New Toys ‘R’ Us executive’s game plan calls for bold moves –

David Brandon at the company's Times Square store, which is scheduled to close on Dec. 30.

Toys “R” Us is heading into its most important sales season of the year with a new leader who is used to calling risky but high-reward plays.

The new chairman and chief executive officer at Toys “R” Us, David Brandon, was the Domino’s Pizza executive who was bold enough in 2009 to toss out the recipe for what was the top-selling home-delivery pizza in the country and replace it with one that became an even bigger hit.

Now Brandon needs to come up with a new game plan for a company that has struggled for more than a decade in the face of competition from mass merchants such as Walmart and Target, as well as online giant Amazon.

Brandon, who took the helm at Toys “R” Us on July 1, isn’t saying yet what changes he’s planning to make, but he is promising that they’ll be as bold as the changes he made at Domino’s.

“We’re operating at a moment where bigger ideas are required to break through,” he said in an interview with The Record. “There’s so much competition for the attention of the consumer so you need to commit to bigger ideas and you need to have bolder messaging to break through.”

Brandon kept a relatively low profile during his first 100 days on the job, but in late October he began meeting with toy industry analysts and reporters to talk about the challenges and opportunities he sees ahead for Toys “R” Us.

Brandon, 63, is taking charge of the country’s last major specialty-toy retail chain with several distinct advantages. He has the support of the three investment firms that own Toys “R” Us, having proved in the past that he can make money for them. One of the Toys “R” Us owners, Bain Capital, saw a 500 percent return on its Domino’s investment after Brandon led a successful public offering at that company.

He also is starting his job at a time when toy sales industrywide are forecast to be the most robust they’ve been in more than 10 years, with growth of 6 percent to 8 percent predicted. Toys “R” Us received a sales boost in September from the first release of toys tied to the new Star Wars movie, an event that drew thousands of collectors to its stores.

Perhaps most significantly, he is coming aboard just after the company has completed a two-year cost-cutting program called “Fit for Growth” that should allow Toys “R” Us to report stronger earnings and better profit margins going forward.

Closing two stores

The company’s balance sheet next year also should benefit from the closing of the FAO Schwarz store on Fifth Avenue, and the flagship Toys “R” Us store in Times Square, two stores costing the company $22 million a year, despite the fact they are beloved tourist attractions.

But Brandon, likewise, is inheriting the problems that have plagued his predecessors.

His top competitors for market share — Amazon, Walmart and Target — once again are cutting prices for toys and offering deals ranging from free shipping to free extended layaway to get parents to shop with them. Millennial mothers are increasingly inclined to shop online rather than bring their children to a store, and today’s youngsters are far more likely to beg for a chance to look at toys on an iPad, rather than clamor for a trip to the store.

Brandon had to hit the ground running, and make decisions about the crucial holiday season almost immediately after joining Toys “R” Us.

“It’s the most competitive time,” Brandon said, and it is also “the trickiest time to manage” the company. Toys “R” Us, every year at holiday season, goes from steady sales to a higher level of intensity. “It’s almost like flipping a switch and you’re bringing in tens of thousands of seasonal team members,” Brandon said. “You’re completely reconfiguring your supply chain, reconfiguring your product flow, reconfiguring your labor model, and suddenly dealing with 10 times more customers and more activity than you see at any other time of the year.”

The new CEO said he has been impressed with the talent level at Toys “R” Us, and thus far he seems to be willing to rely on those experts rather than micro-manage every decision. He has made two executive changes since taking the job. Hank Mullany, a former Walmart executive who was hired in 2013 as president of U.S. stores, was dismissed in August, and Brandon will be taking over his duties. Deborah Derby, the vice chairman who handled human resources duties, was let go in July, and replaced by former L’Oreal Group executive Tim Grace.

The two primary challenges Brandon sees for Toys “R” Us are figuring out how to make the stores more of a desired destination for children and parents, and creating strategies that keep shoppers coming to the stores all year round, not just during the holiday season.

“There are ways for us to leverage the fact that we wake up and focus on toys and babies every day, while most of our competitors wake up and focus on a thousand other things, other than six weeks out of the year,” Brandon said. “That positioning that we have to do must be unique and differentiating ourselves is the big opportunity,” he said.

Toys “R” Us, he said, has done “some really good things in the past,” but “obviously we need to do more and we need to do it better if we want to grow.”

Brandon said he was hired to get Toys “R” Us growing again, and get it “hopefully to the point where at some stage we could execute that IPO [initial public offering] and provide a liquidation event for the current owners.”

He said there is no hard and fast timeline or deadline for that event to happen. “Those decisions are not really driven by timelines,” he said. “They’re driven by results and trends. You want to go to market and sell stock when you have the best story to tell in terms of growth prospects and opportunities.”

New countries

At Toys “R” Us, Brandon sees opportunities to grow sales domestically and internationally and to expand into new countries.

Brandon joined Toys “R” Us as the company was preparing to close its two most glamorous locations — the FAO Schwarz store on Fifth Avenue, which shuttered in mid-July, and the Times Square Toys “R” Us store, which will close at the end of December. The decisions to shut down were made before Brandon was hired, and driven by real estate costs, but Brandon said they are the right moves.

The company is “feverishly” looking for another location in Manhattan, possibly for a combined Toys “R” Us and FAO store, but it has to be “commercially viable,” Brandon said. The FAO and Times Square stores had “vibrant sales” and lots of customers, he said, but high rents and other expenses meant the stores on an annual basis were costing the company $22 million.

Brandon has impressed those who’ve met him thus far.

“He has high energy. He’s willing to learn, he’s listening to a lot of people, taking it all in. And you know he’s a smart person,” said Jim Silver, editor of the toy, babies and pet products review site TTPM and a veteran toy industry trade journalist who has known every Toys “R” Us CEO since the 1980s.

As a new Toys “R” Us CEO at the start of the holiday season, Brandon has a twofold task, Silver said. “Number one you have to evaluate everything, and decide how you want the business to be going forward, but at the same time you have to worry about having a good holiday season,” he said. “I think he’s doing both.”