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RAINA+WILSON/Globe and Mail

You’ve got to hand it to Melanie Teed-Murch. Despite all that the president of Toys “R” Us Canada has been through—struggling for years to keep her company profitable while sending the fruits of that effort to its debt-burdened U.S. parent, only to have that parent fail anyway, launching a barrage of bleak headlines last fall that ripped a hole in her Christmas season earnings—she still has a smile on her face. Of course, one reason for the smile is that Teed-Murch’s company has come out the other side of all that trouble. Through the spring, as creditors stripped the American Toys “R” Us for parts and the future of her own division hung in the balance, Teed-Murch and her team made sales pitches to half a dozen prospective bidders. Her child-friendly positivity—and some solid numbers—convinced Fairfax Financial Holdings, led by billionaire investor Prem Watsa, to buy Toys “R” Us Canada’s 82 stores for $300-million and give the company a chance. Teed-Murch’s job now is to turn the negative publicity frown upside down, and a rare interview at her office in Concord, Ontario, just a few days after the Fairfax announcement, is a start.

In a nutshell, what went wrong at Toys “R” Us?

I’m not sure it’s a case of what went wrong, from a Canadian perspective. We were forced into a CCAA filing because we shared a debt facility with our U.S. parent. At the time, our sales were trending positively. For the last decade, we’ve been the jewel in the crown of global sales and EBITDA performance.

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Then tell me what you think went wrong with the U.S. stores.

The pace of change— I think that’s something our team would look at. Moving with our customer is something we’ve done very well in Canada: testing new technologies, moving with the pace of digital investment in our stores, the experience in our stores. That’s not something we moved with as quickly in the U.S. I think that’s a function of size—having more than 800 stores versus 82 in Canada. We’re a culture of vite and collaboration here in Canada. Size does impact speed.

Did you say a culture of veet?

Being vite. Being quick to market, decisive in decision-making. Putting our customer at the first thought of every action we do. I don’t think that was necessarily embedded into our U.S. culture.

You’ve been with Toys “R” Us for 22 years. Was there something 10 or 20 years ago the company could have done to take a better path?

Absolutely. Fifteen years ago in Canada, we embarked on a Toys “R” Us-Babies “R” Us side-by-side concept store. We have no free-standing Babies “R” Us stores. And the two brands are harmonious with one another.

You start on this journey with new parents, and they’re starved for information. It’s a perfect area where we can be authoritative experts and pull them through our Toys “R” Us family. In the U.S., they still have, to this day, free-standing 50,000-square-foot Babies “R” Us stores and freestanding 50,000-square-foot Toys “R” Us stores. Not even side by side or adjoined, but in different locales.

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When did things begin trending down a dark hole?

When we filed for CCAA (1, see footnotes) in September, 2017, it was fairly catastrophic. From a customer perspective, it created great confusion. From a supplier perspective, we were trying to build inventories into our most critical period of sales. That created uncertainty. In smaller companies, it created not wanting to do business with us. And that took us down a very steep decline from September to November. Canadians don’t understand CCAA, but they know it’s bad. At the most critical point of the year—in November, when I want people to be searching my web store—I was fighting with bankruptcy headlines, and searches for my URL came up below the fold at No. 8.

The official press release announcing the Fairfax purchase quoted Prem Watsa as saying, “We look forward to building for the long term and allowing the Toys “R” Us team in Canada to reinvest in the business instead of the past history of just sending earnings to the U.S.”

Very powerful quote.

It’s kind of a slap to your U.S. head office.

Mmm hmm.

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Who forced you to send earnings to the U.S.?

I don’t know if we were forced. As part of a global company, obviously we ladder into our U.S. parent company. And for the benefit of paying the $5-billion in debt, certain mechanisms and levers were required to hit those financial burdens.

Did you do it willingly?

Absolutely—we had to.

That’s an interesting choice of words. Did you fight the decision? At any point, did you stand up for Canada and say no?

I would say my job, proudly, is the leader of Canada. And my fighting, if you will, is always in the best interests of this division, both financially and for the betterment of my team members. Many times we may have had differences of opinion, and I would absolutely voice what I believed to be in the best interests of Canada.

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You never offered to resign over that issue?

[Long pause] No. I didn’t. No. It’s important to not have an ego when you’re part of a greater team. And if the betterment of our global company meant sending funds, then that was the best position at that time. At no time did that decision compromise the Canadian division.

Right now, what does a Toys “R” Us Canada store offer customers that can’t be found anywhere else?

I would start with a culture of expertise that’s second to none, from a toy and baby perspective. Our merchants spot trends before we know they’re going to be trends. As a parent or caregiver, or as a child, you know you’re going to find that next cool playground widget at Toys “R” Us. The store experience is something we do well, but we are not where I want us to be. We opened two new stores—in Langley, British Columbia, in July and in south Barrie, Ontario, this past November. (2) Those really embody our customer-centric experience: having vignettes of product storytelling, imagination-creation stations, having hopscotch on the floors, really having those moments of experience and delight.

