Via Wall Street Journal
In a bid to battle the "showrooming" phenomenon that is hurting big-box retailers, Toys "R" Us Inc. said Monday it will start selling its own proprietary tablet designed for children.
The $149.99 Tabeo will be available only at Toys "R" Us, so shoppers won't be able to try it out in a store and then purchase it for less on a rival retailer's website. The tablet goes on sale Oct. 21, and pre-orders are now available online at Toysrus.com.
In addition to feeling pressure from online-only retailers such as Amazon.com Inc., the toy merchant also is facing stiff price competition on basic toys from Wal-Mart Stores Inc. and Target Corp.
"It is our strategic position to offer products that you can't find anywhere [else] or be compared on price," said Troy Peterson, a vice president at Toys "R" Us, which is based in Wayne, N.J.
But while private-label products generally have higher profit margins for retailers, Toys "R" Us faces significant risks as it makes its first move into house-brand electronics, experts said.
For one thing, there is substantial competition. The retailer priced its tablet significantly lower than the three similar child-oriented, Wi-Fi-equipped tablets already on the chain's shelves, but the makers of the Kurio 7, Meep and Lexibook quickly matched its $149.99 price tag, even though the Tabeo won't be available until late October.
Child-focused tablets also might compete with adult versions. The price of Amazon's Kindle Fire just dropped to $159, and parents trading up to a new Apple Inc. iPad might choose to hand over their old tablets to their offspring.
If the Tabeo doesn't sell well, Toys "R" Us will have a problem. Toy makers often guarantee the price of their products and will make up the difference if retailers have to discount the toys to goose sales. "The downside to private-label products is if they flop, and have to be discounted, the retailer can't beat up the manufacturers," said Sean McGowan, a toy analyst at Needham & Co. "That's not an insignificant part of the toy business."
The business has been under stress in recent years. U.S. toy sales fell 2% last year to $21.2 billion, a decline that the industry attributed to the weak economic recovery, a dearth of "must have" toys and children's increasing preference for digital playthings.
Toys "R" Us has struggled with price competition that has contributed to two years of profit declines while its annual sales of roughly $14 billion have remained relatively flat. Last week, the company said second-quarter sales at U.S. stores open at least a year dropped 3.4% and its loss for the quarter widened to $36 million from $34 million a year earlier. It said the results were hurt partly by declines in the global videogame business and Europe's weak economy.
The company, which is closely held but which reports earnings because it has publicly traded debt, filed to go public in May 2010 but has yet to make an initial public offering.
"Toys 'R' Us is in a really hard place," said M. Eric Johnson, associate dean of the Tuck School of Business at Dartmouth College. "The toy business is becoming a tougher game, and the Web is slowly killing off the big-box phenomenon."
The Tabeo is part of Toys "R" Us's strategy to fight 'showrooming,' in which shoppers check out items in stores then buy them more cheaply online.
Many parents still prefer buying toys in brick-and-mortar stores, especially if they need them quickly or want to inspect them first. But the Internet is gaining appeal. Dorothy Edwards, a Dallas mother with a one-year-old son, stopped by a Toys "R" Us last week to buy diapers as well as toys for her church's nursery. "With a baby, they frequently need things immediately," she said. "But when I can plan ahead, I do online shopping. There's more of a selection."
Last Christmas, tablets emerged as a hot seller for adults and children. The LeapPad Explorer, among the first tablets designed for children, sold out at most retailers and was resold on eBay for far above its suggested retail price of $99. The LeapPad, made by LeapFrog Enterprises Inc., doesn't connect to the Internet and focuses mostly on educational games.
The Toys "R" Us tablet, which uses Google Inc.'s Android mobile operating system, more closely resembles an adult tablet; it comes loaded with 50 free game applications, including popular titles such as "Angry Birds," and the retailer has developed its own app store with 7,000 titles.
Focus groups of parents and children prompted the company to include features that allow parents to control what websites their children visit and how much time they spend playing with the tablet. Read more here via Wall Street Journal