Toys 'R' Us to Separate Toy, Baby Businesses

WAYNE, N.J. - Toys 'R' Us, Inc., struggling with competition from Wal-Mart and other discounters, said yesterday that it's considering selling its toy retailing to focus on its better-performing Babies 'R' Us unit.

In a statement, the company said its board of directors has decided to pursue the separation of the global toy and Babies 'R' Us businesses. The board is evaluating various options to that end, including the possible sale of the global toy business, as well as a possible spin-off of Babies 'R' Us. The two businesses currently operate in distinct markets, chairman and c.e.o. John Eyler said.

Babies 'R' Us, the largest baby product specialty store chain in the world, has made its mark by supplying not just baby toys, but also gear like bedding, furniture, strollers, and clothes to expectant and new parents. Its offerings also include items supermarkets typically carry, including diapers and baby accessories. The unit has 200 U.S. stores.

Toys, on the other hand, have become somewhat of a commodity item among retailers, analysts note.

Price wars among toy retailers played a part in the bankruptcy of FAO, Inc., parent of the upscale FAO Schwarz toy stores and mall-based retailer KB Toys.

"Not only do Wal-Mart and Target offer similar goods to Toys 'R' Us, but you'll find basic baby care items with competitive prices in the many thousands of Walgreens and CVS stores throughout the country," said Bernard Sands retail analyst Richard Hastings. "The inability of Toys 'R' Us to expand and follow the masses now leaves them in that very complex, late-phase set of limited alternatives, and the timing is not necessarily optimal. Consumer spending is weakening and retail real estate is at high capacity."

Toys 'R' Us, which operates nearly 700 toy stores in the United States and about 600 abroad, has partnered with several supermarket chains in recent years as a possible growth vehicle. Toys 'R' Us
kiosks were tested in some of Ahold's U.S. stores beginning in 2001, and today they're located in about half a dozen stores, Ahold spokesman Barry Scher told Progressive Grocer. A toys-in-the-aisle point-of-purchase program from Toys 'R' Us has also been rolled out across various Ahold and Albertsons operations nationwide.

In yesterday's statement Toys 'R' Us said that it also intends to "substantially restructure" its corporate headquarters operations in Wayne, N.J.; reduce operating expenses in the headquarters and U.S. toy business by more than $125 million by fiscal 2005; cut capital spending in 2005 for the global toy business; and take approximately $150 million in markdowns in the second quarter, primarily to liquidate selected U.S. toy store inventory.

In connection with the changes, John Eyler will keep his job as chairman and c.e.o. of the whole company, and Ray Arthur will continue in his role as c.f.o. Richard Markee, who was president of U.S. toy stores, will become c.e.o. and president of Babies 'R' Us upon separation of the business.

John Barbour, who is currently president of Toys 'R' Us International, will replace Rick Markee as head of U.S. toy stores.

The company also postponed the release of its second-quarter earnings by one week, to Aug. 23.

--Jenny McTaggart
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