Charles Lazarus: Toy Titan
"Listening to the customer is probably the best thing in the world. Almost all that we have here and now, and how we expanded the business came from the customer saying 'I need.' or 'I want."-Charles Lazarus
Mention the name Toys "R" Us, and children's faces immediately light up. And that's just the way Charles Lazarus likes it. The first retailer to mass-merchandise toys at across-the-board discount prices, Toys "R" Us Inc. has been called one of the biggest success stories in retailing in the past 20 years. And its founder, Charles Lazarus, has been called one of the few geniuses in the business. Ironically, what led Lazarus to pioneer the first one-stop-shopping supermarket for toys was a disgruntled mother and a broken doll.
After returning from World War II, Lazarus decided to go into business for himself, so he rented his father's former bicycle-repair shop on the ground floor of the house he was born and grew up in. "I came out of the service after the war, and everyone I talked to said they were going to go home, get married, have children and live the American dream," Lazarus explains. "I had saved a few dollars in the service, so I decided that I would open a store in my father's bicycle-repair shop. But instead of selling bikes, I would sell cribs, carriages, strollers, high chairs.everything for the baby. My instincts told me the timing was right." His instincts proved to be correct, and thanks to the postwar baby boom, Lazarus experienced several very good years.
As he learned the ins and outs of running his first store, Lazarus began to realize that the key to his success lay in listening to his customers' needs and fulfilling them. Early on, a woman asked him for some toys to go along with a crib she was buying. Having none, he quickly added a few basic playthings to his stock. It wasn't long before a customer came in to replace a doll her baby had smashed. Lazarus quickly realized that people who bought toys returned for more. Those who bought cribs or high chairs generally didn't return. Lazarus got the message and switched to selling mostly toys, an industry where there was little organized competition.
Sales rapidly increased, and Lazarus began searching for new and better ways to take advantage of the now booming toy market. That's when he hit upon the idea of selling toys in a bigger environment. Expanding his shop into an empty supermarket next door, he lined the shelves with box after box of toys, which he offered at discount prices. The combination of selection and pricing was an immediate success.
"It was amazing," he remembers. "We were probably the first ones selling toys and juvenile products at a discount. Here we were, located in the middle of Washington, DC-and customers had to go find parking, which was really hard to do. But one customer told another, and all the word-of-mouth really worked for us."
It worked so well that by the early 1950s, Charles had made enough money to open a second store. Shoppers flocked to his "cash-and-carry" stores, knowing that they would find a vast array of toys and almost every style of stroller or crib, in stock and at reasonable prices. But toys were still his bestsellers.
So in 1957, Lazarus opened a second "toy supermarket," which he named Toys "R" Us, with the "R" backwards. The second store was certainly a risk. Although his first "cash and carry" toy store had been a success, specialty retailing and off-price positioning were revolutionary concepts in those pre-mall, pre-discount days. Plus, toy retailing was seasonal. Department stores, which dominated the toy business at the time, made 70 percent of their sales during the six weeks before Christmas. In order to survive, Toys "R" Us would have to be able to successfully sell toys year-round, something that was unheard of in the industry at the time. But once again, Lazarus' timing couldn't have been better. The growing popularity of television, and thus television advertising, gave rise to the phenomenon of "hot toys"-toys that every kid wanted and "just had to have," regardless of what time of year it was. So Lazarus made sure parents knew exactly where to find them, and at discount prices: Toys "R" Us.
In 1966, Lazarus had four stores that together sold about $12 million worth of toys each year. To finance further expansion, he sold the whole operation to Interstate Sales for $7.5 million in cash. As part of the deal, Lazarus stayed on as head of the toy division. Toys "R" Us continued to flourish under Lazarus' direction, but the same was not true of Interstate. A victim of ill-managed growth, the company was forced to file for bankruptcy in 1974.
Lazarus convinced the bankruptcy court to let him oversee Interstate during this crucial period. Through a combination of persistence, careful business decisions and heavy investments in talent and technology, Lazarus began the task of restructuring. He sold off or liquidated the unprofitable operations, retaining his toy stores, and in just four years Interstate emerged from bankruptcy and was renamed Toys "R" Us.
Fueled by the energy and enthusiasm of the remarkable comeback, in 1983, Toys "R" Us opened even more stores in the United States, started a chain of children boutiques called Kids "R" Us and began expanding internationally, opening stores in Singapore and Canada. In 1993, the company continued its international expansion by opening stores in Australia, Belgium, the Netherlands, Portugal and Switzerland.
Lazarus remained at the helm of Toys "R" Us until 1994, when he relinquished his CEO title to Michael Goldstein. He remains with the company as chairman emeritus, devoting his time to the international focus of the business, serving as a sort of Toys "R" Us ambassador to foreign countries where the company hopes to open new stores.
But as it enters the 21st century, Toys "R" Us faces growing competition from deep discounters such as Wal-Mart and warehouse clubs like Price/Costco. Ironically enough, these companies have grown to prominence using the same one-stop-shopping strategy pioneered by Lazarus more than 37 years ago.
Against The Grain
From the very start, Charles Lazarus approached retailing differently than most of his competitors did-especially when buying and pricing merchandise. For example, many retailers set their selling price based on what they paid wholesale. But not Lazarus. He would decide at what price he thought he could sell great volumes of the product, and then he would determine what price he would pay the wholesaler.
Thinking Outside The Jack-In-The-Box
Charles Lazarus realized early in his career that the way customers perceive you is one of the most important factors in success. And Lazarus was a master at projecting the image he wanted for Toys "R" Us Inc. By creating stores with row after row of shelves stacked to the rafters with toys, he gave his customers the impression that his store had a virtually limitless selection, and no mater what toy they were looking for, Toys "R" Us would have it.
Along with selection, Lazarus also wanted his customers to feel they would always get the best price at Toys "R" Us. He often sold hot products for little or no profit to maintain this low-cost image. For instance, in 1977, an electronic game called "Simon" was one of the most popular toys on the market. It was also in short supply. While some stores took advantage of the demand and charged more than $30 for the game, Lazarus charged less than $20. Why? Because he figured that shoppers would believe everything else in his stores must also be bargain-priced.