Toys 'R' Us CEO on Holiday Shopping

Toys "R" Us' Gerald Storch on how he's managing the toy retailer as we head into one of the worst holiday seasons in decades

Gerald Storch, CEO of Toys "R" Us, has been working on turning around the business since he took the helm in 2006. Sales had been slipping for years and in 2006 the struggling toy retailer was taken private by Bain Capital Partners, Kohlberg Kravis Roberts & Co., and Vornado.

Now the toy retailer has regained some momentum. Storch has improved same-stores sales, brought in new management, and earned kudos for his strategy to combine Toys "R" Us and Babies "R" Us stores in newly designed superstores to draw in customers more regularly throughout the year. Storch launched the most recent superstore in Secaucus, N.J., on Nov. 19 and discussed the toy retailer's strategy for the upcoming holiday season. Edited excerpts of his responses to questions from BusinessWeek magazine staff editor Aili McConnon follow:

How has the economic crisis affected your consumers?

There is a new frugality but I believe to counter that, customers believe this is a smart time to buy products because prices will be good.

How are you reaching out to customers who are more budget-conscious this year?

We believe that in good times and bad the last thing parents will cut back from their budget is the Christmas present for their child. There's a lot of research and history behind that statement. We had a very good holiday season last year when much of retailing had a bad season. We don't believe it's necessarily as bad as people are saying.

What are the opportunities in a downturn?

Right now we're going through one of the most difficult economic periods in our lifetimes and there will be very few retailers who emerge unscathed this holiday season, but for the survivors the opportunity on the other side is golden. There will be hundreds and hundreds of closings of stores after Christmas and some before Christmas. There will be a tremendous amount of real estate that becomes available and it's an opportunity to do something different. In a lot of cases it will be someone sitting right next to our toy or baby store that goes out of business so that makes it an easy opportunity to expand into that space in a superstore configuration.

What is the value proposition to customers who can also go online or to Walmart (WMT) for toys?

We have one of the best toy Web sites. The Internet continues to be a growth channel for us though it is a minority percentage of sales. In our store environment, our advantage is we have more product and we actually have service. We have people who understand the product and can help you pick the right product. That's critical when dealing with children from a safety standpoint and from a kid-satisfaction perspective.

The breadth of assortment should not be taken lightly. The principal market-share competitors are discounters that carry a very limited assortment. If you want to see the world's largest assortment of Lego, you need to come to Toys "R" Us. We have more product than the competition

How do you manage your employees in a downturn when their worries can include layoffs, credit-card debt, and making mortgage payments?

There is no time for panic or for lack of focus. We need to get even more focused on business essentials. That means making sure we have the right products, making sure the right products are in stock in the store, making sure the marketing is aggressive and clear to customers. We are five weeks before Christmas—it's time to execute.

I also tell our people it's critical to retain a positive demeanor. There is so much negative news out there that people have gotten into a downward spiral. Certainly you can't perform well at any job if you're feeling negative. No one here created the economic conditions. Let's do our best to deliver results and fun to our customer. We stand for fun so we should have fun ourselves doing it even thought it's a difficult time.

Most people do still have jobs and have fun. Most people have been scared into hoarding that cash. How do you change that sentiment? I think Obama should come out and say "everyone should go shopping. If you don't have a job we will help you. If you do, go shopping."

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