Retail expert says Toys "R" Us' ability to invest in its Canadian retail branch has been sucked away

VANCOUVER (NEWS 1130) – Toys “R” Us Canada claims it’s “business as usual,” despite its parent company filing for bankruptcy and looking to liquidate.

“Toys ‘R’ Us Canada remains committed to serving its customers in all of its 82 stores across Canada, which remain open for business in the normal course,” the company says in a release.

Along with a number of stores south of the border, a California-based toy company has put in a bid to buy the remaining Canadian locations, which are operated autonomously from US operations.

As the hope to save Canadian stores grows, a retail expert says the company needs to rethink its model if it wants to last long-term.

“Toys ‘R’ Us are kind of caught as one of those, a little bit anachronistic retailers that was big box in format, and basically just selling a lot of stuff — basically toys — at low price,” explains David Ian Gray with DIG360. “That’s right in the crosshairs of Amazon and other online sellers.”

He says these types of stores are costly to operate, as stores that were designed for the early 2000s have gone out of style.

“Ultimately it’s really, really almost impossible in that economic model to price-compete with Amazon,” he says. “Regardless of how people are behaving, there’s so much more competition that’s driving down price, and particularly online.”

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Though e-commerce is on the rise, Gray says Canada isn’t quite in the same boat when it comes to competing with online sales.

“[They] have not reached the adoption level that we’ve seen in the US — at least not yet. And also, most Canadians find it easier to get to big boxes and malls in Canada. It’s not quite as arduous a journey, so we haven’t quite seen the same pattern as the US.”

However, with its parent company in demise, Gray says Toys “R” Us’ ability to invest in its Canadian retail branch has been sucked away. “It’s really a shell of what it used to be.”

Tens of thousands of people are expected to lose their jobs after stores in the US shut their doors. While there are hopes that Canadian locations can be saved, Gray says it’s unlikely it’ll be for very long if nothing changes.

“I think the Canadian stores can stay open, but I don’t see them staying open in any kind of close proximity to the current format for the long term,” he tells NEWS 1130.

“I can see them holding on awhile longer — maybe two to four years in the kind of format they’ve got — and maybe really paring back to a select number of stores. But certainly as it shrinks, they won’t have the buying clout that they used to have, and eventually their price competitiveness erodes even further.”

Gray adds we’re seeing more and more Canadian retailers have US parent companies, and some parallels can be drawn with businesses like Sears, which shut down last year.

“When it’s a foreign-owned company and their core business and their domestic market gets into trouble, the managerial attention, the resource attention falls away from Canada quite rapidly. Any business needs re-investment. But any kind of profitability you might have seen in Canada is getting sucked into the US over time.”

He says looking to companies like Best Buy as retailers who’ve transformed their models could be helpful, but admits other electronic businesses like Radio Shack have had to shut down.

“If they were to go through a major, major re-thinking and re-design of what they are as a retailer, as the interface between a product and a consumer… they may have a shot at pivoting, or turning around what they’re doing. But it would need a concept reinvention.”