Toys and Games industry

Toys R Us is one of UK’s leading toy and game retailer. This report conducts an academic research focus on Toys R Us (UK) in toys and games retailing sector. In the first part of this report, we will discuss the toys and games industry background and the overview of Toys R Us. Then, the research will focus on Poster’s Five Force Model and Porter’s Generic Strategies. In the next parts, this report will concentrated on the potential strategies which Toys R Us might pursue in the future. Conclusion and recommendation will be mention in the final part of this report and the recommendation will be covered the best strategy for Toys R Us which can be used for the future competitiveness.
1.1 Industry Background
After the decline in 2008 and 2009, the toys and games market has grown about 5% just under £2.2 billion. The market has opportunities to increase the sale revenue from 2010 to 2015 (MINTEL 2010). The Figure 1 shows UK retail value sales of toys and games between 2005 and 2015. (Figure 1, Source from: MINTEL Report 2010)

According to MINTEL 2010, the main players in the toys and games industry in UK is Argos, Toys R Us, Disney and some internet specialists such as Amazon and Ebay. The Figure 2 shows the retail market share for those main players. (Figure 2, Source from: MINTEL Report 2010)
1.2 Company overview
Toys R Us is UK’s leading traditional toys and games retailer with over 1500 stores and 71,000 employees (including part-time employees) in 33 countries and the company’s headquartered in Wayne (DATAMONITOR 2011). Toys R Us offer Toys, Baby care, Video games, Multimedia PCs, Bikes and outdoor fun products (Toys R Us 2013).
2.0 Poster’s Five Force Model
2.1 The threat of new entrants
According to Dess, Lumpkin and Eisner 2010, the threat of new entrants is depends on the level of entry barriers. In the UK toys and games industry, there are strong competitions for the pricing. According to MINTEL 2010, since 2008, consumer prices for the games and toys have fallen, so most retail cut down the price therefore strong competition in the toys and games industry. Moreover, Economies of Scale can be also related to the entry barriers. Finally, the government policy is major source of entry barriers. For example, national land policy can be effect the manufactory and location of stores, the entry barrier is also influence by high VAT rates for the company which standard rate is 20% and reduced rate is 5% in 2013 (GOV.UK 2013).
2.2 The bargaining power of suppliers
Toys R Us has increase the number of suppliers over 3000 manufacturers. Mattel, Hasbro and Namco Bandai are the main suppliers for Toys R Us. Those 3 manufacturers are top 20 suppliers in toys industry and Best-selling Toys of the year are always given to those 3 suppliers (GIMD 2011). Nintendo and Sony are also the main suppliers for Toys R Us. Those 2 companies are famous video games suppliers. Nintendo has produce NINTENDO 3 DS and Sony has produce PlayStation 3 and PSP, those 3 product all have good sale revenue in the games market (Toys R Us 2013).
2.3 The bargaining power of buyers
As this report has mention before, Toys R Us is one of UK’s leading toys and game retailer, therefore the company has strong brand image, when consumer planning to purchase toys or games, Toys R Us is always become a first choice for purchase toys and games because the strong brand image. Moreover, there are limited numbers of global retailer in the traditional toys and games industry therefore Toys R Us has strong buying power (GMID 2011). The Figure 3 shows the child/youth population by age and gender between 2005 and 2015 in UK. From this table, we can see the populations between ages 0-14 are increase from 2005. The target market for Toys R Us are children, if the populations of child is increase, the buying power will also increase. (Figure 3, Source from: MINTEL Report 2010)
2.4 The threat of substitute products
Toys R Us is mainly focus on traditional toys and games sector. However, since the new technology is coming to the market, such as Ipad, X-box 2 and some new online games, the consumers’ needs are changing. More young children prefer the game in Ipad video game and online game rather than traditional toys; therefore Toys R Us is facing on high threat of substitution.
2.5 The intensity of rivalry among competitors in an industry Woolworths was the biggest toys and games retail in UK, after the collapse of Woolworths in 2008, Toys R Us, Argos, Disney and other online retail such as Ebay and Amazon became the major players in toys and games industry. In 2009, Argos has 24% market share which are top one in UK toys and games market. Toys R Us has 17% market share and Disney only has 3% market share (MINTEL 2010). Figure 4 shows the outlet, sales, positioning and evaluation of those major players in toys and games industry in 2010. (Figure 4, Source from: MINTEL Report 2010)
3.0 Porter’s Generic Strategies
In this part, this report focuses on Porter’s Generic Strategies to analysis the strategic positioning of the major play in toys and games industry. According to Dess, Lumpkin and Eisner 2010, Porter’s Generic Strategies include three strategies which are Differentiation, Focus and Cost leadership which a company can use for achieve competitive advantage and overcome five force. Figure 5 is made by the Porter’s Generic Strategies; this graph shows the main competitors for Toys R Us in toys and games industry. From this graph, we can find out Toys R Us is using differentiation strategy, the strategy for Disney Company is Focus strategy, Argos and amazon concentrated on Cost Leadership strategy. (Figure 5)
Differentiation can be defined as a strategy based on creating differences in the company’s product and service (Dess, Lumpkin and Eisner 2010). As this report has mentioned, Toys R Us is using Differentiation strategy. The
Company is providing different customer service as other competitors in the toys and games industry. According to Toys R Us 2013, every store of Toys R Us has an extensive Babies R Us department, inside of the Babies R Us included furniture, car seats, bedding, strollers, safety products, nappies and baby food for all parents and babies.
