Newly organized FAO readies for holiday push - New marketing and promotional strategy - Brief Article - Statistical Data Included

DSN Retailing Today, August 26, 2002 by Molly Prior

KING OF PRUSSIA, PA.--There's something truly magical about a first Christmas. Ornaments and greeting cards made specifically for the occasion line retail shelves with carefully scripted messages, such as "our first Christmas together" and "baby's first Christmas." As holiday 2002 approaches, that same sense of excitement is being felt at FAO Inc., which will enter the fourth quarter for the first time this year as a significantly stronger toy retailer, whose portfolio of formats includes FAO Schwarz, The Right Start and Zany Brainy.

Last holiday, FAO Inc. was content to play "conservative offense" while it focused on integration and remerchandising. "2002 is when the real game starts," ceo Jerry Welch told DSN Retailing Today at the start of the year.

"The environment is sort of tricky this year, but we're moving aggressively on a lot of fronts," said Welch this month.

In an effort to broaden its reach and win over affluent moms, Welch said FAO Inc. has spent the better part of both 2001 and 2002 taking the best merchandising practices from each banner and applying them to sister stores.

In March, FAO Inc. rolled out car seats, booster seats and strollers to every Zany Brainy store. In addition, at least 60 Zany Brainy stores will be outfitted with a 1,600-square-foot The Right Start boutique filled with infant and toddler merchandise. This summer, FAO Inc. also cleared room for FAO Schwarz plush in 61 The Right Start stores and 169 Zany Brainy stores.

Zany Brainy, a specialty retailer that historically has snubbed mass playthings, such as action figures and Barbie, will now create full-size departments for both. Welch said Zany Brainy's Barbie selection does not aim to compete with Wal-Mart's, but rather--by working with Mattel--gives customers a tight, specialized assortment.

"We took the best-selling categories in FAO Schwarz and put them in Zany Brainy," said Welch.

Taking a page from The Right Start model, FAO Schwarz will expand its offerings of books and video.

Come Oct. 15, "everything will come together and we will be standing tall," said Welch.

On the marketing and promotional front, FAO will aggressively cross-market each of its banners within its stores, and through other channels as well. For example, this fall, FAO Schwarz's 10 million catalogs will include coupons directing consumers to either a The Right Start store or a Zany Brainy store. In all, FAO Inc. will issue 52 million coupons this holiday.

Since acquiring both Zany Brainy and FAO Schwarz last year, Welch said the retailer has "accomplished a lot in a small amount of time." He added that the merchandising changes established FAO Inc. as a year-round business in much the same way Babies "R" Us adds stability to Toys "R" Us.

That said, FAO Inc. will still need to flex some muscle to stand up to competitors, which, by definition, constitutes any other retailer that sells toys. Moreover, Welch said that approximately 45% of FAO Inc.'s business will take place in the fourth quarter of this year. In the next two years, Welch anticipates holiday will account for less of the business, or a range of 38% to 40%. "We'll still spike in the fourth quarter, but the rest will balance out," said Welch.

"Ours is not a fancy strategy," said Welch. "It's just about expanding the base of products for our customers.