Threat of new entrants is low because the industry already has intense competition and developing low cost business for a new startup considering lack of experience and undeveloped value chain would be an uphill task. Threat of substitute products is low because toys and video games do not really have substitutes that can satisfy needs or wants of children. Bargaining power of suppliers is low because Toys R Us is a huge retailer and has power in its value chain as a toy retailer.
Similarly its competitors such as Wal-Mart and Target too have influence over suppliers. Therefore, bargaining power of suppliers in the overall industry is low. Bargaining power of buyers is high because Toys R Us competes in a price sensitive industry any competing firm that provides low priced products and leverages on lower margins can snatch Toys R Us’ market share away from it. Wal-Mart has an established cost advantage over its competitors in the industry and Toys R Us has been trying to compete with it but has acknowledged that it cannot compete with its biggest competitor on cost basis. Toys R Us is using a click and mortar business model to distribute its products. Toys R Us was late to develop its online retailing system through toysrus.com. Initially, it allied with Amazon.com to host its website but that alliance was a dismal failure because Toys R Us complained that Amazon was subletting its services to other cheaper unbranded toy stores that were competing with it on the internet retail market.
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