Toys R Us made 2 fatal mistakes that led to a death spiral

Reuters

Toys R Us is reportedly filing for bankruptcy as soon as this week. 

The iconic American toy retailer is considering bankruptcy as a part of its potential plan to restructure roughly $400 million in debt due in 2018, CNBC reported. 

Toys R Us made several key mistakes that are killing its business Neil Saunders, managing director of research firm GlobalData Retail, wrote in a recent note to clients.

Here are the key mistakes. 

1. "Subpar" website

Toys R Us' website isn't as appealing as that of competitors like Amazon or Walmart. 

"Toys R Us has lost out in the digital space," Saunders wrote in the note.  "Although recent digital investments have been made, the website and general e-commerce proposition are still below par. By our calculations, Toys R Us continues to lose online market share in toys." 

Mounting competition has already forced Toys R Us to lower prices to match Target, Walmart, and Amazon.

Failing to properly invest in e-commerce gives customers even less reason to visit. 

2. Spending too much on stores

Toys R Us has huge, big box stores similar to Best Buy or Target.

These stores are expensive to staff and maintain, according to Saunders. 

"Toys R Us has large, expensive stores," Saunders writes. "These are increasingly unsuited to what consumers want and expect, and they are steadily becoming less productive and efficient." 

The company has more than 800 US stores, though it reportedly plans to close 180 of them.

In Saunders' view, the company should spend even more on e-commerce

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