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Competitive Forces Analysis Essay Discussion Paper Question (0) Mini Case (Toys ‘R’ Us) Toys ‘R’ Us Exemplifies the Apocalypse in the Retail Industries. More than 10,000 stores closed in the United States in 2017. The companies that have gone bankrupt or are in serious financial trouble read like a list of Who’s Who in retailing, The ones that could default in the near term include Sears, Neiman Marcus, Payless, J. Crew, PetSmart, and Steak ‘n Shake, among others. But, perhaps the bankruptcy of Toys ‘R’ Us in 2018 caused the most angst among consumers because they remember what it used to be and know what it could have been. Toys ‘R’ Us was a dominant retailer of toys that had devoted customers and toy manufacturers. The stores had every conceivable toy and became a ‘one-stop-shopping destination’ for most parents. It also reached out to and fostered the development of many small and medium sized toy manufacturers who largely owed their existence to Toys ‘R’ Us. At one time it was perhaps the most significant toy retailer in the world. As it grew, many of its competitors went out of business. Yet, after the founder stepped down from the CEO position, a succession of CEOs became complacent. Toys ‘R’ Us stopped analyzing its competitors, didn’t invest in and update its stores, and began to lose the devotion of its customers Competitive Forces Analysis Essay Discussion Paper.

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This made it vulnerable to new competition. Essentially, by ignoring competition and maintaining the status quo, it let competitors take advantage by better serving its customer base. Large retailers such as Walmart and Target began to grow their toy sales and take market share away from Toys ‘R’ Us. And then Internet sales began to take market share. To respond, Toys ‘R’ Us signed an exclusive agreement to sell its toys over the Internet with Amazon. The contract was expensive (about $50 million annually), and Amazon did not only sell the toys from Toys ‘R’ Us. In fact, Amazon created an Internet marketplace selling multiple brands’ and companies’ toys. As such, Toy ‘R’ Us paid Amazon to become a substantial competitor. At the height of these problems, Toys ‘R’ Us was sold to private equity investors who completed a leveraged buyout that saddled the company with substantial debt. With large debt payments, fewer resources were available to invest in the stores and to respond to competitors. Thus, in 2018 it filed for bankruptcy, closing all of its stores. The exit of Toys ‘R’ Us leaves its two biggest competitors, Walmart and Amazon, now locked in a rivalry of their own. Sources: Toys ‘R’ Us, www.msn.com, March 18; 2018. Refer to the mini case above, answer the following questions: a) What is Porter’s 5 competitive forces analysis, and for what reason it is used? b) Make a simple 5 forces analysis for each force for the mini case above. c) Regarding the mini case above, what would you consider the source of Toys R Us’s dismay? Use 5 forces analysis as a foundation to your answer Competitive Forces Analysis Essay Discussion Paper. Expert Answer This solution was written by a subject matter expert. It's designed to help students like you learn core concepts. Step-by-step 1st step All steps Answer only Step 1/1 a) Porter's 5 Competitive Forces Analysis is a framework that identifies the five forces that shape competition in an industry: the bargaining power of suppliers, the bargaining power of buyers, the threat of new entrants, the threat of substitute products or services, and the intensity of competitive rivalry. EXPLANATION a) Porter's 5 Competitive Forces Analysis is a framework that identifies the five forces that shape competition in an industry: the bargaining power of suppliers, the bargaining power of buyers, the threat of new entrants, the threat of substitute products or services, and the intensity of competitive rivalry. The framework is used to analyze an industry's structure and profitability potential. b) Here is a simple 5 forces analysis for each force in the mini case above: Bargaining power of suppliers: Toy manufacturers had some bargaining power over Toys ‘R’ Us, as it was a major customer for them. However, Toys ‘R’ Us also fostered the development of many small and medium-sized toy manufacturers who largely owed their existence to Toys ‘R’ Us. Overall, the bargaining power of suppliers was moderate Competitive Forces Analysis Essay Discussion Paper. Bargaining power of buyers: Parents were the primary buyers of toys at Toys ‘R’ Us. They had some bargaining power because they had many options for purchasing toys, both in physical stores and online. As Toys ‘R’ Us lost the devotion of its customers by not investing in and updating its stores, and by ignoring its competitors, its customers had even more bargaining power. Overall, the bargaining power of buyers was high. Threat of new entrants: The threat of new entrants was moderate. Toys ‘R’ Us had a dominant position in the toy retailing industry, and as it grew, many of its competitors went out of business. However, large retailers such as Walmart and Target began to grow their toy sales and take market share away from Toys ‘R’ Us. Additionally, the rise of online shopping made it easier for new entrants to enter the market. Threat of substitute products or services: The threat of substitute products or services was high. Parents had many options for purchasing toys, including physical stores and online retailers. Toys ‘R’ Us signed an exclusive agreement to sell its toys over the Internet with Amazon, but Amazon also created an Internet marketplace selling multiple brands’ and companies’ toys, making Toys ‘R’ Us just one of many options for customers.

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Intensity of competitive rivalry: The intensity of competitive rivalry was high. Toys ‘R’ Us faced competition from large retailers such as Walmart and Target, as well as online retailers such as Amazon. As Toys ‘R’ Us lost the devotion of its customers, its competitors took advantage by better serving its customer base. With large debt payments, fewer resources were available to invest in the stores and to respond to competitors Competitive Forces Analysis Essay Discussion Paper. Final answer c) The source of Toys R Us's dismay was primarily the result of losing the devotion of its customers by not investing in and updating its stores, and by ignoring its competitors. As a result, its customers had more bargaining power, and its competitors took advantage by better serving its customer base. With large debt payments from a leveraged buyout, fewer resources were available to invest in the stores and to respond to competitors, leading to the bankruptcy and closure of all its stores Competitive Forces Analysis Essay Discussion Paper