Right Start Plans to Buy FAO Schwarz
Calabasas-based toy retailer Right Start Inc. said Monday that it will buy the famed FAO Schwarz toy chain, solidifying the California company’s position as the biggest retailer of educational and pricier toys.
Right Start, which began its buying spree in August with the acquisition of the 187-store Zany Brainy chain, will pay FAO parent Royal Vendex between $50 million and $60 million for rights to the 140-year-old chain’s name, its famed Fifth Avenue flagship store in New York City and 22 FAO stores.
The California company will shutter 18 FAO Schwarz stores, which company executives declined to identify pending notification of the stores’ employees.
For Right Start, founded in 1985 as a catalog seller of high-end infant and toddler developmental toys, the FAO addition adds a marquee name and a way to sell popular TV-promoted brands, such as Barbie dolls and action figures, that don’t fit under its educational-toy mantle, industry analysts said.
“It’s really a tremendous deal,” said Jim Silver, publisher of the industry magazine Toy Book and consumer magazine Toy Wishes.
“Specialty toy chains have realized that it is very hard for a pure specialty store to compete in today’s marketplace. You have to have the hot drivers, the hot promotions and the hot TV items. FAO helps them do that and still carries the cachet of being the Tiffany of the toy business.”
Right Start’s significant expansion this year, including the Zany Brainy addition, which enabled Right Start to extend its reach to older children, has come while others in the fickle and fragmented toy-selling industry have shut their doors. The company, which opened its first retail stores in 1993, operates 187 Zany Brainy and 69 Right Start stores.
Right Start’s acquisition of Zany Brainy, of King of Prussia, Pa., for about $100 million in cash and stock followed Zany’s Chapter 11 bankruptcy filing. Zany Brainy had run into trouble after its $35.4-million purchase of chief rival Noodle Kidoodle in April 2000.
Although FAO Schwarz has long been one of New York City’s biggest tourist attractions--its eye-popping displays appeared in the movie “Big,” in which Tom Hanks and Robert Loggia danced on an oversized keyboard--the flagship and mall-store siblings have long been money losers.
Vendex, which announced its intention to sell the toy chain in September, reported a $17-million loss at FAO during the first half of the year. Sales have fallen 22% in the third quarter.
“It’s a nice opportunity for Right Start,” said Melissa Comer Williams, toy industry analyst at Gerard Klauer Mattison in New York.
“I think they will have to figure out how you get customers to pay for the FAO name and the FAO customer service, but it’s kind of a nice third leg in their strategy.”
Right Start Chief Executive Jerry Welch said Monday that FAO’s problems came from overexpansion that diluted the store’s exclusive calling card.
“FAO Schwarz has never had problems with customers,” Welch said. “The name is so highly regarded by customers. It’s magic, and it has been for many years.”
Right Start shares rose 80 cents to close at $6.05 on Nasdaq.
