BUSINESSWEEK ONLINE : DECEMBER 4, 2000 ISSUE
COVER STORY

ONLINE EXTRA: CEO Eyler: 'You Really Have to Have a Service Mentality'


When John H. Eyler Jr. stepped into the CEO job at Toys 'R' Us in January, he faced a daunting task. Hightened pressure from Internet competitors such as eToys.com and bricks-and-mortar rivals Wal-Mart and Target had battered the company's stock over the past five years. The storm even contributed to the departure of his high-profile predecessor, Robert Nakasone. Eyler's top priority: improve selection and service levels, even make shopping at Toys 'R' Us fun again. Recently, he spoke with BusinessWeek Corporation Editor Nanette Byrnes about his strategy, as well as his August deal with Amazon.com to fix the company's Web site. Here are edited excerpts from their conversation:

Q: Once Toys 'R' Us was a hot-growth company, increasing sales 26% a year in the 1980s. Why has it struggled so much in the last five?

A: When Charles Lazarus opened the first Toys 'R' Us store in 1957, it was really a revolutionary concept. Big-box, category-focused retailing didn't exist. It caused a sensation.

In the decade of the 70s and 80s, it essentially garnered the entire market share in toys. Most traditional sellers of toys like department stores went out of the business, most specialty stores of any size went out of business because Toys 'R' Us was such a formidable concept. It not only was the first big-box toy retailer, it was one of the very first category killers in any category, and it really set the tone for a whole slice of the retail business.

In the 90s, as the company approached saturating markets, growth slowed down. But probably the most significant piece of news about Toys 'R' Us that isn't widely understood is that this company has a second phase of growth in front of it.

Q: One of the few bright lights over the last few years has been your baby superstore. In a way, those stores are in a comparable position to the one Toys 'R' Us was in 20 years ago.

A: Babies 'R' Us has gone from a test concept four years ago to, through its own growth and the acquisition of Baby Superstores, a billion and a quarter in sales this year. It is the largest market-share player in the baby business and continues to grow at double-digit comparable-store sales as well as opening new stores as quickly as feasible -- about 20 this year. We don't see any reining in of that over the next five years and probably well beyond that.

Q: In August, you teamed your Web site, toysrus.com, with Amazon's. Why did you do that, and what do you see as the payoff?

A: The dot-com business last year, in its first year, had $50 million in sales. This year it will do well over $200 million. How high above that remains to be seen. Amazon is the most navigable site that anyone has been able to devise, the easiest site to shop. They provide the customer service and fulfillment. When we purchase those services from Amazon and use our skills at merchandising, product flow, and marketing and the brand Toys 'R' Us, we think that's a winning strategy. Not only do we believe we will do four or five times, perhaps more, volume this year than we did last year but we see that as a powerful growth vehicle into the future.

Q: How are you approaching the areas that need work -- particularly the toy stores and Kids 'R' Us clothing stores?

A: The basic principles are pretty much the same in every business: What is the content of the store, what are the products you're selling, what does the physical plant look like, what's the service level, what's the pricing strategy, and finally how do you tell a story to the customer?

Those elements define any business. Our strategy at Kids 'R' Us is that we will be competitive with anyone else in the business. For that price, you're going to come into a store that's visually exciting and a place that's as fun for the kids to shop in as the parents because we all know what a chore it is to drag your kid in to shop for clothes. It's first of all understanding that the function of the store is to serve the customer.

In some of our divisions, certainly in toys, we've become very operational over the last 10 years. Which is not to say that operations aren't important, because they are. The merchandise has to be received, has to be put on the shelves, the store has to function, has to be clean. But to really distinguish yourself, to make it a place that's friendly to shop in, you really have to have a service mentality.

Q: How are you communicating that idea to the troops?
A: We've hit the road. We've met with every store manger in the country. We spend the better part of a day talking about what's happening at the company, what the strategy is, what their role in the strategy is. We open it up for question and answer. We have lunch or dinner. We just spend personal time with them. There's no substitute for telling it directly to people, telling them what you expect. Where we're going as a company.

When you tell them we're committed to spending the money to have more people to coach them, to train them to really serve the customer, it's common sense to most people to say, "Yeah, that's right. I want to work in a store that's committed to those things."

Q: But doesn't it seem kind of obvious that the company needed better service? You're hiring more people but will that be enough?

A: You can't just say go out and hire a bunch of people. We need to help them. What are you looking for in terms of hiring, what are the skills you're looking for, how do you take the people with those skills and train them in the product and train them to be of help? You have to provide some expertise.

When you're talking about changing the selling culture, you're talking about how do you recruit, train, motivate, encourage, coach, council. Those are skills some of our people have, but a lot of them don't. We have to provide those skills. It will take time to train them. We'll be working for years at developing these skills.

Q: How does your move into proprietary products fit with this strategy?

A: When you take a look at the toy industry, it is not a growth industry. How do you grow? The answer is first and foremost you have to grow comparable store business. How do you do that? How do you have what the customer wants and create product they've never seen before that captures their imagination? They come to your store because they know

they'll find something different, or because they know they'll find exactly what they came for. In 1999, exclusive product at Toys 'R' Us was 5%. This year will be about 13%. We believe next year 20% of what we sell will be ours exclusively.

Q: A big problem for you last Christmas was being out of stock on basic toys. Has there been too much focus on predicting the hot toy of the year?

A: All of us face the dilemma that we can't live for the hot toy. We can't make a consistently profitable growing business on the back of a hot toy. They don't come frequently enough, and even when they come they don't do enough business. Think of how much business you have to do in a hot toy to impact a $7 billion base. A big toy for us is $50 million, $75 million. That's a big toy. It's 1%. Having a hot toy is nice, and it should enhance your performance, but it's no substitute for building a strong base that is predictable.

The joke inside Toys 'R' Us is that we never saw a toy we didn't like. Historically, we bought just about every toy produced, and we're not doing that anymore.



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ONLINE EXTRA: CEO Eyler: ``You Really Have to Have a Service Mentality''



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