WAYNE, N.J. (AFX) - Gerald L. Storch's vision of a new Toys R Us features cleaner stores, orderly aisles and helpful employees.
Storch, the company's new chairman and CEO, also wants his chain to maintain its focus on younger children as it looks to pull itself off the mat and compete with giant discounters like Wal-Mart and Target.
'We're playing to win,' said Storch, 49, a former Target vice chairman who took over in February, about six months after a struggling Toys R Us was sold by shareholders to a private investor group for $6.6 billion.
After 12 years at Target, Storch is well aware of the challenge, but maintains that specialty stores can thrive against Wal-Mart, the only company that sells more toys in the United States than Toys R Us.
Storch said he doesn't plan to model the new Toys R Us after Target, but said changes are on the way as the chain seeks to grow. One way he wants his stores to distinguish themselves: Hiring helpful employees who will offer customers toy-buying advice.
'When a customer comes in our store, our people can tell them what's a great toy for a 10-year-old boy for their birthday, because all we do is toys. When you go to a large, multiproduct discount chain, you'll be lucky to find someone who can point you to the toy department, or will even take you there, much less answer specific questions,' he said.
Storch also wants fewer products on his store shelves. Even after dropping some of the lowest-selling items, comprising about 20 percent of the overall inventory, he said Toys R Us will still offer customers a better selection than competitors.
'It actually looks like there's more in the store when we unclutter it, even though there's a little less,' Storch said. 'You can see the dominance. When it's so cluttered, you can't even see two feet in front of you.' No longer will display boxes be piled up on the floors, he said.
At the same time, the company will continue to focus on younger children, Storch told The Associated Press at the company's headquarters in Wayne during his first interview since taking over.
To help predict what parents and children want, Storch said he reads dozens of newspapers and magazines, including his favorite, People.
'I read it every week because I don't believe you can stay on top of trends without reading that kind of publication and understanding what people are talking about. Who are the hot stars? What are the hot TV shows?' Storch said.
Among the inspirations from his reading: a small cell phone for children that includes a global positioning system so their parents know where they are. It will be available this fall, Storch said.
Toys R Us plans to open more stores in its two most lucrative divisions: Babies R Us and overseas stores, Storch said. Those divisions account for half the company's sales, but two-thirds of its profit, he said.
The prospect of more Babies R Us stores appeals to shoppers like Jen McCabe of Wall, N.J. 'The only thing that's negative about them is there's not enough of them,' said McCabe, as she pushed 9-month-old Jack in a shopping cart through the Eatontown, N.J. Babies R Us.
During its 27-year run as a publicly traded company, Toys R Us became the nation's largest toy seller, only to lose market share to the big discounters and cede the top spot to Wal-Mart.
The sale in July 2005 came after a period of turmoil. The company had said in August 2004 it was exploring a sale of the global toys business that would leave the more profitable Babies R Us business on its own, but in March 2005 decided to sell it whole.
Nearly 100 Toys R Us stores were closed after the sale to two private equity firms, Kohlberg Kravis Roberts & Co. and Bain Capital Inc., and a real estate developer, Vornado Realty Trust. All have equal stakes.
Some experts predicted the new owners would look to close stores and sell their land to developers. That won't happen anytime soon, according to Storch.
'I view the real estate more as an insurance policy, and the kind of policy you hope you never have to use. There is a lot of real estate value under our stores. But it's not our objective or intent to close stores to capture that value at this point,' he said.
Storch has more than pride at stake in a turnaround. After purchasing a small portion of the company from the owners for $2 million, he now has the largest individual investment. His base salary is $1 million a year, and he can collect a bonus of up to twice that.
He pointed to growing sales as evidence of the company's vitality. Revenues were $11.3 billion for the year ended Jan. 28, up 1.6 percent from the prior year. The company had a loss of $384 million for the latest fiscal year, compared to a profit of $252 million a year before.
Without restructuring and transition costs, totaling about $440 million, Toys R Us would have finished its fiscal year ended Jan. 28 with a profit, said Storch.
In the most recent quarter, ended April 29, revenues were up 12 percent, to $2.39 billion, and the company had a $33 million loss, an improvement from a $41 million loss a year earlier in what is traditionally a slow period for toy sellers. The main drag on the quarter was $130 million in interest expense, up from $39 million a year earlier, due to larger debt.
'Our sponsors are very patient,' Storch said. 'They know this is a big company, and you don't turn a big company in a few months.'
Sales at stores open at least a year are rising, with Babies R Us stores up 5.7 percent and the international toy stores up 3.1 percent for the recent fiscal year. Comparable sales at U.S. toy stores fell 1.4 percent, an improvement over the 3.7 percent drop-off for the prior year.
But the company's long-term debt, $5.5 billion as of Jan. 28, remains a concern at Fitch Ratings, which downgraded some Toys R Us debt after the acquisition.
'We continue to have a negative outlook on the company,' said Fitch retail analyst Philip Zahn.
Sean P. McGowan, an analyst at Harris Nesbitt, noted improvements in operating expenses, due to closing underperforming stores, as well as gross margins, in part because better inventory selection led to fewer markdowns.
'I've been pretty impressed with how they've been doing,' McGowan said. 'I wouldn't say everything's perfect, but it's a lot better than people said it would be.'
Going private has not changed the chain's basic challenge, McGowan said: 'They need to make the shopping experience a lot different than at Wal-Mart and Target.'
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