Specialisations R’ Us

In his first interview since taking the helm of private equity-backed Toys R’ Us, new head Gerald Storch laid out an innovative strategy shift for the troubled retailer—and one that doesn’t necessarily mean the fire-sale of the chain’s real estate. By Aaron Lovell.

Gerald Storch comes from a discount store background with his work as the vice chairman at Target, so his new post as head of toy seller Toys R’ Us puts him in direct competition with his former employer. But this inside knowledge might be what the beleaguered toy merchant needs to get back on the right track.  

In a recent interview, Storch says he plans to build upon the chain’s status as a toy seller. To compete with the large discounters like Target and Wal-Mart, who have increasingly expanded into the toy market in recent years, Storch told the Associated Press that he plans to make sure store staff are knowledge about what kids want—and therefore able to make suggestions to clueless adults unaware what the younger set are clamoring for.

 “When a customer comes in our store, our people can tell them what’s a great toy for a 10-year-old boy for their birthday, because all we do is toys,” Storch said in his first interview since taking over. “When you go to a large, multi-product discount chain, you’ll be lucky to find someone who can point you to the toy department—or will even take you there—much less answer specific questions.”

The CEO also told the news service that he plans on cutting a number of the lowest priced toys—around 20 percent of the chain’s inventory—in an order to make the stores cleaner. Storch is also planning to expand the chain’s lucrative Babies R’ Us chain, as well as its overseas presence. These outlets reportedly account for half of the chain’s sales—and two-third of it’s profits.

When LBO shops Kohlberg Kravis Roberts and Bain Capital teamed up with real estate firm Vornado Realty Trust to purchase the chain last year, there was plenty of speculation that the chain would sell off a number of its stores to capitalize on the underlying value of its property. As retail deals came into vogue with LBO firms, the transactions oftentimes included a real estate specialist in the investor consortium, be it a REIT like Vornado or a private equity real estate firm like Pennsylvania-based Lubert Adler.

While Toys R’ Us shuttered around 100 stores, the chain is largely holding onto its property in case of a downturn in the market. “I view the real estate more as an insurance policy, and the kind of policy you hope you never have to use,” Storch said. “There is a lot of real estate value under our stores. But it’s not our objective or intent to close stores to capture that value at this point.”

The chief executive is no stranger at taking on the competition. Before taking over at Toys R’ Us earlier this year, Storch had been the vice chairman at the Minnesota-based Target since 2001. He joined the chain in 1993 as a senior vice president of strategic planning, eventually becoming president of financial services and new business.

Using his background in finance, Storch was able to make a number of positive changes in retail operations during his tenure at Target, particularly in its battle against larger retailer Wal-Mart. For example, Storch streamlined the retailer’s supply chain and improved its website, which, last fall, he claimed got more traffic than the site of larger rival Wal-Mart. While at Target, he also worked on the expansion of the company’s line of Super Target stores, which carry groceries in addition to clothing, toys and consumer goods.

Whether he will be able to improve Toys R’ Us’ bottom line remains to be seen, but the strategy of “strength through specialization” may help the chain reclaim dominance of the US toy market.