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Toys 'R Us Placing Bigger Bet on 'Pop-Up' Stores

Toys 'R Us will open 600 "Express Stores" in malls and shopping areas nationwide

Expand toy selection in 260 Babies 'R Us Stores

Add 8 Permanent Outlet Stores

Steps create 10,000 Jobs for Holiday Season

Santa will have plenty of helpers this holiday season.

Toys R Us Express
Source: Toys R Us
Toys R Us Express

Toys 'R Us unwrapped plans to vastly expand its reach this Christmas by adding 600 "pop-up" stores, more than 260 Toy 'R Us shops within Babies 'R Us stores—and an additional eight outlet stores.

And with the new stores, comes about 10,000 jobs above and beyond its traditional holiday hiring.

In doing so, the nation's largest toy retailer is placing a big bet that a larger presence in the nation's malls and shopping centers this holiday season will translate into richer profits.

The strategy paid off for the retailer last year, when it opened 350 "Holiday Express" stores. Despite a challenging retail environment, sales in the fourth quarter for 2009 rose 7.3 percent to $5.857 billion, while earnings during the period climbed to $387 million from $345 million in the prior year.

But this year, the company is setting the bar higher, opening up six-times as many temporary stores—a number that actually doubles the number of Toys 'R Us stores in the U.S.—to add an additional 2.4 million square feet of toy-selling space for the holiday season.

"We're going to be where the people are and make sure Toys 'R Us is convenient for our customers," said Jerry Storch, chairman and CEO of Toys 'R Us.

Storch declined to quantify how much the "Holiday Express" stores added to the company's sales and earnings last holiday season, but he said the strategy was "very successful."

It was successful enough that the company kept about a third of the locations it added last holiday season throughout 2010. The rest closed shortly after the holidays were over.

Some of this year's additions have already opened. Several have cropped up on the streets of Brooklyn, N.Y., others were added from Federal Way, Va., to Saugus, Mass. The early openings probably allowed Toys 'R Us to snag some additional sales as shoppers headed out to the malls to do back-to-school shopping. The rest of the stores will open their doors in the coming weeks, Storch said.

There has been a growing trend toward pop-up stores in recent years. In fact, Toys 'R Us even had some competition last year, when Sprit Halloween, a retailer know for its temporary Halloween stores, opened several temporary toy stores in East Coast malls. The pop-up strategy works well for landlords who are eager to fill up empty store space as well as for the stores, which are often able to negotiate shorter leases at favorable rents.

For Toys 'R Us, the strategy has allowed it to fill the void left when KB Toys went bankrupt, leaving many malls without a national toy retailer.

In addition to making holiday shopping more convenient, there is a little psychology behind the pop-up store that spurs shoppers to buy because the store's temporary nature makes shopping there a bit more exciting.

This has certainly been the case for a number of recent pop-ups. Claire's recently raised the curtain on 'Glee'-themed pop-up shopsin select malls to promote the new merchandise, and this week home shopping channel QVC will open its first-ever pop-up store in New York City's Rockefeller Center during Fashion's Night Outas a prelude to Mercedes Benz Fashion Week.

While these last two examples show how pop-up shops can be like an interactive billboard, of sorts—providing retailers with a way to connect with consumers in new and unexpected places—Toys 'R Us uses its pop-up stores more as a laboratory, testing locations on how much interest there is for their products.

The additional stores, including the eight outlet stores, are all just another sign of how Toys 'R Us has been trying to ratchet up its gameamid tough competitor from discounters such as Wal-Mart Storesand Target.

The Toys 'R Us outlets will average about 5,000 square feet, and sell value-oriented products, some of which are unique to the locations.

Toys 'R Us had initially tested four outlet locations during last holiday season, and kept the stores open after the season was over. Since then, the company has opened addition locations in Gurnee, Ill., Limerick, Pa., and Orlando, Fla. An eighth outlet will open later this fall in Elizabeth, N.J.

Questions? Comments? Email us at consumernation@cnbc.com

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