I visited a Toys “R” Us store recently, and it was like walking into a Kmart. There were shelves and shelves of merchandise, but there was no life. There was no sense of creativity.

Tall gondola shelving, I’m sure. White, bright lighting.

Yes. Why weren’t you able to bring more of the experience you’re talking about to all your stores?

We haven’t had the capital to do so. Especially when the cash was being taken out of the country instead of allowing it to be reinvested. What you’re going to see in the very near future is a Toys “R” Us and Babies “R” Us that’s taking the learnings from these customer-centric stores, and dropping gondolas and creating customer-centric shopping experiences. Having 45 weeks of demonstrations. Every Saturday and Sunday, parents and grandparents should be able to bring their kids to Toys “R” Us and know there’s going to be something to do—launch or first-to-market events. Give us a little bit of time and you’ll start to see an infusion of newness, delight and experience.

Obviously Amazon is an issue for you. What do you have to change to fight more effectively online? (3)

Digital content—creating that tether between the bricks-and-mortar experience and the online experience. We know from our research that customers who shop both channels with us are more loyal and spend more money throughout the year. We really need to eventize parents and grandparents bringing those children in, shopping for convenience when they want to online and picking it up curbside.

I’m sure you’ve studied the mindset of customers. A toy purchase from Amazon versus a toy purchase from Toys “R” Us: Is there something different behind those two decisions?

I can’t say I’ve studied the research on it. But we know our customers shop for ratings and reviews; they shop for content; they shop for differentiation. Almost 30% of our product is differentiated, meaning you can’t buy it somewhere else. Most importantly, we want to be first. We want to launch the market. When we do so, we often have higher than 40% market share (4) on those items.

Why doesn’t Toys “R” Us have better prices than Walmart? You’ve been around longer (5) and you specialize in toys. Wouldn’t you have a better relationship with manufacturers?

The answer is, very simply, that we only trade in toy and baby product. We don’t sell bread. We don’t sell the clothing for mom and dad that they do. So our competitors have the opportunity of a full-basket shop to blend up the margin.

On to the Fairfax deal. How long have you known Prem Watsa?

I am meeting Prem Watsa this afternoon, and I’m very excited. I’ve obviously met with his team and the president, Paul Rivett.

What was the determining factor for choosing Fairfax? (6)

The harmony between their culture, their beliefs, and ours. They have retail, so there’s lots of opportunities for synergy across some of their other retail and restaurant banners. And there are no egos. We work as a team. That’s the culture here, and it melds perfectly with theirs.

Paul Rivett talked about “bringing the business into the modern retail era.” What does that mean to you?

To me, it means creating storytelling and experience in-store. It means knocking down those tall gondola shelves, having sight-lines. Being able to navigate, and creating vignettes of experience around the store. That’s modern retail. Let your children go through the imagination-creation station. Let them colour or make a Lego make-and-take, or play with PlayDoh. Let them experience the power of play.

Will you be adding coffee shops or something else for parents?

We’re currently evaluating a number of exciting opportunities, from birthday rooms to adult experiences. You’ll see some test-and-learn strategy from us in a few stores this fall.

Your sales are just over $1-billion. How high can you go?

It’s really looking at what are all those other businesses that our customer uses day-to-day that we are not offering. We’ve aggressively expanded our online marketplace, and we allow customers to buy in-store and ship to their homes. So if you’re using a small appliance at home to make a smoothie in the morning or a lit-up makeup mirror as a mom, we want to be in every business you use in our demographic.

Given what happened, is there anything more that you personally could have done?

I would’ve loved to open Langley and south Barrie two years ago. Perhaps the 50 stores we are looking to touch (7) would already be done, and Canadians would already be having that experience and handshake.

When you look back, when was the most fun time for you?

The early 2000s. I’d just become a mom, and seeing product through my son’s and daughter’s eyes was probably the most exhilarating time. Fast-forward to today and we have this amazing journey ahead of us, where we are at the helm, controlling the vision on our own, with our new partner. I have never been more excited to get out of bed in the morning and get to work.


Footnotes:

  1. The Companies’ Creditors Arrangement Act allows companies to avoid bankruptcy while they restructure.
  2. These two stores are incubators for new ideas. Sales in Langley have increased by double digits compared with stores in similar markets.
  3. 14% of Toys “R” Us Canada’s Sales are online.
  4. Toys “R” Us Canada is the country’s second-largest toy chain, with 25% of the market. Walmart is No. 1.
  5. Toys “R” Us opened its first store in Canada in 1984. Walmart came to Canada 10 years later.
  6. The final choice was up to the Toys “R” Us Canada board and current equity ownership. As a fiduciary for Canada and head of the board, Teed-Murch had a strong voice in the decision.
  7. “Touch” is Teed-Murch’s term for a store alteration that’s not a full reno.
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