Evan Schuman's StorefrontBacktalk

When Toys “Were” Us announced that it was going to abandon the toy business, the toy chain was widely seen as another victim of Wal-Mart. But the truth is, the move stemmed from the company’s own inability to use technology to get closer to customers.

The traditional fear of technology is that it replaces people and makes business transactions more impersonal. Anyone who has gotten locked into a battle of voice-mail prompts?furiously hitting “0” and “#” in a futile effort to break through to a person?understands the frustrations of automated responses.

In the retail world, though, technology plays a very different role. Used wisely, its goal is to move employees out of roles that technology can serve and place them in roles where technology can’t, such as carrying packages to customers’ cars, gift-wrapping or offering customized services. The few grocery chains that are using self-checkout wisely have learned that lesson.

Toys “R” Us tried to compete with Wal-Mart in the way it had beaten Kiddie City and, more recently, F.A.O. Schwarz: by offering a large supply of products at market-aggressive prices. But that strategy is inherently flawed when competing against a bigger fish. And there’s always a bigger fish, if not now then soon.

In a lesson that predates CRM and POS by many decades, the way to compete is differentiation. If the products being sold are identical, then differentiation is done through customer service in as many creative ways as possible.

One of those ways is by understanding the customer so well that the retailer can accurately anticipate needs and meet them. That’s where technology can play a role, but not if it’s seen solely as a way to cut costs.

Why weren’t employees assigned to store aisles to assist shoppers? How about a place for children to play with many of the toys and discover if they’re worth the effort? Why were e-mail reminders not sent when various birthdays were imminent? Why couldn’t a checkout system be aware of prior purchases and flag?just to check?identical repeats?

Amazon.com’s associated-purchases approach is a wonderful way to statistically project wants based on what a lot of other people who purchased the same stuff want. Why not e-mail customers lists of age- and gender-appropriate items as occasions merit? Why not e-mail customers in September, predict the toys they are likely going to want in December and offer them a 20 percent discount to buy right now and avoid the shortages?

Strategic retailers today understand that technology is a tool to do many things?cut cost, reduce errors, accelerate inventory replenishment, etc.?but that if it doesn’t somehow translate into making customers want to come back more, it won’t make a big difference.

If a retailer is selling a unique product or service or dominates some other niche, that may be all that’s needed. But if a retailer is touting the same toys or tomatoes or microwave ovens as smaller and larger competitors, it might just find that it’s forced into playing the low-priced game. And the low-priced game is suicide for service companies.

But wait. Since when are retailers considered service companies? Since about 1994, actually, when the Internet gave birth to the Web and started to change every sales rule.

In the Web-dominated, 21st-century retail era, storefront retailers can no longer think of themselves as product resellers. That role is handled much more efficiently by online operations. Retailers must think of themselves as service companies, selling expertise, convenience and maybe a little bit of entertainment?and the products to make the experience work after the consumer leaves the store.

In eWEEK.com’s recent package on self-checkout, one retailer discusses how grocery stores need to focus on recipes and lifestyles, and then the tomatoes and bags of flour simply help that service be used.

Toy stores need to be playgrounds for children and, for adults, the easiest way to get gifts. Many music stores and bookstores understand this concept, and quite a few have little to fear from Amazon.

Alas, Toys “R” Us never grew out of the merchandise-reseller mode. When it found itself fighting a price and inventory war with Wal-Mart, it discovered that there was someone a lot bigger than Geoffrey the Giraffe.