US-based Toys “R” Us has enjoyed a unique place as the largest chain toy store in North America for years. Despite it’s leading position, recent years of seen the chain begin to enter hard times. Going into any Canadian Toys “R” Us will greet you with a slight smell of an old basement along with yellowed flooring, cream-colored shelves, and fixtures from the 80s. Toys “R” Us as a corporation hasn’t been doing that hot either. It presently holds a little less than $5 Billion dollars in debt against high net losses and only about $1.1 Billion in liquidity.
Most of the troubles of Toys R Us are traceable to the increased competition that “all-in-one” store models such as Walmart and Target offer as well as price pressure from online competitors such as Amazon. So, with all that pressure on its business model, can Toys R Us carve out a niche for itself? I think they can, and the answer lies in one of their acquisitions: KB Toys. KB was a mall-based retail toy store with smaller footprint.
Although all KB stores are now closed, Toys R Us been looking for a user for the KB brand ever since. A new trend in geek culture might have the answer: game cafés. Toronto already has 7 independently owned game cafés operating in the city and its model is easy to adapt to more urban areas along with a strong coffee partner. With the loss of Burger King as a partner, Seattle’s Best (owned by the coffeehouse giant, Starbucks) would likely be a willing partner in a new retail venture. KB Cafe could easily offer a small footprint coffee shop focused on retail and food services with an opportunity to house small quantities of high-margin goods as well (release day video games as well as a pickup point for online orders from Toys R Us proper).
Cafés have an odd advantage for Toys R Us over a small-footprint retail space in that cafés routinely re-engage the customer. Current Toys R Us locations are profitable only though seasonal shopping on major holidays, whereas a café would be continually frequented by daily, weekly and monthly repeat visitors. Changing a small rotation of high margin items as well as a “buy it today, pick it up tomorrow” model for any of the games available for play at the café would allow a much deeper merchandise distribution through the year.