Case Study: PESTLE Analysis of Toys “R” Us in the Australian Market

This case study analyzes the failure of Toys “R” Us in Australia using the PESTLE framework. It examines political factors such as the lack of government support in managing debt and high labor costs, economic factors including currency exchange rates and competition from online retailers like Amazon and domestic supermarkets, social factors such as changing preferences of children towards digital games and lack of brand loyalty, technological factors like the failure to innovate and poor online services, legal factors including compliance with Australian Consumer Law and product safety standards, and environmental factors such as the increasing preference for eco-friendly products. The analysis concludes that a combination of these factors contributed to the company's bankruptcy in Australia. Desklib offers this case study and many other resources for students.

Business Environment
Toys “R” Us

PESTLE Analysis of Toys “R” Us
Political
The political stability in Australia benefited Toys “R” Us in establishing 44 stores
throughout the country. Australia is a growing economy which assisted in growing the
business of Toys “R” Us as well. However, the profitability of the company suffered due to a
substantial amount of debt. Furthermore, its business was struggling in Australia due to high
labour costs. The company has hired over 700 employees in its stores situated in Australia,
and it was struggling to pay their salaries (Mullen, 2018). There was not political support
given by the Australian government to the company to pay back its debts which resulted in
its bankruptcy.
Economic
One of the key factors which affected Toys “R” Us is currency exchange rates. The
costs of maintaining and running the stores in Australia were considerably high while the
company was facing a significant debt. The entry of Amazon in the country resulted in
negatively affecting the trade cycle of the company. Most people prefer to purchase
products online rather than visiting the stores. Along with online competitors, the company
was facing severe struggle from larger domestic supermarket style retailers which include
Big W and K-Mart (BBC, 2018a). These retailers sell a wider range of products along with
toys which makes it easier for adults to purchase while they are on grocery shopping. In
order to reduce costs, most Toys “R” Us stores were situated in “out-of-town” locations
which reduce the number of visitors. Due to the high currency exchange rate and substantial
competition from online and offline corporations, Toys “R” Us failed in Australia and filed for
bankruptcy.
Social
As per Kate Hardcastle, “Kids are changing”; now kids prefer to play with
smartphone and mobile applications rather than physical toys (BBC, 2018b). They can easily
download a mobile application in 30 seconds whereas they have to ask their parents to visit
Toys “R” Us stores. Furthermore, it is easier for parents as well that the kids prefer to play
with smartphone or tablets because it requires less monitoring, and they are learning
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devices as well. Parents also save their time to visit a toy store. Furthermore, online retailers
such as Amazon and domestic retailers such as Big W were providing competition to Toys
“R” Us in terms of pricing. When it comes to toys, brand loyalty to the manufacturer is not
substantial. Children did not mind where the toys come from as long as they can have new
kids. Therefore, parents in Australia prefer to buy toys from either online or domestic stores
to save money. Moreover, Toys “R” Us lacked imagination, and they were selling out-dated
toys which did not appeal to children (BBC, 2018b). Most children in Australia did not relate
to the toys in the store which were America based such as Geoffrey, the giraffe. Due to lack
of innovation, Toys “R” Us was unable to attract new customers while at the same time
retaining its old customers. It resulted in affecting the profitability of the company and
increased its overall debt which leads to its bankruptcy.
Technological
Toys “R” Us was not relying on the technology to innovate its products and services.
With the popularity of smartphones and tablets, the sales of video game segment suffered
substantially. The company did not use technological advancements to improve the
efficiency of its manufacturing process which would have reduced its overall costs.
Furthermore, the online services of the corporation were relatively bad, and they did not
appeal to a broader audience. The company did not sell its products online in Australia
which makes it difficult for Australians living other than urban areas to purchase its
products. On the other hand, Amazon used the latest technology to provide high-quality
services to its customers, whereas, Toys “R” Us failed to do so (Bomey, 2018). Additionally,
due to the advancement in technologies such as smartphones, tablets and the internet
adversely affected the sales of Toys “R” Us and its profitability which leads to its bankruptcy.
Legal
In Australia, retailers have to comply with strict regulations and guidelines to ensure
the safety of customers. Since Toys “R” Us offered products for customers, it had to comply
with stringent regulations to ensure that its products are safe for children (Product Safety,
2018). Toys “R” Us had to comply with the Australian Consumer Law (ACL) while dealing
with its suppliers and retailers to maintain a safety standard while manufacturing its
products (Business, 2018). Furthermore, various mandatory product safety and information
standards are issued by the Australian Competition and Consumer Commission (ACCC)
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which ban on toys which are made of harmful chemicals. Furthermore, it has to comply with
the Competition and Consumer Act 2010 which imposed various fair trading regulations on
the company (Business, 2018). Compliance with these policies affected the sales of Toys “R”
Us in the country.
Environmental
The popularity of environmental protection and eco-friendly products has increased
across the globe. People did not prefer to purchase products which are hazardous to the
environment. In Australia, corporations such as Woolworths are focused towards banning
plastic and using eco-friendly methods while offering their services to customers (Zhou,
2018). On the other hand, most products of Toys “R” Us are made from plastic which results
in increasing plastic waste in Australia (Product Safety, 2018). Due to lack of innovation,
Toys “R” Us did not innovate eco-friendly toys which appeal to a wider audience. Australian
people prefer to avoid products which result in contributing to the environmental waste.
Thus, it resulted in decreasing the overall sales of the company which contributed to its
bankruptcy.
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References
BBC. (2018a). Australia's Toys R Us stores to close down. Retrieved from
https://www.bbc.com/news/business-44557737
BBC. (2018b). Five reasons Toys R Us failed. Retrieved from
https://www.bbc.com/news/business-43210854
Bomey, N. (2018). 5 reasons Toys R Us failed to survive bankruptcy. Retrieved from
https://www.usatoday.com/story/money/2018/03/18/toys-r-us-bankruptcy-
liquidation/436176002/
Business. (2018). Product safety rules and standards. Retrieved from
https://www.business.gov.au/products-and-services/selling-products-and-services/
product-labelling/product-safety-rules-and-standards
Mullen, J. (2018). Toys 'R' Us is shutting down in Australia, too. Retrieved from
https://money.cnn.com/2018/06/21/news/companies/toys-r-us-australia-closing/
index.html
Product Safety. (2018). Product bans. Retrieved from
https://www.productsafety.gov.au/product-safety-laws/safety-standards-bans/
product-bans
Zhou, N. (2018). Woolworths sticks with plastic bag ban, despite Coles reversal. Retrieved
from https://www.theguardian.com/business/2018/aug/01/coles-backflips-on-
banning-free-plastic-bags
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