Markets

Mall Hog: Toys "R" Us' Smart Plan for Holiday Sales Domination

By Carol Tice

Updated on: September 13, 2010 / 6:08 PM EDT / MoneyWatch

This holiday season, Toys "R" Us will be unavoidable, as the chain is opening 600 small, temporary stores inside malls. While that may sound like a logistics and staffing nightmare, TRU is smart to take on the challenge and expand the 90-store pop-up experiment it tried last year.

Here's why:

Low cost. With many malls sporting gaping holes, landlords are likely thrilled to have Toys "R" Us pay them a visit for a few months. They're such a big name, it wouldn't be surprising to see some landlords give them the space gratis. From the landlord's point of view, adding TRU is like an instant additional anchor for their shopping center. TRU can plug in a few low-paid, seasonal workers and they're set to reap additional sales from shoppers who can't be bothered to shlep over to a big TRU store.
Low commitment. The short-term leases for pop-up stores are a far cry from the usual long-term retail lease. Rent a space for a few months and they're gone. If the stores don't work, they won't be weighing down the balance sheet next year.
Stealth market testing. There's already talk that if some of these pop-up "Toys "R" Us Express" locations do well, they might turn into permanent locations for TRU. The temp stores will provide market research data TRU could use to decide whether it makes strategic sense to have an ongoing presence in malls.
Competitive block. Toys "R" Us used to compete with mall giant KB Toys before that chain floundered, and TRU bought it last year. KB now lives only online. TRU executives likely remember what a competitive threat a successful mall-based chain can be to their stand-alone superstores, though. By squatting in hundreds of mall spaces, the company deftly performs a blocking maneuver that could keep independent toy competitors from taking those spaces and making their own inroads with mall shoppers this holiday season.
Brand building. The small stores also serve as a marketing tool, putting the company name in front of more customers and reminding them of Toys' dominant position in the category. At this point, TRU's prime competitors in the toy category are Amazon.com (AMZN) and Walmart (WMT), neither of which will be putting up stores in shopping malls. Advantage: Toys "R" Us.
Pre-IPO sales boost. With its initial public offering filed back in April but no sign of a debut yet, Toys "R" Us could use the holiday mini-stores to give the company a needed revenue boost and get investors excited. Last year, with just 90 pop-up stores, TRU saw its sales rise, though the general shopping climate was dismal. More than six times as many holiday stores, if the sites have been well-chosen, should provide even more revenue growth.

The only possible stumbling block in TRU's plan lies in executing well in so many hastily assembled stores. But the company should be able to use its experience from the smaller test last year to make this year's pop-up store maneuvers a success.

Photo via Flickr user AdmlCrunch