I’ve noticed that a significant number of leaders are feeling more emotional and more frustrated than I can recall in the 25 plus years I’ve been providing business simulation-centric learning engagements.  An example of this type of emotional frustration is demonstrated by the following quote from an experienced leader working in a very tough business environment that has been created by increased price pressures, commoditization, and an internal hiring freeze at his company:

As part of the design and development process to build new Business Leadership simulations,  Advantexe conducts in-depth interviews with top global leaders about their challenges and opportunities for success.  Over the past few weeks, I’ve been very surprised by one consistent theme coming from research; a significant number of leaders are extremely “frustrated” that their direct reports and their direct reports’ direct reports don’t “get the strategy” and aren’t “aligned around the priorities," leaving a significant gap in the strategic execution. 

“I truly don’t get it.  We are so clear about our goals and what our strategy is, but it feels that many of our leaders develop acute amnesia about it and instead of leading and prioritizing, they are complaining that they don’t get enough direction.  I for one have had enough of that…”

Responsibility and accountability are much more than business leadership jargon; in some cases, they may mean life or death.  Last week, news came out that Elizabeth Holmes, the founder of Theranos - a one-time Silicon Valley darling of Wall Street - was charged with “massive fraud” by the Securities and Exchange Commission (SEC) for deceiving investors and lying about a “revolutionary technology” that would have disrupt the process of testing blood samples and changed the course of medicine for years to come.  As a direct result of the false claims and deception, the value of Theranos reached $9 billion in 2016 and Ms. Holmes owned more than half the shares of the company making her for the moment a very rich person.  Clearly, the seduction of fame, money, power, and everything else she was striving for superseded fundamental values of human decency, values, and business ethics.

The way-too-easy narrative is that Amazon killed Toys “R” Us. That simply isn’t true, it’s not fair and it’s lazy from a Business Acumen learning perspective.  Toys “R” Us is going out of business because customers made the choice to purchase their toys from other entities and through other channels that provided a better value proposition that matched their needs.  In today’s volatile, uncertain, complex, and ambiguous business world having the right Business Acumen skills to see, understand, and make adjustments to your strategies and tactics can mean the difference between the life and death of your business.

The toy business is growing; in the United States it’s about a $30 billion industry and it’s shown steady increases of about 3-5% over the past five years.  That’s a very different story than a Blockbuster Video which died because of a fundamental disruption in technology that changed the entire market from videos rented in a store to streaming and downloading entertainment in a matter of a few seconds.  In the case of Blockbuster and in the case of Kodak, the existing market disappeared. Not so for Toys “R” Us and there are critical lessons to be learned.

At the macro-level, it looks like Toys “R” Us was stuck in a strategy that no longer worked and wasn’t able to provide customers with a clear and acceptable value proposition.  One of the most important elements of a good Business Acumen learning journey is to help participants understand that everything starts with strategy; you must have a clear, competitive, and winnable value proposition to your selected customers and then execute that strategy flawlessly to be successful.  You must also have a culture and leadership capability to adapt to changes and modify the strategy based on real data and analytics.

Based on research and experience, here are my five key Business Acumen learnings to take away from the Toys “R” Us failure:

The Consumer Experience Got Stale

Toys “R” Us hit a business peak of double digit revenue and profit growth in the late 1970s and into the mid 1980’s when retail shopping was a new, fun, and fulfilling experience.  For many traditional families of the day, going to the toy store and then stopping by your favorite fast-food restaurant was an entire day’s family experience.  Toys “R” Us was packed full of new toys and it could take hours to walk up and down brightly lit aisles exploring all of the new exciting adventures that awaited.  There was a certain anticipation and a certain sense of drama as Toys “R” Us was the place where all the new and exciting toys would make their debut akin to the runways of Paris.  But then the retail experience lost its luster. By the 2000’s, many more channels of information and many more channels to buy toys opened all of which diminished the Toys “R” Us value proposition. At the same time, the family structure changed and so did the notion of “family time.”  With multiple workers in a family household, time became much more valuable and the idea of spending the day shopping for toys became exponentially less attractive.

Phone Apps and Other Digital Experiences Have Disrupted Needs and Expectations

The Digital Age changes everything including the toy business.  Today’s kids want instant gratification on both their buying experience and their play experience.  Why wait weeks and perhaps even months to go to the toy store when you can download an app to your smartphone that will give you hours of play and entertainment?  The surge in online video games also plays a huge part here as once the consoles have been purchased the software and other updates can also be purchased online.

The Strength of the Product Value Proposition Supersedes the Channel of Distribution

While the easy answer is Amazon killed Toys “R” Us, I present a hypothesis that the strength the of products and brands destroyed them.  What I mean by that is the products and brands became so strong and so dominate, it doesn’t matter the channel.  The consumer is getting the same high quality and the same brand whether or not the Star Wars Lego set is purchased at Toys “R” Us, Walmart, or Amazon.  If the buying experience has changed and the buying process has changed, consumers can get the same product faster and perhaps cheaper, then there is no value proposition for Toys “R” Us; there is literally nothing left to differentiate on including price which they couldn’t do because of the burden of the heavy infrastructure and corresponding debt to build that infrastructure.

Specialized Retail is Becoming the Norm

In the cycle of retail – which is just a part of a process of getting products to customers – it was once an incredible thing to go to a “department store” and shop the different departments.  The value proposition was that you had the best of both worlds; specialization and many choices under one roof.  As time went on, the specialization became watered down because of a lack of space, a lack of skills, and a lack of growth.  In its place, we’ve seen the emergence of specialized retail stores with the best examples being Apple and Lego.  The Apple store experience is incredible but more importantly you are getting the best of everything; plentiful high-quality products and specialized service.  The Lego store is inviting and imaginative and kids feel welcome to spend hours playing, building, and exploring.

Lack of innovation

While consumers have the expectation of bright, new, and shiny specialty stores like Apple and Lego, Toys “R” Us was stuck in the same old stores that had become run down and old.  There was no innovation, and consumers got the sense that they were just hanging on with a business model that had become outdated.  In addition, the stores became even less friendly as all bags had to be checked at security and there was a perception of mistrust (some of it well earned) between the owners who were suspicious of shoplifters, and customers who didn’t want to shop in a place that made them feel like criminals.

As a former kid, current parent, future grandparent (I hope) and as a business professional, I will miss Toys “R” Us.  The lessons about it’s demise are valuable and we all need to remember that very few things in business last forever.  We need to listen to those weak signals from far away and adapt our strategies before the competition does.