From Proudest Moment to Saddest, the Saga of Toys "R" Us Founder Charles Lazarus

With the liquidation bankruptcy filing of Toys “R” Us, the era of the category killer store may be said to be over. Toys “R” Us was the original category killer chain that overwhelmed small specialty and large general merchandise stores by offering a supermarket-style presentation of wide and deep assortments of sharply priced category specific merchandise. 

To be sure, a few category killers remain—Best Buy, Dick’s Sporting Goods, Bed Bath & Beyond, and even the struggling Barnes & Noble, to name several. But the graveyard list of category killers is much larger. An incomplete list would include Child World, Lionel Leisure, KB Toys, Circuit City, Crazy Eddie, Sports Authority, Oshman’s Sporting Goods, Linens ’n Things.

When Toys “R” Us began in 1948, if you wanted toys, or an appliance or housewares item—virtually anything—you would go downtown to a department store. There were no suburban department stores back then. There were no suburban shopping centers. 

Charles Lazarus used $4,000 to transform his father’s Washington, DC, bicycle shop into a juvenile furniture store. After customers kept asking for toys, Lazarus quickly evolved his merchandise mix to focus on toys. 

He believed staunchly in regimental uniformity. All business decisions–which products to carry, merchandising and store layout–emanated from headquarters. “I should be able to close my eyes and walk 130 feet and put my hand down and touch the very same stack of items in each store. If not, there’s something wrong,” he used to say. 

Lazarus was an early believer in the power of point of sale data. He partnered with suppliers, accepting early inventory deliveries and sharing sales data in return for discounts and assurances that Toys “R” Us would be kept in stock on the most wanted toys. The chain’s wide and deep inventory position became a strategic advantage when desperate parents and grandparents scavenged for the most wanted present during the holiday season. In stock leadership, not price, cemented the company’s position as the go-to retailer for toys. 

This advantage started to dissipate in the late 1980s as Walmart and Target refined their POS data systems. They concentrated on the hottest toys, selling them at discounted prices. They had more stores than Toys “R” Us. Shoppers visited them more often. They siphoned off sales in buckets, not drips and drabs. 

If you needed a specific toy, the place to go no longer was Toys “R” Us. In the age of the Internet, you searched on line, Amazon most likely.

With the advent of electronic games, computers and hand-held devices, traditional toys began losing their cache among children. Toys “R” Us added video games to its assortment, but one didn’t need to visit a store to upload apps to a hand-held device.

The real dagger to the heart of Toys “R” Us and other retailers, however, has been the greedy tentacles of private equity fund managers. They swooped in to ostensibly rescue retailers, offering cash secured against a retailer’s real estate. Some merchants had lagged because they could not compete against more streamlined, better financed competitors. Some were unable to cope with changing market conditions. Some just had inadequate management. It mattered not to the equity funds. They reaped their profits upfront from the leveraged buyout transaction, from interest payments on the debt it provided and, hopefully, from taking a retailer public if its profitability improved. 

Ever since Charles Lazarus retired from his creation in 1994, Toys “R” Us has lacked an energetic, bold merchant at the helm. Profits lagged. The equity funds offered money. But at a highly leveraged  price. Executives with no proprietary interest in a company, other than to maximize their personal returns, usually succumb to the siren song of a deep-pocketed equity fund. Bain Capital and Kohlberg Kravis Roberts, along with Vornado Realty Trust, loaded Toys “R” Us with $5 billion in debt in a 2005 leveraged buyout. 

The downward sales spiral kept Toys “R” Us from paying off the debt and, ominously, from upgrading its stores and systems. All that’s left now is to sell off its real estate. 

Charles Lazarus is now 94. The last time I saw him was about 15 years ago as I was leaving work. He was window shopping a store located on the ground floor level of the Park Avenue office building housing Chain Store Age. We exchanged pleasantries but even then, a decade removed from active Toys “R” Us management, he resisted talking about the company he founded. 

He always was a reluctant interview (see http://nosocksneededanymore.blogspot.com/2017/09/toys-r-us-bankruptcy-brings-back.html). I cannot imagine what must now be gripping his emotions. 

