Toys 'R' Us anti-competitive ruling makes common sense

Discount Store News, Oct 20, 1997 by Ken Rankin

When history finally gets around to conducting an autopsy on Woolworth, I'm sure the cause of the chain's demise will be attributed to a number of factors.

Certainly one of them will be the inability of a "variety store to compete with the aggressive, new-breed "category killers" that surfaced during the 1960s, 70s and 80s. None of them was more effective and successful than Toys "R" Us--a chain that almost single-handedly revolutionized the sale of playthings and all but cornered the market on popular toys produced by the industry's leading manufacturers.

By 1994, Toys "R" Us controlled an astounding 29% of the sales of the nation's top 10 toy makers. Needless to say, the chain enjoyed considerable leverage over those manufacturers. And, according to a Federal Trade Commission judge, Toys "R" Us wasn't afraid to use that leverage for anti-competitive purposes.

In a ruling that rocked retailing and the toy industry, FTC administrative law judge James Timony recently decided that the chain unlawfully pressured leading toy manufacturers into refusing to sell products distributed by Toys "R" Us to warehouse clubs, including B.J.'s, Sam's and Price Club.

For the discount store industry, Timony's decision virtually drips with irony.

After decades of being the targets of resale price maintenance conspiracies orchestrated by independent "mom and pop" retailers, department stores and other "full price" merchants, the nation's off-price retailers now appear to be turning on each other.

To be sure, Toys "R" Us has denied any wrongdoing and has already announced plans to appeal the judge's decision to the full FTC. And for all we know, the FTC, or ultimately the courts, may vindicate the chain and nullify the judge's order.

But to my mind, its hard to see why any retailer committed to free, fair and aggressive price competition would find Judge Timony's order difficult to live with.

Under the terms of that order, Toys "R" Us will be prohibited from "urging or pressuring a supplier to restrict its sales to any toy discounter." (That shouldn't be hard to swallow for a chain that believes in open competition.)

The FTC order will further bar the chain from seeking information from suppliers on toy sales to discounters--information that could be used by Toys "R" Us for anticompetitive purposes.

Additionally, the judge's order will, for the next five years, prohibit the chain "from announcing that it will discontinue purchasing products from any supplier because the supplier sells to any toy discounter, or refusing to purchase from a supplier because that supplier dealt with any toy discounter."

As far as I'm concerned, the only thing wrong with that provision is that it will only last for five years.

Indeed, those are the kind of fair-play, free market ground rules that should apply to everyone in the marketplace--whether or not they're accused of antitrust violations.