Specialty Toy Retailers: An Endangered Species

Wally Bock When I was a little boy we used to go to the FAO Schwartz flagship store on Fifth Avenue in New York as part of our Christmas shopping. I would gaze at all of the wonderful toys and displays. We never bought anything. Lots of other folks who went to FAO Schwartz didn't buy anything either and for a while that was OK.

Last week, though, changes in the retail landscape and the way Americans shop caught up with the venerable old toy store. It slipped, again and probably finally, into bankruptcy without the right to sell even its own name.

The world of toy retailing is very different today from what it was in my youth. Back then a high priced, high margin specialty retailer like FAO Schwartz could make it on the sales to a limited number of affluent people and diligent savers in the few large urban areas where it had stores. Back then lots of small toy stores peppered the landscape. Today that's all changed.

Today, two of the top three sellers of toys are Wal-Mart and Target. Sandwiched between them, in second place, is Toys R Us, a big box toy retailer that's in trouble. Those giant stores and their buying power provide one of the reasons why FAO Schwartz is bankrupt and small, local toy stores are likely to be in trouble. There are other reasons, too, but that's a good place to start.

There is intense price competition from Target and Wal-Mart, Toys R Us and Internet merchants. This year Wal-Mart did two things that boded ill for FAO Schwartz. First, they started carrying premium toys for the first time. Then, in mid-October, Wal-Mart stole a march on the entire industry by announcing deep price cuts and kicking off a price war that it will almost certainly win. Price competition is not the only kind of competition.

There's convenience competition. Folks don't go to toy stores often, but they go to Target and Wal-Mart almost every week. It's far easier to pick up toys at the same time as you get a drill bit, some batteries and a pound of potatoes than it is to get back in the car and drive across town to make another stop at the toy store.

The Internet has an even greater convenience edge. If you're at home in your sweats, all you have to do is pop online and check out Amazon where you'll find toys as well as books and electronic gear.

There's product competition. It used to be that everything that could compete for the play segment of a child's life could be found in the toy store. Not any more. Now there are video games and electronic gear of all kinds each one clamoring to claim a share of that play budget.

Then there's something that goes by the strange name of "age compression." Put simply kids are getting older younger. Part of that is certainly physical. Puberty is arriving earlier. But it's also psychological.

The idea of age compression today holds that today's eleven-year-old behaves a lot like a thirteen-year-old did just five years ago. That means that kids are abandoning toys earlier than ever. They're replacing Barbie dolls and action figures with cosmetics and sports equipment at an age when those toys used to have a couple of years more life in them.

Girls used to be interested in Barbie, for example, until they were about nine. Now they're ready to move on at five or six. Demographic studies bear out this general trend. 46 percent of households with seven and eight year olds list playing with toys as their favorite pastime. That drops to 24 percent for those with nine and ten-year-olds, and just 5 percent for households with eleven and twelve-year-olds.

At the same time, a whole generation of parents is looking for magic stuff that will give their children an edge. They're buying computers and various kinds of "make-smart" toys as an alternative to mass market toys.

This puts small toy stores in quite a bind, but they aren't helping themselves much. You don't see the key Goliath Killer strategies much in the toy business. There are few buying and marketing cooperatives that might help level the playing field for smaller retailers. You don't see many of the smaller toy retailers going for a powerful niche either, but when they do it seems to work.

Here's the bottom line. If there's a toy store that you like near by, you'd better get down and see it quick. By next year it may follow FAO Schwartz into bankruptcy.

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