How Primitive Electronics and Expensive Video Games Turned Toys'R'Us Into a Consumer Juggernaut

The rise of digital gadgets and the ease with which they've both replaced physical toys and made the physical toys people do want easier to ship may have led to Toys"R"Us into massive bankruptcy—the third largest in US history.

But something that's not to be forgotten is that electronics were once the savior of the company's mascot Geoffrey the Giraffe, the element that turned the toy retailer from a bankruptcy cautionary tale in the 1970s to one of the biggest retail success stories of the 1980s. Certainly, gadgets didn't drive all that success on their own—Barbie, Hot Wheels, Lego, and Monopoly more than played their part—but it was the differentiator that made the toy industry exceed expectations for years.

The toy industry was utterly reshaped by electronics in the 1970s and 1980s, first by memorably tinny toys like Milton Bradley's Simon and Texas Instruments' Speak and Spell, and later by the rise of video game consoles.

Toys"R"Us held a lot of value for the toy industry as a whole, electronics or not. Formed in the 1950s and brought under the tutelage of Interstate Department Stores in the 1960s, it took decades for the chain to reach its iconic behemoth status.

But there was a time when the toy retailer wasn't doing so hot. With the toy chain at one point caught in its corporate parent's troubles, the Toy Manufacturers Association—now known as the Toy Industry Association—had to step in to convince banks to help the chain out financially so that it could continue growing.

This proved a particularly astute move on the part of toy manufacturers—which not only created a retailer dedicated to play that drove interest in toys far beyond Christmas, but created a hub for a trend that was soon to revamp the industry—electronic gadgets.

The earliest toys bearing silicon boards were primitive, of course, but they were also quite expensive. In 1978, an electronic toy often went for around $30, an amount equivalent to $109.28 today. That meant the inexpensive-to-produce toys had major margins that the industry then wasn't particularly used to. In a 1978 Washington Post article, local Toys"R"Us manager Bill Bederman spoke in a stunned tone about the success these toys were seeing.

"What it did was revolutionize the toy industry," he said at the time. "We'd never seen anything like it before—thousands of people demanding $30 items—and this year we're seeing electronic toys follow through to dominate the business."

Little did he know how quickly the industry would shift its value proposition around electronics. In the third quarter of 1979, Toys"R"Us saw its sales jump 36.2 percent, while sales at other major retailers were basically flat. A Copley News Service article from the era found that sales at Toys"R"Us, driven by the boom in electronic games, were outpacing overall population trends, which traditionally defined toy sales.

And the numbers kept improving. According to a November 1982 Washington Post article, a full 19 percent of the company's sales in the prior quarter—which drove $189.6 million in revenue—came from electronic toys. Charles Lazarus, the chain's founder, was bullish about the rising video game industry at the time.

"We strongly believe that electronic games are not a fad; it is the way America is playing games now and will increasingly do so in the future," Lazarus said at the time.

Of course, the video game crash of 1983 happened, though the success of the Cabbage Patch Kid around the same time certainly softened the blow. But even as video games on their own seemed to be a fad at one point, electronics found other ways into the bottom lines of retailers like Toys"R"Us. For example, Teddy Ruxpin, which was even more expensive than the electronic toys Toys"R"Us sold in the late 1970s, may have been the first electronic toy that wasn't designed to draw attention to that fact.

And it sold like hotcakes—flooding Toys"R"Us locations around the country. Desperate parents were willing to get bruises in pursuit of these devices.

"While I was in the aisle looking for Teddy with all the other parents, some kid plowed a shopping cart into my leg, hurting me and knocking my 1-year-old son over," Florida mom Mary Brady recalled to the South Florida Sun Sentinel in 1987. "I tried to go after the kid, but the store was too crowded and he took off in another direction. To top it all off, there were no Teddys in stock."

Certainly, plenty of toys during this era didn't need batteries at all to sell, but energy and computing power certainly helped. The late 80s, the heyday of Toys"R"Us as a cultural entity, was an era when Power Wheels were driving out of stores left and right. And video games made a comeback after Nintendo rode the coattails of Teddy Ruxpin back into stores around 1987, turning the Nintendo Entertainment System—and video games in general—into the non-fad that Charles Lazarus saw five years earlier.

It's taken for granted now, but Nintendo was such a juggernaut at the time that it convinced Toys"R"Us to feature multiple rows of Nintendo merchandise, as the Japanese company sold other retailers on its World of Nintendo store-within-a-store concept. World of Nintendo eventually filled 10,000 retail outlets—and, according to Game Over: How Nintendo Conquered the World, nearly one in five dollars spent in at Toys"R"Us during the peak of the NES era was on a Nintendo product.

But while Toys"R"Us never left us, it also eventually ran head-first into the big-box trend. Walmart and Kmart competed with Toys"R"Us for the Nintendo market share, and eventually, big-box retailers (with Target usurping Kmart) and online outlets (first eToys, then Amazon) would prove the most difficult competition.

In 2004, the chain's baby-focused offshoot Babies"R"Us was doing well, becoming the largest retailer in the world focused on baby products. But Toys"R"Us struggled to live up to its category-killer name—and that the company nearly sold off the toy chain that made it famous. That never happened, but the chain did kind of flail around a while, occasionally hitting a hot toy, but seeing its influence fade as electronics went from novel, to commonplace, to essential.

And in the midst of the internet redefining its entire business, the company found itself caught in a bitter battle with Amazon in court. Toys"R"Us had an exclusive contract with Amazon, but struggled to fulfill orders, so Amazon allowed third-party sellers on its store. That led to a five-year legal battle that was only settled in 2009.

Despite electronics once defining the store's business, they've in some ways taken a bit of a backseat in today's Toys"R"Us stores. To me, it's telling that Toys"R"Us ignored the recent hoopla around Super NES Classic pre-sales, instead letting the companies that have long been eating its lunch have the moment instead. Video games were once a market that defined the entire company—perhaps the biggest piece of the pie, where placement in these stores could make or break a game or console. Now it couldn't even be bothered to at least try to sell a hot product ahead of its release date, like every other retailer.

Now, Nintendo and other video game manufacturers don't have to rely on Toys"R"Us, though Nintendo maintains a presence in the stores to this day. Likewise, Mattel and Hasbro, which likely wouldn't have been so focused on electronics back in the day without the influence of the retailer, don't need the marketing and retail strength of a dedicated toy chain to survive.

There was a time when the toy industry needed Toys"R"Us so badly that it was willing to bail the chain out. But the fact is, the electronics that once turned Toys"R"Us into a retail icon have made it less essential in the modern day—especially when other retailers aren't so saddled with debt.

Simply put, the toy industry doesn't need Toys"R"Us anymore.