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"It wouldn’t be the first time an iconic brand hasn’t been able to survive changes in the marketplace," said Sean P. McGowan, a toy analyst at Harris Nesbitt Gerard.
FAO said it was starting inventory clearance sales at its 142 FAO Schwarz, Zany Brainy and The Right Start stores nationally.
Efforts announced last month to sell the 15 FAO Schwarz stores and The Right Start chain of 38 stores will continue through Dec. 15, the company said.
FAO said those businesses will be liquidated if they can’t be sold, and the Zany Brainy business already was being liquidated.
"FAO has been that last bastion of toy store fantasy that people hold onto," said Chris Byrne, an independent toy consultant and editor of Toy Report.
But Byrne said while FAO Schwarz once had its own niche, tempting Americans with the finest imported toys from Europe, other stores now carry many of the same games and gizmos, and discount stores often sell them for much less.
"People have a warm feeling about FAO Schwarz, but not so warm that they are going to pay 20 percent more for toys," Byrne said.
Wal-Mart passed Toys"R" Us as the nation’s largest toy seller in 1998, though Toys"R" Us has remained a competitive No. 2 by offering customers"a good experience and a much larger breadth of assortment," said Jacques Roizen, a director of the Alvarez & Marsal turnaround and restructuring firm."In a short summary of the last five years, the discounters took Toys ’R’ Us’ customers, and Toys ’R’ Us took FAO’s customers."
The Fifth Avenue store is a tourist attraction, having been used as a location in movies including"Big," starring Tom Hanks, and"Home Alone 2," starring Macaulay Culkin.
But it’s being pressed by Toys"R" Us, whose chairman and chief executive officer, John H. Eyler Jr., was chairman and CEO of FAO Schwarz until January 2000.
Holiday-shopping parents and kids are flocking to a huge Toys"R" Us store on Times Square with enticements including a 60-foot-high Ferris wheel and 34-foot-long, five-ton animated dinosaur."There aren’t too many stores that have Ferris wheels," McGowan said.
Roizen said if these trends leave room for FAO Schwarz to survive, it may be as a purveyor of toys for the rich.
"It would have to be established as a retailer for very wealthy customers, who would go there not just for the toys but for a very high quality of service," he said."They would have a place in the market, but it would be a much smaller place, a 40- to 50-store chain exclusively in upscale malls."
Even now, McGowan said,"I’ve always thought what FAO was selling to its customers was the shopping bags and wrapping paper -- like the Tiffany blue box."
FAO had filed for bankruptcy protection in January, succeeded in selling $30 million in convertible preferred stock and borrowing $77 million, and emerged from bankruptcy April 23.
But the company reported an $18.8 million loss for the quarter ended Aug. 2 as sales kept sagging. It said in November it had received a default notice from creditors, and announced this week it would seek bankruptcy protection as holiday sales slumped significantly below expectations.
The bankruptcy petition said both assets and debts were"more than $100 million," without giving exact figures. It said FAO had total assets of $102.1 million and total debts of $85.9 million as of Aug. 2.
Borders Group, operator of the Borders and Waldenbooks stores, was listed as the largest unsecured creditor, with a claim of $2.8 million, Mattel Toys as the second largest at $1.1 million, and Fisher Price Inc. as the third largest at $668,774.
FAO said it hired a joint venture of the Buxbaum Group, in Calabasas, Calif.; SB Capital Group, in Columbus, Ohio; and Tiger Capital Group, in Boston, to conduct clearance sales. The joint venture said shoppers shouldn’t see significant differences in daily store operations until FAO winds up its affairs, which it expects to complete early next year.
