Toys R Us Loses Antitrust Ruling at FTC
A federal administrative judge on Tuesday ruled that Toys R Us Inc., the country’s largest toy retailer, unfairly used its market clout to prevent toy makers from selling popular products to warehouse-style discount chains.
James P. Timony, a judge at the Federal Trade Commission, upheld the commission’s charges that starting in 1989 Toys R Us executives muscled manufacturers into withholding best-selling merchandise from club retailers such as Sam’s and Price Club, leading to higher prices for consumers. The company also compelled manufacturers to sell those products only in combinations that made it difficult for consumers to compare prices, the judge concluded.
“The objective of TRU’s [Toys R Us] limitations on sales by toy manufacturers was to suppress price competition and exclude competitors,” Timony wrote in a 134-page opinion. “The policy was to keep merchandise out of the clubs, and to make sure that the price of merchandise that was in the clubs was not directly comparable to TRU’s price.”
The FTC originally filed a complaint against Toys R Us in 1996 after concluding that the Paramus, N.J.-based company extracted exclusivity agreements from nearly all the major toy manufacturers, including Hasbro Inc. and Mattel Inc., because the company was losing sales to warehouse stores.
Manufacturers participated in the plan, the agency charged, because they felt they had little choice: Toys R Us commands nearly 20% of the U.S. toy market. As a result, many consumers ended up paying prices for toys that were 10% to 20% higher than they otherwise would have been, the FTC said.
Timony’s decision is essentially a cease-and-desist order, but will take effect only if Toys R Us fails to appeal in 30 days. During appeals, Toys R Us can conduct business as usual.
The judge’s order carries no fines or other penalties. It does include a provision barring Toys R Us, for five years, from unilaterally refusing to buy from a supplier because of sales to discount stores.
Executives at Toys R Us, who have denied any wrongdoing, said Tuesday that they planned to appeal the decision to the full commission.
In New York Stock Exchange trading, shares of Toys R Us rose 19 cents to close at $35.44.
