buying that type of merchandise. If Barbies aren’t popular in a particular store’s demographic region, send limited amounts of Barbies there. It’s a waste of money and effort to stock merchandise that doesn’t sell. One of Toys “R” Us’s biggest foibles was its cookie-cutter store approach. That meant it was sending the same stock to all stores regardless of popularity in that local store’s area. It also meant that it way overspent on toys that would never sell at certain stores. Eventually, they simply had to clearance out those toys. Each store’s inventory should have been customized based on buying habits of local consumers and by the local manager. Only the local store team knows what’s the “hot sellers” in their store.
Clearance merchandise is actually a red flag in the retail business. It means that, as a store, you way overspent on merchandise that you couldn’t sell. If you have excessive clearance merchandise, then your merchandise spends are way off. It also means that your buyer is overbuying stuff that isn’t selling. It means you need to rethink your buyer and it means your new buyer needs to rethink how much to spend on similar types of products.
One of Toys “R” Us’s other foibles was its inability to recognize and stock the “hottest toys” rapidly. If you send 5 of something to a store and it sells out in 10 minutes, you need to stock more of it and you need to do it pronto. Yet, it might take Toys “R” Us 30 or more days to get that merchandise back in stock. That’s 30 days of zero sales… sales that could have been had the next day and the day after that. Missed sales were one of TRU’s biggest problems. Having merchandise in stock that you can sell day after day is a huge win. Yet, if the corporate buyers don’t even know to reorder this thing again, the store is blind. This is why the next part was so important to improving TRU.
Instead, this toy chain should have let the local managers have autonomy via cutting merchandise from their store that isn’t selling and placing rush orders on the hottest toys. By letting the managers, you know, actually manage the store’s inventory properly, the stores could have cut costs and raised profits. The managers could have done this by buying more of popular hot sellers in that area, shuffling cold merchandise to other stores that can sell it and cutting non-sellers from the inventory. In fact, managers should have actually had access to every store’s inventory throughout the chain and when that item last sold there. If a particular item is selling hot in one store, but is completely dead in other stores, the hot item store manager should be able to request stock moved from the cold stores to their store. This way, managers could have directly moved inventory from store to store instead of placing orders for more stock, thus causing more debt. Only after the existing in-store inventory was exhausted should a new order need to be placed. The buyers from the chain should have endorsed this manager autonomy.
Unfortunately, that wasn’t a priority for the very rigid corporate run TRU. I could walk into a store in Texas and find specific toys always out of stock. Then walk into a TRU in St. Louis a week later and find twenty of them sitting on the shelf with dust on the top. If stores had been able to request the hottest toys moved from other stores, the chain could have saved a lot of money on new stock orders.
This change in business model could have drastically improved Toys “R” Us’s profitability throughout the year. It probably would have cut down on orders to toy sellers, but something’s got to give when you’re running a retail store chain. If the toy manufacturers had to suffer a little to let Toys “R” Us recover and be a whole lot more profitable, then so be it.
Unfortunately, TRU’s status quo model endured. Even if the leveraged buyout hadn’t occurred in 2005, Toys “R” Us’s fate was pretty much sealed strictly by is “90 in the red” (cookie cutter) mentality. It was only a matter of time before it succumbed to its own debt burden even if it hadn’t incurred a ton more debt after that poor sale. The 2005 unwise sale simply accelerated Toys “R” Us’s already looming demise.
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