The founder of Toys R Us passed away yesterday (March 22) at the ripe old age of 94, barely a week after news broke that the toy chain would be closing its doors for good.
Charles Lazarus certainly accomplished a lot in those 94 years. Millennials across America singing “I’m a Toys R Us kid” in as solemn a fashion as possible this week are a testament to that. The store that started in Lazarus’ dad’s bike repair shop grew to dominate the toy industry and push competitors out of business.
In honor of Lazarus and the toy store that captured children’s imaginations (and parents’ dollars) for generations, let’s look back on the rise and fall of Toys R Us.
The Early Days
Charles Lazarus, born in 1923, opened his first children’s goods store in 1948. He had just returned from serving in World War II. At the time, all his friends were eager to go home, get married and have children.
Lazarus listened to people painting visions of the American Dream over and over, and what he heard was: opportunity. These hopeful parents would soon need everything it takes to care for an infant: cribs, carriages, strollers, high chairs. So, Lazarus opened Children’s Bargain Town in his father’s bicycle repair shop in Washington, D.C.
But parents weren’t coming back for supplies as they added more children to their families. They already had all the baby goods they needed. To inspire repeat business, Lazarus began selling inexpensive toys.
The toys eventually overtook the baby supplies business, spurring Lazarus to shift his focus fully to toys.
Toys R Us Is Born
In 1957, Lazarus renamed the company Toys R Us and adopted a supermarket-style approach to toy sales, with concrete or tile flooring and aisles upon aisles of children’s playthings. Thus, the first big box toy store was conceived.
It was the very origin of the phrase “kid in a candy store.” While competitors had small shops with limited product selection, Lazarus had it all at Toys R Us. No one had ever seen anything like it — and on the heels of the war and the Great Depression, it also evoked a new and pleasant sense of American abundance.
The great thing about toys, when compared to nursery staples, is that toys can break or go out of style much more quickly, requiring parents to return to the store more often.
Lazarus was able to purchase Japanese toys cheaply and in bulk as the country worked to rebuild its economy. Other producers were also happy to sell him toys for less, knowing the exposure and positive business they would gain on Toys R Us’ shelves.
The Making of a Giant
Family-owned toy stores simply couldn’t offer the level of discovery promised by Toys R Us. Department stores saw seasonal toy sales flounder due to the year-round demand (and fulfillment) created by this industry giant. And fueling it all was the rise of television, where brands such as Mattel could market their toys directly to children — stoking the fires of demand.
Toys R Us went public in 1978. Over the years, it catapulted the $500 million toy industry of the 1950s to a $12 billion industry by 1990. It once stocked 18,000 different toys in 1,450 global locations, owning a full quarter of the global toy market.
It also kept a variety of baby products on the shelves — because even when parents didn’t want to add to their children’s toy collections, they still needed items like diapers and formula.
Lazarus leveraged computer technology for inventory before most, which enabled him to discover trends faster than his competitors in the 1980s.
Slow Decline Sets in
Lazarus handed off the reins as CEO in 1994. Was that the beginning of the end? Or perhaps it was when the company was bought out by private equity firms in 2005. Or maybe, as CNN Money suggested, it happened when Walmart undercut its prices on diapers.
What’s certain is that the company started cutting back on its stock and struggled — along with every other retailer — in the face of rising eCommerce popularity. Stores became more and more dated. By the time the Times Square Toys R Us megastore closed in 2015, it was already too late for the chain.
In the end, Toys R Us dug its own grave in a way. The big box model it helped create ended up eating it alive as even bigger big box stores overtook it. This competition drove executives to reduce stock and continually slash prices — effectively, wrote History.com, slashing the magic with them.
Salvage Attempts Fail
Toys R Us went through four CEOs in 16 years, each tasked with the prospect of turning things around for the struggling company. However, debt continued to grow throughout this period, and top line sales growth eluded the company.
Private equity firms Bain Capital, Kohlberg Kravis Roberts and Vornado Realty Trust took Toys R Us private in a $6.6 billion leveraged buyout deal in 2005, aiming to position the company for a stock offering a few years down the road to let investors cash out.
The company did register for an initial public offering (IPO) in 2010, but the market stalled and sales continued to decline, leading the chain to withdraw its IPO registration in 2013.
