NEW YORK - Geoffrey the Giraffe became a knight in shining armor for toy retailer FAO Schwarz late Wednesday, as Toys R Us Inc. said it acquired the troubled high-end retailer, which has struggled for years through bankruptcies amid tough competition from discount stores.
Analysts said privately held FAO Schwarz was in danger of closing if a buyer did not materialize. Privately held Toys R Us -- the largest U.S. toy retailer -- meanwhile, will get an opportunity to work with smaller toy vendors, cut costs and operate a marquee store on New York's 5th Avenue.
Toy retailers have been increasingly squeezed by discounters such as Wal-Mart Stores Inc. and Target Corp. as well as online retailers. The consumer spending cutback and recession added to the pressure, winnowing weaker players.
KB Toys Inc., Toys R Us' only major direct competitor, filed for bankruptcy protection in December 2008 and liquidated its stores.
Although not immune to the tough economy and competition, Wayne, N.J.-based Toys R Us has had stronger results. Its chief executive, Jerry Storch, said the move could help give it a leg up on discounters.
"The FAO Schwarz name is one of the premier names in toys, and the acquisition enables us to differentiate even further with mass-market competitors," Storch said in a telephone interview.
While the company declined to give specific financial details, "the feeling is they got it for very, very, cheap," said Timetoplaymag.com analyst Jim Silver. "It really allows them to expand and work with a lot of smaller companies they've never worked with."
Storch said the company is still considering a broad range of options for the stores and hasn't made any specific decisions yet, other than it expects to retain store employees. It will operate the company's two stores in New York and Las Vegas. A deal FAO Schwarz brokered with Macy's Inc. to open small locations in 685 Macy's will end in November. Only 260 of those ever opened, and the outposts will be phased out after the deal ends.
