Every now and then I see a popular press article that I feel is all but certain to generate academic papers. I can just instantly picture a conference six months in the future at which some grad student will cite this story as justifying his or her model. Today, I saw one of those stories. It has to do with a service Toys R Us is offering this holiday season. Here is how the AP (via the Huffington Post) explains it (Toys R Us ‘Hot Toy’ List Allows Customers To Reserve Items In Advance Of Holiday Rush, Sep 12).
In the biggest change, Toys R Us, based in Wayne, N.J., will offer a “hot toy” reservation system starting over the next few days – when the company announces its 50 products on its annual ‘hot toy’ list. The reservation system will run through the end of October.
Toys must be reserved in stores – in order to avoid online scammers, Storch said – and customers have to put down 20 percent to reserve the toy.
Once reserved, customers will receive an e-mail notification when the order is available and have until Dec. 16 to pick it up in store. The idea is to help customers avoid a frantic last-minute search for hot toys – such as 2009’s Zhu Zhu Pets stuffed hamsters and last year’s Leapfrog LeapPad tablet – which often run out of stock later on in the season.
This is an interesting program that falls at the boundary of inventory management and influencing consumer behavior. On the former, these reservations should allow Toys R Us to get an accurate estimate of demand even if early reservations are a relatively small part of sales. Just putting a product on the “hot toy” list is probably enough to juice sales but there still has to be some uncertainty over which item is going to be a real winner instead of just solid. I would guess that they can use this to leverage some greater flexibility (i.e., more stock if they really need it) from the supplier.
Even if that doesn’t hold perfectly, they should get a better read on what’s really popular in different regions if sales vary with geography or local demographics. So even if they can’t get additional supplies, they can do a better job of allocating what inventory they have.
So that’s all better inventory performance. But this program also changes consumer behavior. By inducing some parents to commit early, Toys R Us potentially creates greater scarcity for other parents — particularly those that are holding out for a sale. If the early reservations are informative of total demand, the firm will have very little risk of overstocking. That minimizes mark downs at the end of the season, which is clearly good for Toys R Us, but will frustrate some parents. (For a paper with a similar flavor, see this one.)
Probably more important for Toys R Us is that this lets them lock in a share of a parent’s holiday budget before even November. To the extent that consumers have am amount they are looking to spend on holiday presents, there is a bit of a gold rush as whoever captures early spending effectively keeps the buyer from patronizing other firms. So while parents may win with this program, some other retailers may lose.