Moreover, the company can be achieved the Differentiation strategy by strong brand image and wide range of products. As this report mention at the induction, Toys R Us is one of UK’s leading toy and game retailer therefore the company has strong brand image to achieve the differentiation strategy. According to MINTEL 2010, Toys R Us provides large range of toys and other children-related products. There are some advantages of Toys R Us using the Differentiation strategy. Firstly, this strategy can improve consumers’ loyalty. Differentiation strategy can also help company to decrease the threat of substitute products. On other hand, there are few disadvantages for differentiation, consumer may prefer to purchase product from the company who using the cost leadership strategy.
Disney Company is using focus strategy. The products from Disney shop are related to the Disney film (Disney store 2013). The company is focus on the customers who like the Disney brand images, most consumers will decide to purchase from Disney store if they like watch the Disney films especially young children. Argos and Amazon are focus on cost leadership strategy. Both companies are offering wide range of toys and games with low prices.
4.0 Potential strategies might pursue in the future
In this part, this report will mainly focus on the strategies which the Toys R Us may pursue in the future.
4.1 Vertical Integration
Vertical Integration is an expansion or extension of the company by becomes its own supplier or distributor (Dess, Lumpkin and Eisner 2010). According to GIMD 2011, the key strategic objective and challenges for Toys R Us is extending private label ranges. Vertical integration is one of best strategy to achieve this objective. If Toys R Us becomes its own supplier, the company will much easier to extending private label ranges. Moreover, the company’s transaction costs are much higher than administrative costs, so vertical Integration becomes an attractive strategy for Toys R Us.
There are few benefits for Vertical Integration. Firstly, the strategy has benefits on access to new business opportunities, this will be helpful for Toys R Us achieve the objective of extend private label ranges. Secondary, this strategy can help Toys R Us to make sure the quality of the product, therefore this will help to increase the consumers’ satisfaction. Finally, Vertical Integration can help company to reduce the transaction costs.
4.2 Strategic Alliances
Strategic Alliances can be defined as two or more companies have a cooperative relationship (Dess, Lumpkin and Eisner 2010). As this report mention in the second part, most young children are prefer video games rather than traditional toys, so Toys R Us might concentrate on video games sector in the future, to development a new video game, the company will need a strong technology, the company might think about the Strategic Alliances. As this report mention before, Nintendo is a famous video game manufactures, the company has sold about 2.4 billion video game since 1983 (Nintendo 2013).
If Nintendo become an alliance partner with Toys R Us and development a new product with strong brand image from technology and high level of technology skill Nintendo, both companies will easy to increase the market share in the toys and games industry. The advantages for Strategic Alliances will be reducing manufacturing costs in the value chain. Moreover, this strategy will also help on developing and diffusing new technologies.
4.3 Internal Development
Internal development is focus on new products and new technology. According to GMID 2011, a key objective and challenge for Toys R Us is development of exclusive products, this strategy may help Toys R Us to achieve this objective. Moreover, the company is not having to using the Strategic Alliances to development a new video games, this strategy can help company to development own innovative product without having to share the wealth with alliance partners.
5.0 Conclusion and Recommendation
In conclusion, this report has concentrated strategic analysis on Toys R Us in toys and games industry. In the first part, the report has discussed the industry background and company overview. Then, the analysis of Poster’s five force model takes the second place. In the third part, this report analysis the Poster’s Generic strategies which show Toys R Us are concentrated on Differentiation strategy. Finally, the report mentions the several strategies which Toys R Us might pursue in the future.
After the report analysis those strategies for Toys R Us, we can give the recommendation on the best strategy for the future competitiveness. Figure 6 shows the benefit and risk of the three strategies for Toys R Us, compare those three strategies, all of strategies have both benefit and risk for Toys R Us, but we recommend that Strategic Alliances is the best strategy for Toys R Us in the future.
New product development is the main objective of Toys R Us, if the company can develop own video games product, it will easy to increase the market share in toys and games industry, Strategic Alliances is the only strategy which can help Toys R Us to achieve the goal in the fastest time. Internal Development may also help company to develop new product, but the company will need spend high cost on new product development and Toys R Us may not have enough technology skill on video game as the company such as Sony and Nintendo. (Figure 6)