Lionel closing 27 stores in struggle for survival - Lionel Kiddie City

Discount Store News, Feb 1, 1993

EDISON, N.J. -- Lionel Corp., operator of Lionel Kiddie City, will close 27 more stores and two distribution centers by the end of this month, a move that could be the chain's swan song.

The store closings will leave Lionel with 29 stores in six markets supplied by one distribution center in Columbia, Md. The chain will confine its operation to the markets of Philadelphia, Central New Jersey, Baltimore, Washington, D.C., Cleveland, and South Florida. A year ago, Lionel operated 96 toy supermarkets.

Between Christmas and early January, Lionel said it closed 13 stores due to poor sales. Lionel Corp. president and chief executive Michael J. Vastola called the closings a "restructuring" that was necessary due to disappointing Christmas sales. Corresponding sales data was not released.

Vastola also said, via a prepared statement, that Lionel stopped payments to suppliers and landlords in December because of poor sales but that those bills would be paid with proceeds from its going-out-of-business sales.

At least one toy manufacturer, Little Tikes, said it had not recently received an order from Lionel and would not comment further. Similarly, Fisher-Price, also declined comment on the troubled toy retailer.

Vastola said Lionel "anticipated" securing a modified debtor-in-possession credit facility to provide it with working capital for continuing operatings. He added that Lionel was "actively seeking an investor in the reorganized company."

Vastola could not be reached for further comment. A spokeswoman for the company said Lionel would not comment beyond the contents of its release, dated Jan. 11.

While Lionel's announcement doesn't foretell a sure exit from the toy business, the news is "certainly not encouraging," said analyst Sally Smith with Alex. Brown & Sons, Baltimore. The closings, said Smith, "seem to be a trend. "

The big winner is Toys "R" Us, the No. 1 toy retailer in the U.S. which has managed to survive and prosper while its competitors have failed.

In the last year, Child World has gone out of business, Lionel has remained in Chapter 11 bankruptcy (since June 1991) and Kay Bee Toys, a unit of Melville Corp., recently said it would close 250 underperforming toy stores and open 100 new ones over the next three years.

The spoils of the contraction in the toy superstore business also go to discounters, primarily Kmart and Wal-Mart but also Target, Caldor, Bradlees, and ShopKo, which have aggressively pursued sales with expanded selections and competitive prices.

With toy superstore chains falling by the wayside and discounters committing more resources, space and promotional support to toys, the business is rapidly becoming more competitive.

Kmart has recently introduced a toy department at its Auburn Hills, Mich., store that features 20 endcaps that line two power aisles near the front of the store. Overhead canopies stock excess inventory and serve to cordon off the area, making customers feel like they are in a toy store.

Toys "R" Us, the dominant toy retailer in the United States and in a number of international markets, continues to try new merchandising programs to keep its edge.

Even a relatively small discount chain, GrandPa's, Bridgeton, Mo., recently created playful ambience in its toy an book area to attract shoppers and drive sales.

Lionel entered Chapter 11 bankruptcy in June 1991, the second time in nine years.

In the company's most recent financial report, for third quarter ended Oct. 24, 1992, the toy retailer posted a net loss of just under $9.5 million on a 1.3% sales increase, to $57.7 million.

For nine months, Lionel reported in November that sales rose 2.3% to $152.1 million, but a net loss of $32.5 million. Comparable store sales were up 18.8% for the period.

At the time, Vastola said the increase in comparable store sales was due primarily to increased inventory levels resulting from DIP working capital.