In 2016, Toys R Us hired a law firm that specialized in corporate restructuring. In 2017, it filed for bankruptcy, planning to use the move as a springboard for an ambitious reinvestment plan to get back on its feet. Now, in 2018, it has succumbed to what may have been inevitable all along.
Nails in the Coffin
Just six months ago, CEO David Brandon had a plan to upgrade online sales, renovate stores and infuse the shopping experience with augmented reality.
However, according to USA Today, the company was already drowning in its own debt by then — around $5 billion worth.
It didn’t help that Toys R Us filed for bankruptcy in September 2017, creating uncertainty and driving business elsewhere going into the critical holiday season. That drove competitors to ramp up toy discounts in November and December. And it drove vendors to throttle back on supplies, fearing they would not be paid for their goods.
If the one-time juggernaut hoped that end-of-season holiday sales could save it as had occurred in the past, it was mistaken: A general decline in toy sales left competitors with plenty of inventory — and Toys R Us with no leverage to sell late at high margins after those competitors ran out of stock.
B2B startups haven’t seen an investment week this busy in some time. Funders had a range of startup targets in mind, but blockchain and small business banking were the big winners this time, though four funding rounds for blockchain companies couldn’t compete with the single largest funding round of the week, which landed at alternative banking startup N26. Still, with a combined $106 million raised, blockchain startups didn’t have a bad week either. Take a look at how more than $384 million in investments landed across the B2B tech landscape below.
Blockchain
Blockchain startup aXpire, which develops corporate spend management solutions, announced it raised $20 million as it looks to expand its product development into new markets beyond finance, including food and beverage, travel and leisure and transportation. The company deploys a Software-as-a-Service business model for its blockchain apps and said the funds will be used to enter new industries as well as explore the use of blockchain management. While aXpire highlighted the speed with which it raised funds (89 hours), it did not disclose who provided the funding.
A $65 million fundraise will help blockchain startup Plug — also known as PL^G — scale its platform, which aims to develop blockchain apps that operate in a broader, interconnected network of blockchain systems. The company is a collaboration between Qadre, Centrality and SingularDTV. Reports in City A.M. said Plug raised the funds via a token generating event (TGE), similar to an initial coin offering but with stricter anti-money laundering and Know Your Customer checks, the publication explained. In addition to the fundraise, Plug also announced a partnership with Wanda Group, KiwiBank and Cryptopia.
Created in the media lab of the Massachusetts Institute of Technology, Eximchain operates a blockchain platform to facilitate supply chain financing via smart contracts and its own token system. The company raised $20 million, reports this week said, with China-based cryptocurrency hedge fund FBG Capital leading the way. INBlockchain and Kenetic Capital also participated, according to reports. The company is planning a token airdrop that will offer 1.5 million EXC tokens, which investors can convert to native tokens on the firm’s platform when it begins operations.
While announcing $1 million in seed funding, Finhaven said it is also rolling out a blockchain-based securities law compliance solution. The Canadian company said this week that Korea’s Medici Investments provided the investment, which preceded the rollout of its equity and debt issuance platform that creates tokenized securities. Its service ensures regulatory compliance of creation, sale and future resale of security tokens, enabling companies to use a token sale to raise capital. Reports said Finhaven is currently exploring the creation of a blockchain-based securities exchange.
B2B payments
Aldrich Capital Partners announced a $26 million equity investment in accounts payable company Paymerang. The investment will buy out existing company investors and help Paymerang grow in its home base of Virginia with new jobs and expanded operations, the company said. Paymerang focuses on electronic supplier payment services and aims to reduce the amount of paperwork and manual processes in the accounts payable department, particularly when it involves the procure-to-pay process.
India- and U.S.-based Chargebee provides businesses with a way to manage subscriptions and recurring billing, providing both accounts payable solutions like recurring payments, as well as accounts receivable services like invoicing. The Software-as-a-Service startup announced $18 million in Series C funding this week led by Insight Venture Partners, while Accel Partners and Tiger Global Management also participated. The funds will be used to focus on product research and development, sales, marketing and expansion into new markets, reports said.