His proudest moment, he used to say, was paying off the creditor debt Toys “R” Us assumed when its then-parent company, Interstate Stores, dragged it into Chapter 11 bankruptcy reorganization in 1974. Other Chapter 11 filings have occurred, none under his watch. 

On Thursday, management filed for Chapter 7 liquidation. The same market forces that will silence Lazarus’ once ubiquitous airwaves jingle—“I don’t wanna grow up, I’m a Toys “R” Us kid …,”—are sure to wreak havoc among remaining category killer stores. For some, if not all, it is just a matter of time before they share a similar fate.  

Toys "R" Us Bankruptcy Brings Back Memories

News that Toys R” Us filed for bankruptcy protection late Monday stirred a memory of one of my first encounters with Charles Lazarus, the founder and, at the time, chairman, president and chief executive of the chain which is credited with being the first of what became known as the category killer segment of retailing that subsequently included companies such as Best Buy, Staples and Sports Authority.

It was in the conference dining room of Windows on the World, the 106th floor of the North Tower of the original World Trade Center at the tip of Manhattan. Lazarus was a featured presenter at the Modes of Creative Retailing conference organized by Jeff Feiner of Merrill Lynch. For some obscure reason, Jeff relaxed his “no press” rule by allowing me to attend the two-day affair. So it was that during lunch the first day I strategically sat across from Charles Lazarus, an iconic retailer known for strict adherence to organizational discipline (he used to say that if he was blindfolded in any of his stores and walked down any aisle he would find the exact same merchandise on the shelf where he stopped regardless of location. No deviation. That, to Lazarus, was chain store retailing.)

Lazarus, at the time 56-years-old, had founded Toys “R” Us in 1948 as an outgrowth of a juvenile furniture store in Washington, DC. His enthusiasm for his adopted product line was evident in the many pictures that accompanied articles in Fortune, Business Week and Forbes. He’d be photographed riding a tricycle, or surrounded by plush animals, most prominently Geoffrey, the giraffe that became the company’s symbol. 

He rarely, if ever, spoke to the trade press, of which I, as editor of Chain Store Age, was a prominent member. Perhaps he didn’t recognize me across the table. Or maybe he was more concerned with talking up the money managers sitting next to him, who, as I did, clung to his every word. 

Charles Lazarus loved to talk about Toys “R” Us. He tried to share the limelight with his top executives, but, invariably, whenever they would finish their presentations or responses to questions he would not be able to contain himself. He would have to, he’d feel compelled to, add a coda to their comments. 

When we did an extensive report on Toys “R” Us two years later, Lazarus adhered to his no talking to the press rule. Except, when I called him to ask that he sit for a cover shot, he wound up talking for 45 minutes, concluding by insisting he would sit for a photograph only if we agreed to include his three top executives in the  picture. 

On the appointed day we met at a New Jersey store near corporate headquarters. As my son Dan was just shy of his third birthday (Ellie was months away from being born), I decided to do some shopping after the shoot. Toys in hand, I stepped towards the one staffed checkout line. I was third in line. On the other side of the checkout, Lazarus paced back and forth, like a caged tiger. It became obvious he was stifling an explosion aimed at the store manager for failing to open another checkout lane after a third customer entered the line, a transgression made all the more violent by the fact that I, a member of the press, was that third customer. I left the store before the expected confrontation. 

Lazarus was rightly proud of his accomplishments. Toys “R” Us was the biggest toy retailer in the world. And profitable. Very profitable. Only one thing really ticked him off. Too many times interviewers from the consumer and business press wanted to ask him about his wife, Helen Singer–Kaplan, a renowned sex therapist, from whom he was widowed in 1995 after 16 years of marriage. 

As he sat across from me at that 1980 luncheon he revealed that his proudest moment was paying off the bankruptcy debt of Interstate Stores. Interstate had bought Toys “R” Us eight years earlier but had lapsed into bankruptcy, carrying Lazarus’ chain with it. Toys “R” Us emerged from bankruptcy as the surviving enterprise with no obligation to pay off Interstate’s creditors. But Lazarus felt an obligation to. Not many businessmen would.

(For a taste of his enthusiasm, view this short video of Lazarus talking about the making of Toys “R” Us: https://www.youtube.com/watch?v=JG2W0F_rdvA).