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Toys R Us and Maplin are the latest high-street names to be on the point of admitting defeat and closing their doors for the last time, but while “difficult trading conditions” and other such phrases seem to be commonplace in these situations, an objective look at the situation indicates that bad management was at least as much of a factor as national (or international) economics.  Here are the two main reasons why these companies have wound up where they are.

They offered an online experience in the real world

If there is one, key, reason, why both Toys R Us and Maplin ultimately failed, then this is arguably it.  In very blunt terms, it is virtually impossible for real-world stores to compete with their online counterparts on price alone, therefore, in order to succeed against their digital competitors, they need to compete on something else.  Up until now, many common “real-world” businesses have competed mainly on convenience, grocery stores are a key example of this, you go to the premises, you get to examine the goods before you put it into your trolley and you get what you want straight away.

Even though this traditional business model has been somewhat disrupted by digital, such as home-delivery services (by lorry or drone), it still has a lot in its favour, particularly in urban areas, where people are likely to be passing by stores in any case.  The convenience factor, however, applies most when people are under time-pressure, for example, in cities, where many people have small kitchens and little storage space, they are under pressure to shop regularly for food so that they do not run out.  Neither Toys R Us nor Maplin operated in that environment.  Toys are unlikely ever to be considered an emergency purchase and while Maplin did stock some items which could feasibly be classed as emergency purchases, such as standard batteries, the reality is that these items were often widely available elsewhere.

In the absence of time pressure, real-world stores generally have to offer something other than convenience to tempt customers through their doors (particularly given that in terms of pure convenience there is arguably little to beat pressing buttons on a tablet from the comfort of your own couch).  You need to offer goods which are not available elsewhere (such as specialty stores which sell their own merchandise) and/or offer an attractive retail experience (preferably and).  As a minimum, you need to offer meaningful customer service and neither Toys R Us or Maplin were ever highly regarded in this area.  Preferably, you want to offer special in-store promotions or events and if at all possible, you want to turn a shopping trip into a genuinely-enjoyable leisure experience.  Neither Toys R Us or Maplin ever put much effort into this area.

They failed to manage their finances effectively

For Toys R Us, the straw which broke the camel’s back was a £15 million VAT bill.  While VAT can be a thorny issue in certain environments, particularly the business-to-business environment, in retail it is charged to the consumer at the point of sale, so really there is no excuse for Toys R Us not having the funds available to pay a bill it knew would come due around now.  For Maplin, the death knell was probably sounded by its insurers’ decision to cut credit cover as a response to its falling profits.  Again, while credit can be a reasonable tool in the world of business as it can be in the world of personal finance, it has to be used with care, in other words, a credit line should not be thought of as a lifeline to stop companies needing to address more fundamental issues with their business model.

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