Cybersecurity
With $53 million in Series D funding, Sift Science said it will focus on international growth of its fraud detection and prevention solution. The company secured investment from Stripes Group, Union Square Ventures, Insight Venture Partners and Spark Capital, reports in VentureBeat said this week. The company uses Big Data and machine learning to detect payment fraud, fake accounts, account takeover and other types of financial fraud.
Data Management
Australia’s Ansarada offers corporates a digital “data room” for businesses that are about to undergo a major transaction, like fundraising or a merger. The company announced $18 million in Series A funding this week, which reports said will be used to fuel expansion throughout the U.S., EU, Middle East and Africa. Ellerston Capital led the investment round, while Tempus Partners, Belay Capital and Australian Ethical Investments also participated. Ansarada also noted that all advisory fees will be donated to charity. The company’s digital rooms allow businesses to manage and track data and documentation related to major deals while ensuring proper security of that information via customized accessibility for each professional. In addition to global expansion, the startup will use the investment on sales and marketing as well as product development.
Calibrate Management and Kimera led a $2.12 million Series A funding round for U.K.-based Funding Xchange, a platform that helps small business finance providers manage data for underwriting and decision-making. The company targets both traditional financial institutions and alternative lenders with its cloud-based services, with data aggregated via Open Banking initiatives, cloud accounting platforms and other sources. With the latest funding, Funding Xchange said it will continue to focus on the development of its technology and work to incorporate data streams in real time to support small business lenders’ efficiency.
Customer Management
With a focus on B2B Software-as-a-Service companies, CustomerSuccessBox provides its corporate clients with customer management software. The company announced $1 million in pre-Series A funding this week, with pi Ventures leading the round. Axilor Ventures also participated, reports said.
SMB Financial Services
Undoubtedly the largest funding round of the week, N26 announced $160 million in Series C investment. Reports in TechCrunch said Tencent and Allianz led the investment, while existing backers also participated. N26 operates as a challenger bank with a mobile-first service for consumers and small businesses. The firm first began without a banking license in Germany, but since securing regulatory approval, the company is operational across the European Union. The company now plans to explore expansion into the U.K. and U.S., reports said. The funding follows the introduction of N26’s freelancer bank account service last year.
https://www.pymnts.com/news/b2b-payments/2018/blockchain-business-banking-investment/
JPMorgan Chase could spin off its main blockchain project, Quorum, after deciding the efforts would be better off in the home of an independent business.
The Financial Times, citing people familiar with the situation, reported that Quorum — JPMorgan’s version of blockchain, aimed at making operations like clearing, derivative settlements and cross-border payments faster and more efficient — failed to resonate with rival banks that weren’t keen on using Quorum because it is so closely tied to JPMorgan. That resulted in JPMorgan deciding that Quorum would have a better shot at being an industry standard if it operated independently of JPMorgan.
In an email statement to the Financial Times, JPMorgan said: “We continue to believe distributed ledger technology will play a transformative role in business, which is why we are actively building multiple blockchain solutions. We’re not going to comment on speculation, but Quorum has become an extremely successful enterprise platform even beyond financial services and we’re excited about its potential.” The statement noted that JPMorgan plans to keep a minority stake in Quorum once it is spun off, which may happen in 2018. The Financial Times noted that Amber Baldet, the blockchain program lead at JPMorgan, could leave if it spins out the project — or she could opt to create her own blockchain project for the financial services industry.
The move comes as JPMorgan has had a rocky relationship with cryptocurrency, which is made possible because of blockchain technology. Last year, amid a huge run-up in the price of bitcoin, JPMorgan Chief Executive Jamie Dimon called it a fraud and vowed to fire any trader who was trading in digital tokens. He has since walked back those comments, saying he regretted making them and noting that he is a big supporter of blockchain technology. “I regret making [those comments],” Dimon said earlier this year. “The blockchain is real. You can have crypto yen and dollars and stuff like that.” JPMorgan isn’t the only bank eyeing blockchain technology, with many taking stakes in R3, which is a consortium of banks developing blockchain systems. JPMorgan pulled out of that consortium, noted the Financial Times.
https://www.pymnts.com/blockchain/2018/jpmorgan-spin-off-quorum-blockchain-project/
