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Toy Industry Is Optimistic About Sale

March 18, 2005|From Associated Press

A recharged Toys R Us Inc. may help energize an industry suffering from price wars with behemoth discounters and from weaker sales because children want computer games and digital music players instead of stuffed animals, toy vendors and analysts said Thursday.

They are hoping that the $6.6-billion buyout of the nation's second-largest toy seller by an investment group, if completed, will help the company react more quickly to the rapidly changing toy industry and compete more effectively with No. 1 rival Wal-Mart Stores Inc. and other discounters, analysts and vendors said.

The investment group has not given details about how it will change the struggling toy retailer. But the industry is generally optimistic that whatever the group decides to do, it will help the toy business as a whole.

"Today's announcement added new life into the toy business," said Jim Silver, publisher of the Toy Book, a New York-based industry magazine.

He added, "I can envision Toys R Us becoming a family entertainment store, where you can buy an iPod or an entry-level digital camera. It will be a one-stop shop" for children and their parents.

Since Toys R Us announced it was for sale seven months ago, toy makers were on edge. They depend on Toys R Us since it carries a much wider breadth of toys compared with discounters, and it constantly tests hot toys.

"There was so much speculation about the future of Toys R Us, but this puts an end to it," said Harold Chizick, vice president of promotional marketing at toy maker Spin Master Ltd.

Silver expects about 20% of the company's U.S. toy division -- or about 140 stores -- to be closed, which may depress the retailer's sales volume by 10%.

The purchase of Toys R Us was inevitable given the gloomy prospects of the toy business, which has struggled with declining sales for the last two years.

Toy sales have been hurt by discounters' pricing wars, which contributed to the bankruptcy filings of specialty chains such as KB Toys Inc. and FAO Schwarz last year. Under new ownership, FAO Schwarz is focusing on high-end merchandise.

But the toy industry also is struggling with a host of alternatives that grab children's attention, such as cellphones and digital music players. In response, toy companies are expanding beyond toys into home decor and children-friendly gadgets such as affordable cellphones.

The company has a lot of hurdles to leap, not least of which is clawing back market share from its rivals.

Last year, Toys R Us had only 16% market share in toys, compared with Wal-Mart's 25%, estimated Sean P. McGowan, a retail analyst at Harris Nesbitt. He estimated that Target Corp. was in third place, at 12%.

"There is definitely plenty of room for improvement," Silver said.

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