Remember that scene in Harry Potter and the Prisoner of Azkaban where Professor Lupin scolded Harry for recklessly wandering around the castle at night with a killer on the loose?
Before leaving, Harry told the disappointed professor that the Marauder’s Map doesn’t always work because it had shown someone he believed to be dead. Then, Professor Lupin replied, “That’s not possible.”
I had the exact same reaction as Professor Lupin when I saw Toys “R” Us at Macy’s a couple of weeks ago. It had been a while since I visited Macy’s, so I didn’t know they’d brought back to life what I thought had been dead for a long time.
If you’re unfamiliar with the story, Toys “R” Us was once the largest toy retailer in the world. It had been around since 1948 until its downfall during the rise of e-commerce and digital shopping.
But the company’s demise wasn’t inevitable. It was the result of a series of bad choices by its management. The first was when they panicked and instead of taking their time to build their own online platform like their biggest competitor—Walmart—did, they resorted to partnering with Amazon.
Toys "R" Us entered into an exclusive 10-year partnership with the e-commerce giant, under which Toys "R" Us would be the exclusive toy and baby product vendor on Amazon’s platform.
In return, Toys "R" Us paid Amazon a hefty fee for the privilege, and the deal was intended to be mutually beneficial—Toys "R" Us would handle supplying the toys, and Amazon would manage the online infrastructure, allowing both companies to capitalize on the e-commerce boom.
However, the relationship began to sour as Amazon started allowing other third-party sellers to list toys and baby products on its platform, even though Toys "R" Us was supposed to have exclusivity.
Toys "R" Us claimed that Amazon violated their agreement by enabling these third-party sellers to compete directly with them on Amazon’s site. Essentially, Toys "R" Us believed they weren’t getting what they paid for, and that Amazon was undermining their position.
In 2004, Toys "R" Us sued Amazon for breach of contract. Toys "R" Us argued that their agreement gave them the sole right to sell toys on the platform, and by allowing other sellers, Amazon had breached the deal.
The court ruled in favor of Toys "R" Us in 2006, and the partnership was terminated. Toys "R" Us was awarded $51 million in damages, and the company sought to build its own e-commerce platform afterward.
After Toys "R" Us parted ways with Amazon in 2006 following their legal battle, the company faced a challenging road ahead.
While they won the lawsuit and received a massive payout, the damage had already been done to their e-commerce strategy and their ability to compete in the rapidly growing digital marketplace.
During their time with Amazon, Toys "R" Us missed the opportunity to build strong, direct relationships with online customers. This left them playing catch-up when they finally launched their independent site, as they had to build an e-commerce presence from scratch.
By the time they launched their own online store, Amazon had already established itself as the dominant force in online retail. Competing with Amazon's advanced logistics, technology, and customer base was extremely difficult.
Toys "R" Us’ website also struggled with technical issues, including poor user experience and inconsistent performance. This put them at a disadvantage as online shopping became more popular.
But even after falling too far behind, I believe Toys “R” Us could still catch up, if only they didn’t sell their company to Bain Capital, Kohlberg Kravis Roberts (KKR), and Vornado Realty Trust in 2005 as part of a leveraged buyout a year before their fallout with Amazon.
That deal saddled Toys "R" Us with around $5 billion in debt, which created an enormous financial burden. Most of their revenue had to go toward paying off this debt, leaving little room for innovation, store improvements, or significant investment in their e-commerce infrastructure.
The financial constraint slowed their transition to e-commerce, causing them to fall behind even further. They had no choice but to continue to focus heavily on their brick-and-mortar stores, even if they knew it wasn’t sustainable.
With no hope for revival due to this huge debt and the unwinnable competition they faced, Toys "R" Us filed for bankruptcy in 2017 and closed all its U.S. stores by 2018.
Afterward, WHP Global, a brand management company specializing in reviving iconic brands, acquired the brand's intellectual property. WHP Global aims to bring the beloved toy retailer back to life online and in physical spaces.
One approach they used was partnering with malls and business centers like Macy’s. This is why we’re seeing Toys "R" Us sections inside Macy’s department stores and on Macy’s online store. However, it's a far cry from the sprawling toy empire that once existed.
If this incredible tale of greatness lost and downfall teaches us one thing, it’s never to leave money on the table.
Toys "R" Us missed several chances to fully capitalize on the booming e-commerce market by relying too heavily on short-term fixes rather than long-term strategies.
For you, as an online seller, the same rule applies. Don’t rush into decisions without thinking ahead, and don’t ignore the opportunities staring you in the face.
Partnering with Amazon instead of building their own e-commerce platform when the race to online dominance had just started was Toys "R" Us’ biggest mistake. It’s a prime example of how taking the easier path in the short run can lead to long-term regret.
They essentially handed over their customers to Amazon. By the time they wanted to claim those customers back, it was too late.
Don’t make the mistake of relying on a single platform or partner to drive your business. Yes, marketplaces like Amazon, eBay, or Etsy provide a massive audience, but at the end of the day, you’re building their brand, not yours.
By relying solely on them, you risk losing control over your customers, prices, and, ultimately, your profits. Diversification is key.
Consider building your own website to go alongside your presence on third-party marketplaces. Tools like Shopify, WooCommerce, or BigCommerce make it easier than ever to create a branded online store.
Doing this allows you to build a direct relationship with your customers, control their shopping experience, and keep valuable data that helps you improve over time.
Remember that global e-commerce sales reached $6.3 trillion in 2023, with direct-to-consumer (D2C) sales being a huge driver. Owning your platform is an investment in your business's long-term survival.
Another lesson from Toys "R" Us is about agility. They didn’t pivot fast enough when the market started shifting towards online shopping.
As a seller, you need to be ready to adapt when new trends emerge. Whether it's adopting new marketing strategies like TikTok ads or utilizing AI tools for customer service and analytics, staying stagnant will leave you behind.
A survey by BigCommerce revealed that 49% of online shoppers say they now prefer to shop on mobile devices, and companies that fail to optimize their websites for mobile are losing out on this enormous customer base.
Toys "R" Us also suffered because they were buried in debt, which crippled their ability to innovate. For you, it’s important to manage your finances carefully, especially when growing your business.
It might be tempting to invest heavily in paid ads, stockpiling products, or hiring staff, but if you overextend and your sales don’t match your expectations, you could find yourself in a tough spot.
According to a CB Insights study, 38% of startups fail due to running out of cash or being unable to raise new capital.
Instead, aim for sustainable growth. Use tools like Google Analytics, Shopify’s sales reports, or email marketing platforms to track what works and what doesn’t. Focus on what’s driving the most return on investment (ROI), and cut back on the things that aren’t performing.
For example, if you notice that free social media promotions bring in more conversions than paid ads, reallocate resources accordingly. Even simple email marketing can deliver huge returns, with data from Campaign Monitor showing that for every $1 spent on email marketing, the average ROI is $42.
Lastly, Toys "R" Us shows us that being too nostalgic about your business model can be dangerous. They clung to the idea that physical stores were their bread and butter, long after it became clear that e-commerce was the future.
As an online seller, you should always keep an open mind and regularly reassess what’s working in your business. Are there new sales channels you could explore, like social commerce on Instagram or Facebook Shops? Could you experiment with new product lines or services? Staying stuck in one way of thinking can limit your potential.
In short, just like Toys "R" Us failed to evolve in time, your business could suffer if you don’t learn to be flexible, innovate, and make strategic decisions based on both current trends and long-term goals.
When you diversify your platforms, manage finances smartly, and adapt quickly to market changes, you're setting yourself up for long-term success—without leaving any money on the table.