Is Child World Just a Plaything for Shamrock? : Retailing: Skeptics doubt that Roy Disney’s company is serious about acquiring the No. 2 toy firm.
This is the type of investment that appeals to Stanley P. Gold: a cash-starved retailer battling a growing behemoth in a large but stagnant market that is braced for recession.
Gold, the president of Shamrock Holdings, says that with a shift in strategy, an infusion of cash and a few years of patience, Child World Inc.--the nation’s No. 2 toy retailer--will prove a worthwhile venture for the Burbank-based investment firm controlled by the family of Roy E. Disney.
Skeptics say Child World faces an uphill fight against industry powerhouse Toys R Us Inc., and the stock market doubts Shamrock will even go through with the acquisition, which has not been finalized.
Today Child World officially opens its first of as many as 20 California stores in a two-year expansion. The new stores will be financed with the help of Trefoil Capital Investor L.P., the $450-million Shamrock-managed fund designed to acquire debt-laden companies. Child World would be Trefoil’s first acquisition.
The Child World store in the Del Amo Fashion Center in Torrance will serve as the prototype for stores that Gold says will eventually allow the chain to overtake Toys R Us, which commands about a quarter of the nation’s approximately $13.5 billion in annual toy sales. Gold says Shamrock managers are ready to apply the experience they have gained in expanding two music and home video specialty retail chains--Music Plus in California and Sound Warehouse in Texas--to turn Child World around.
“I don’t think it’s going to happen overnight,” Gold says of his aim to turn the Avon, Mass., firm into the nation’s top toy retailer.
Gold concedes there is much to be done. On a tour of stores, he found inconsistent layouts and service. The new store in Torrance has been designed to address these drawbacks and set the chain apart from Toys R Us, he said. Unlike the no-frill warehouse stores, the Del Amo Child World store features a carousel, snack area and neon-framed skylights. More time has been devoted to training so that employees will be able to demonstrate toys and help customers select products. “I think it’s training personnel as opposed to huge (capital) expenditures that is the key” to growth.
A possible recession is a concern, but Gold is not convinced toy sales will tumble. “I don’t think it will be as bad as people say,” he says of the upcoming holiday season. “People will cut out a lot of items before it comes to a child’s Christmas present.”
Under Gold’s direction, Shamrock, which launched an unsuccessful bid for Polaroid, has built a reputation for expanding and turning around small, undervalued firms in weak industries such as energy and agriculture. Shamrock now sees plenty of potential in retailing, where the takeover boom of the 1980s left many chains burdened with debt. “We make investments in things people don’t like,” Gold said. “Investors are really down on (retailers). “We think specialty retail has a real good growth potential in the ‘90s.”
So far, Shamrock’s retailing operations have earned respect. Shamrock, which acquired Music Plus in 1988, has helped finance a rapid expansion of the chain that has seen the number of stores nearly double to 71. The 140-store Sound Warehouse chain, acquired last year, is expanding into Florida.
Industry observers say Shamrock’s management expertise will be put to the test at Child World. Child World’s corporate parent, CNC Holding, has been struggling under heavy debt and unable to remodel and expand the chain. Child World recently reported a second-quarter loss of $8.5 million, up from a $5.1-million loss in the same quarter last year.
If Shamrock is out to overtake Toy R Us, then “I feel they are setting themselves up to look pretty foolish,” said Larry Carlat, editor of Toy & Hobby World, a trade magazine, adding that in the past Child World didn’t differentiate themselves from Toys R Us “and they got their heads handed to them.”
Investors doubt Shamrock’s willingness to take over Child World. Under the current timetable, Gold said Trefoil will launch a $14-a-share tender offer for the publicly traded stock not owned by CNC. But on Wednesday, Child World shares closed at $10.25, up 37.5 cents in over-the-counter trading.
