Thursday, August 12, 2004

Alex might not get to be a Toys R Us kid

Not according to this New York Times article:

Toys 'R' Us Says It May Leave the Toy Business By CONSTANCE L. HAYS

Published: August 12, 2004

Battered by intense competition from discounters like Wal-Mart Stores, Toys "R" Us announced yesterday that it might bow out of the toy business altogether.

The $11 billion company, which rose to become the nation's largest toy retailer by developing a once-successful formula that pushed its rivals out of business, said in a statement that it was determined to split its toy business and its faster-growing baby supplies division, Babies "R" Us, into two companies. It also said it planned "to explore the possible sale of the global toy business."


Abandoning the world of Barbie and Lego would be a startling denouement for a company that rose to supremacy during the 1990's. Behind the bobbing head of its corporate mascot, Geoffrey the Giraffe, it surpassed rivals like F. A. O. Schwarz, which filed for bankruptcy late last year.

But the troubles at Toys "R" Us show how Wal-Mart and other large discounters, once seen solely as a threat to mom-and-pop stores on Main Street, are now squeezing previously strong national chains. Bookstores, music retailers, electronics chains and supermarkets have all struggled to compete with Wal-Mart's low prices and its enormous power over its suppliers.

During last year's December holiday season, Wal-Mart, Target and other discounters captured a large share of the $27 billion United States toy business by expanding their selections and slashing prices. Wal-Mart now has about 20 percent of the market, said Chris Byrne, a toy consultant based in Manhattan, and Target has about 18 percent, while Toys "R" Us has dipped to 17.

Ten years ago, Toys "R" Us held 20 percent, followed by Kmart, Sears and Ames, Mr. Byrne said. Wal-Mart and Target were insignificant players.

"It's the ultimate corporate capitulation,'' Burt Flickinger III, a retail consultant, said of the Toys "R" Us announcement. "They killed off all their competition, like Child World and Kiddie City, and declared victory worldwide. But they never saw Wal-Mart catching up."

Company executives would not comment further on the statement, which came just a week before Toys "R" Us was scheduled to discuss second-quarter earnings in a conference call. The discussion has been postponed until Aug. 23.

Sean P. McGowan, managing director of the Harris Nesbitt Corporation, an investment bank, said the announcement created further confusion with too few details about the company's future. "If Toys 'R' Us gets sold and Babies 'R' Us is spun off, what's left of the company?" he said.

Toys "R" Us, which lured its chief executive, John H. Eyler Jr., away from F. A. O. Schwarz four years ago, has made several attempts to redefine itself since then, as sales began to flag. In 2001, it opened a flagship store in Times Square that, with its indoor Ferris wheel and roaring bipedal dinosaur, has become the tourist attraction that F. A. O. Schwarz once was. Sales were at least $50 million, according to a person who has seen the figures.

As recently as early 2002, the company was busily redesigning its 683 United States stores, at a cost of $600,000 apiece, after closing unprofitable locations and changing its assortment to try to stand out from warehouse-style retailers. Meanwhile, competitors faltered, like FAO Inc., the parent of F. A. O. Schwarz, as well as Kaybee Toys, which has run into problems of its own.

While the company has acknowledged difficulties at Kids "R" Us stores, it has consistently indicated that its domestic toy business, which accounts for the bulk of sales, held more promise.

The poor results from last year's holiday season, during which Toys "R" Us was squeezed on profits, prompted clamor from Wall Street that led to an internal review of the company's various segments, analysts said.

While it has always encountered some competition from Wal-Mart and Target, last year the two giant discounters began carrying more toys than ever, with wider variety and lower prices in many cases that brought shoppers running. Store specials advertised as early as September helped the discounters draw business away from Toys "R" Us even before the crucial holiday shopping season began.

I would like to take this opportunity to say that Matt and I have completey abandoned evil giant Wal-Mart...I don't think we've shopped there in almost two months.

And I really don't miss it.

Idle Chatter:
Just one more reason to take off and nuke WalMart from orbit. It's the only way to be sure.

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