Toys R Us acquires FAO Schwartz

Toy retailer FAO Schwartz announced Wednesday that Toys R Us Incorporated, the largest United States toy retailer, would be acquiring the high-end retailer.

Once upon a time, FAO Schwartz was the store every small child wanted to visit. I know that after watching “Big” (with Tom Hanks) the first time, the store was quite appealing to my 5 year old mind.

The good news in the acquisition is that Schwartz will still have the opportunity to work with small toy vendors and cut costs. It will also continue to operate its marquee store on Fifth Avenue in Manhattan.

Of course specialty stores like FAO Schwartz have been hurting in a down economy while everyone was doing their toy shopping at large discount stores like Target and Wal-Mart. They have also been battling online retailers who don’t have to pay so much overhead to run the businesses and can keep costs down that way.

It became so bad in December 2008, that Toys R Us’s largest retailer, K.B. Toys couldn’t make it through the busiest time of the year for toy retailers, Christmas, that they had to close up shop and liquidate all of the stores it owned.

As far as the acquisition goes, there wasn’t any financial information given from Toys R Us or FAO Schwartz, but the general theory is that Toys R Us got a fairly good deal on the high end toy store and got it for “very, very cheap.”

FAO Schwartz only operates two company stores, one in New York and one in Las Vegas. The deal with Toys R Us allows FAO to continue operating the two stores and retain store employees.

It seems that Toys R Us is becoming the next Best Buy. While they aren’t ready to take on Wal-Mart or Target, the company has taken over or outsold other toy stores across the country and internet. In February, it acquired eToys.com, a website that was then operating under bankruptcy protection.

FAO Schwarz doesn’t release its financial information as it is a privately held company. Without giving any sales information, it replaced the company’s CEO Ed Schmults with Barry Erdos. Erdos was the former president of Bluefly.com, a fashion website.

In this case, it is good that Toys R Us bought FAO Schwartz because otherwise the company may have just gone under and never heard from again. Also since Toys R Us is allowing the company to continue operations and run its company stores, FAO Schwartz will hopefully keep going even though the company may keep going.