Ann Zimmerman writes in the WSJ:
In an effort to compete with the Amazonian online juggernaut, and the price mongers Wal-Mart and Target, Toys “R” Us wants to offer products that only it can sell. One of these new gadgets is the Tabeo, a children’s tablet equipped with Wi-Fi, 50 preloaded games and priced at $150.00
According to Zimmerman, the strategy of offering in-house products was developed to combat the shopping trend known as “show-rooming.” This is where consumers check products out at the store only to buy it online for cheap. (I think this is how 68% of Americans buy shoes).
The odd fact about this story is the incredible risk Toys “R” Us is taking by churning out its own hardware.
If the Tabeo doesn’t sell well, Toys “R” Us will have a problem. Toy makers often guarantee the price of their products and will make up the difference if retailers have to discount the toys to goose sales. “The downside to private-label products is if they flop, and have to be discounted, the retailer can’t beat up the manufacturers,” said Sean McGowan, a toy analyst at Needham & Co. “That’s not an insignificant part of the toy business.”
So if little gremlins aren’t begging their strung out parents for a Christmas Tabeo, Geoffrey and his boardroom of giraffes will have to eat the losses. Considering that all three of the children’s tablets on the market dropped their prices to match the Tabeo, this seems very likely.
Aside from these rival gadgets, Toys “R” Us faces daunting challenges as online shopping renders large box-stores obsolete. Writing for Slate earlier this year, Farhad Manjoo describes the same obstacles facing Best Buy. He argues that the giant electronics vendor should scale down their operation, sell far fewer products, and cultivate expert, knowledgeable customer service – Apple Store style.
While I don’t think the same argument can be made for a toy store, (isn’t part of the appeal of Toys “R” Us the kind of boyish wonder it’s endless aisles inspire? Tom Hanks knows exactly what I am talking about.) the giant-warehouse style will eventually be squeezed out by Amazon.
Something needs to change. But manufacturing an unremarkable children’s tablet doesn’t seem like the game-changing strategy needed to save Toys “R” Us.