Toys R Us bought FAO Schwarz in May and is now ready to do something interesting with it.
It's a pretty bold move for a tough retail market. Toys R Us is opening FAO Schwarz boutiques in some of its stores. It's also relaunching the upscale toy seller's website, FAO.com. A year ago, this would have been suicide, but now, it might work out. With retailers in every sector fighting for an edge, this move may beef up the Toys R Us in-store experience, with the online play helping it reach higher-spending consumers that may not have access to an FAO brick-and-mortar spot.
FAO Schwarz only has two standalone locations: one in Manhattan and the other in Las Vegas. But, its brand name is larger than its retail footprint, and this new plan will allow Toys R Us to help FAO's sales reach spread to that of its brand recognition. Ultimately, 585 FAO boutiques will open in Toys R Us stores starting on November 1, 2009. This is more than half of the 848 stores in the United States -- a market that accounts for more than half of the 1,550-store Toys R Us presence worldwide.
Toy retailers have been pressured by the likes of Wal-Mart (NYSE: WMT) and Target (NYSE: TGT), which have used heavy discounting to seize market share -- not to mention a larger spread of in-store merchandise to use toys (or other categories) to increase basket size and cross-sell for a bigger share of consumer spend. Also, Toys R Us has been struggling with competition from online toy retailers.
It needed an unusual move to bring people into the stores, and the FAO strategy could be it. The big test will come after Thanksgiving, when we'll see how easily consumers will part with their cash.
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