When Toys ‘R’ Us folded its toy king creator died too. . . of a broken heart

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THE OFFICIAL CAUSE OF DEATH was reported as respiratory failure but, to me, any verdict other than ‘broken heart’ is a mischaracterisation.

Charles Lazarus, creator and guiding light of Toys ‘R’ Us for 46 years, died one week to the day after the company he founded in 1948 filed bankruptcy liquidation papers. He was 94.

In my corporate obituary of Toys ‘R’ Us filed the day the retail giant folded I wrote, “I cannot imagine what must now be gripping his emotions”; a broken heart, for sure.

It seems somehow fitting that Lazarus did not outlast his creation. Even if some parts of Toys ‘R’ Us may be resuscitated – toy suppliers are trying to cobble together a successor company – the chain will never be the same as when Lazarus commanded the toy industry.

I had the good fortune of knowing some of the titans of the retail industry during the last half-century. Among them, Lazarus would qualify for Mount Rushmore status. He invented the ‘category killer’ discount specialty store concept copied in numerous merchandise categories.

Retailers with his merchandising, marketing and operational skills, linked by strategic perception and unmatched passion, are rare birds. He will be missed by all who knew him and by countless children, some still young, some now grown up, some not yet conceived.

With the liquidation bankruptcy filing of Toys ‘R’ Us, the era of the ‘category killer’ store may be said to be over. Toys ‘R’ Us was the original ‘category killer’ chain that overwhelmed small specialty and large general merchandise stores by offering a supermarket-style presentation of wide and deep assortments of sharply priced category specific merchandise.

To be sure, a few copycat ‘category killers’ remain—Best Buy, Dick’s Sporting Goods, Bed Bath & Beyond, and even the struggling Barnes & Noble, to name several. But the graveyard list of ‘category killers’ is much larger.

When Toys ‘R’ Us began in 1948 if you wanted toys, an appliance or housewares item – virtually anything – you went downtown to a department store. There were no suburban department stores or suburban shopping centres back then.

President George Bush meets the toy King Charles Lazarus at one of his stores

Charles Lazarus used $4,000 to transform his father’s Washington, DC bicycle shop into a juvenile furniture store. After customers kept asking for toys, Lazarus quickly evolved his merchandise mix to focus on toys.

He believed staunchly in regimental uniformity. All business decisions – which products to carry, merchandising and store layout – emanated from headquarters. “I should be able to close my eyes and walk 130 feet and put my hand down and touch the very same stack of items in each store. If not, there’s something wrong,” he used to say.

Lazarus was an early believer in the power of point-of-sale data. He partnered with suppliers, accepting early inventory deliveries and sharing sales data in return for discounts and assurances that Toys ‘R’ Us would be kept in stock on the most wanted toys. The chain’s wide and deep inventory position became a strategic advantage when desperate parents and grandparents scavenged for the most wanted present during the holiday season. In-stock leadership, not price, cemented the company’s position as the go-to retailer for toys.

This advantage started to dissipate in the late 1980s as Walmart and Target refined their point-of-sale data systems. They concentrated on the hottest toys, selling them at discounted prices. They had more stores than Toys ‘R’ Us. Shoppers visited them more often. They siphoned off sales in buckets, not in dribs and drabs.

If you needed a specific toy, the place to go no longer was Toys ‘R’ Us. In the age of the Internet, you searched on line, Amazon most likely.

With the advent of electronic games, computers and hand-held devices, traditional toys began losing their cache among children. Toys ‘R’ Us added video games to its assortment, but one didn’t need to visit a store to upload apps to a hand-held device.

The real dagger to the heart of Toys ‘R’ Us and other retailers, however, has been the greedy tentacles of private equity fund managers. They swooped in to ostensibly rescue retailers, offering cash secured against a retailer’s real estate. Some merchants had lagged because they could not compete against more streamlined, better financed competitors. Some were unable to cope with changing market conditions. Some just had inadequate management. It mattered not to the equity funds. They reaped their profits upfront from the leveraged buyout transaction, from interest payments on the debt it provided and, hopefully, from taking a retailer public if its profitability improved.

Ever since Charles Lazarus retired from his creation in 1994, Toys ‘R’ Us has lacked an energetic, bold merchant at the helm. Profits lagged. The equity funds offered money, but at a highly leveraged price. Executives with no proprietary interest in a company, other than to maximize their personal returns, usually succumb to the siren song of a deep-pocketed equity fund. Bain Capital and Kohlberg Kravis Roberts, along with Vornado Realty Trust, loaded Toys ‘R’ Us with $5 billion in debt in a 2005 leveraged buyout.

The downward sales spiral kept Toys ‘R’ Us from paying off the debt and, ominously, from upgrading its stores and systems. All that’s left now is to sell off its real estate.

The last time I saw Charles Lazarus was about 15 years ago as I was leaving work. He was window shopping a store located on the ground floor level of New York’s Park Avenue office building housing Chain Store Age, the paper I edited. We exchanged pleasantries but even then, a decade removed from active Toys ‘R’ Us management, he resisted talking about the company he had founded. He always was a reluctant interview.

His proudest moment, he used to say, was paying off the creditor debt Toys ‘R’ Us assumed when its then-parent company, Interstate Stores, dragged it into Chapter 11 bankruptcy reorganisation in 1974. Other Chapter 11 filings have occurred, none under his watch.

When Troy’s ‘R’ Us filed for liquidation, the same market forces which silenced Lazarus’ once ubiquitous airwaves jingle – “I don’t wanna grow up, I’m a Toys ‘R’ Us kid …” – are sure to wreak havoc among remaining ‘category killer’ stores.

They also put paid to the Great Man himself

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