The market analysis of Toys R Us reveals that there is a potential to sell toys and related children products in the United States. Even though US Census carried out in 2005 stated that children through ages five to thirteen decreased (US Census Bureau, 2005). However, there still remain many households with children that form prospective customers for Toys R Us.
The growth rate of overall population is expected to increase and so is an increase in the growth of prospects of Toys R Us. “US personal consumption expenditures for toys, dolls, and games are forecast to grow at an annual compounded rate of 4 percent between 2008 and 2013” (toy & hobby stores industry forecast; hoover.com, 2008). However, profitability in the toy industry is dwindling because of intense competition posed to Toys R Us by its competitors such as Wal-Mart. The competition is growing on price sensitivity and Toys R Us cannot charge higher margins as it would impact its sales in the highly competitive industry. Overall profitability of a firm such as Toys R Us depends largely on how well it attracts store traffic and merchandises effectively. The market profitability can be analyzed through Porter’s competitive forces model. These are five forces, namely, rivalry among existing firms, threat of new entrants, threat of substitute products, bargaining power of suppliers, and bargaining power of buyers. Rivalry amongst competing firms is intense and Toys R Us is facing cut throat competition from Wal-Mart, Target and GameStop. Its competitors are competing on pricing in this industry that is characterized for its price sensitivity. Wal-Mart because of its efficient business processes and influence on suppliers is the established price leader and this has allowed it to become the market leader in the industry as well.
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