Toys R Us Inc. chief executive Robert C. Nakasone unexpectedly resigned yesterday, the company announced, citing "differing views regarding the direction of the company."
The news came 10 days after the Paramus, N.J.-based company reported a 14 percent decline in its second-quarter profit, a setback the company attributed to increased spending on its online store required to meet competition from Internet toy retailers.
Toys R Us, the country's No. 2 toy merchant, has been struggling to implement an Internet retailing strategy. At the same time as it announced the second-quarter earnings shortfall, the company said it has split with its online retail partner, Benchmark Capital, in a dispute over the venture's ownership.
But its problems go far beyond the Internet. Last year, the company lost its ranking as the nation's largest toy store to Wal-Mart Stores Inc. Some industry analysts have criticized Toys R Us for being slow to revamp its stores, which are not as bright and flashily decorated as some of its more modern competitors. At the same time, some customers have complained about the attitude of Toys R Us employees, prompting the chain to launch a customer-service campaign earlier this summer, designed with the help of the Walt Disney Co.
Management problems have also plagued the company. Last month, it said the person its board had chosen to head its online unit, Bob Moog, would not be joining the company after all and had decided to stay with his current employer.
Nakasone was named chief executive last year, 13 years after he joined the company. Nakasone, who also resigned from his position on the company's board, will be replaced temporarily by chairman of the board and former chief executive Michael Goldstein. Toys R Us said it has hired an executive search firm to seek a new chief.
"Toys R Us is a troubled company today," said Kurt Barnard, president of Barnard's Retail Trend Report. "Mr. Nakasone has been in his position for two years and he's failed to halt the decline. It's not going to be easy to halt the decline, let alone reverse it. Toys R Us has totally lost its preeminence in the marketplace. When it started, it was the only one of its kind . . . But a lot of competitors have sprung up that are doing the same thing, only at lower prices, with better presentations and better service. The company will need a drastically new direction. What that will be, only the Lord knows," Barnard added.
"They've been having problems with top management for a while now," said industry analyst Sheldon Grodsky, who speculated the departure of Nakasone stemmed from differences over what kind of online strategy to follow.
Many retailers have been struggling with how to convert their existing base of customers, who mainly frequent retail stores or shop via direct-mail catalogues, to Internet buyers. Meanwhile, competitors such as eToys and Amazon.com can sell products without the overhead of retail stores.
"The company has got a lot of problems, but I'm surprised, very surprised," by the resignation, said analyst Margaret A. Gilliam. "I think he's a good guy, doing a lot of things right, and you don't fix something like this overnight."
The announcement came after the close of the stock market. Toys R Us stock closed up 50 cents at $16 a share on the New York Stock Exchange.