Oscar Gets Grouchier as Sesame Street Chain Files for Chapter 11

Sesame Street Retail Stores, a Bay Area-based chain licensed to sell products based on the popular children’s television program, has filed for Chapter 11 bankruptcy protection from creditors.

The Sesame Street chain is the latest toy retailer to face difficulty in an industry increasingly dominated by discount giants such as Wal-Mart and mega-chains such as Toys R Us.

In a May 15 filing for bankruptcy reorganization, the Sesame Street chain--operator of 62 stores in 20 states--said it would be holding sales to raise revenue to pay creditors. Some Southern California stores said clearance sales are already underway.

About a third of Sesame Street’s stores are in California, including Los Angeles, Brea, San Diego, Glendale and Costa Mesa.

The Union City company opened its first store in Costa Mesa in 1990, offering merchandise based on television characters such as Big Bird, Cookie Monster, Oscar the Grouch, and Bert and Ernie. However, Sesame Street stores have not generated enough sales to meet current obligations, according to the bankruptcy filing.

Executives at the company did not respond to requests for additional information on Sesame Street’s financial troubles. However, Children’s Television Workshop, which produces public broadcasting’s “Sesame Street” program and grants licensing rights for its characters, cited the retailer’s ambitious expansion as a factor.

Sesame Street Retail Stores doubled the number of stores last year, said Children’s Television Workshop, a nonprofit organization with no involvement in the operations of the retail chain.

“Start-up costs of that very rapid expansion, combined with a poor Christmas for specialty retail stores in general, precipitated the current financial filing,” Children’s Television Workshop said in a statement.

The retail chain said in the bankruptcy filing that it would seek new financing to maintain the business.

However, the filing also said the business could be placed on the sales block or liquidated. Sesame Street, a private company, has 720 employees.

The bankruptcy filing is another sign of tough times in toy retailing. Child World Inc., a Massachusetts-based chain, shut down in 1992. Lionel Corp., which operated stores in many East Coast states, went out of business the next year. And Long Beach-based Karl’s Toys liquidated in 1993.

Some toy industry analysts have attributed consolidation of the industry to the rise of giants such as Wal-Mart, Kmart, Target, Kay Bee and Toys R Us, chains that combined have more than 60% of the market.

The trade practices of Toys R Us, the nation’s leading toy retailer, have attracted the attention of the Federal Trade Commission. The commission last week filed antitrust charges against Toys R Us, contending that the retailer uses its clout to limit some competitors’ access to more popular toys.

Toy R Us disputes the commission’s claims.

The commission has not alleged a connection between its antitrust allegations and the difficulties of operations such as the Sesame Street chain. However, Lou Alton, an industry analyst at L.H. Alton in San Francisco, said Toys R Us has been mounting sales promotions that hurt smaller chains.

“Toys R Us is pushing to expand sales and that has to have a serious impact on toy retailers,” he said.

Toys R Us also sells products based on the Sesame Street characters. Wal-Mart, Kmart and other chains offer toys and other products based on the television program.

Stevanne Auerbach, a San Francisco-based toy consultant, said the Sesame Street chain has also had difficulty because of marketing failures.

“The stores are unattractive and don’t appeal to children and parents,” she said, “and the chain doesn’t offer enough educational toys.”