Toys "R" Us closing stores

Real Estate Weekly, Feb 6, 2002 by Parke Chapman

Toy "R" Us will close 64 stores and lay off 1,900 people while taking a $126 million charge against fourth-quarter earnings. The restructuring is seen by many as a way for the company to compete with Wal-Mart without lowering their prices.

Several years ago, Wal-Mart surpassed Toys "R" Us as the nation's biggest toy seller, leaving Toys "R" Us in second place. The layoffs represent 5 percent of their U. S. work force.

"The 27 toy stores slated for closure are stores that were cash-flow positive, but were not meeting our return objectives. We will concentrate our investments on those stores judged most likely to produce superior returns," said John Eyler, chairman and chief executive officer of Toys "R" Us.

Last Christmas Toy "R" Us opened their 110,000-SF flagship store on Times Square, boasting a 60-foot tall ferris wheel and a 34-foot long "animatronic" T-Rex dinosaur, among other attractions. The store's opening generated a buzz during a disappointing holiday retail season.

Toys "R" Us operates two Manhattan stores, the other one located on Union Square. They shut down their 34th Street location prior to opening up their flagship on Times Square.

"We were pleased that during the five weeks of December, 12 of our top 20 metro markets--which includes New York/New Jersey and Boston--aggregated double-digit sales increases," said Eyler.

The company will open new redesigned stores in 10 of the markets where toy stores are being closed.

Analysts quoted in the New York Times said that Toys' "R" Us' Times Square store is drawing more customers than F.A.O Schwartz. But one retail broker insisted that the analysts' observation was flawed.

"F.A.O Schwarz is the Tiffany of toys. They are one of the number one retailer on 57th Street," said Faith Hope Consolo of Garrick-Aug store leasing.

Consolo said that Toy's may choose to close their Union Square store, even though the Times Square store must be their most expensive location. "The whole retail industry is suffering right now," she said.

And how--Kmart filed for bankruptcy last week, the biggest retail bankruptcy in U.S history, and a string of other retail chains are foundering.

Consolo said that apparel chain BCBG and Bisou-Bisou are also close to Chapter 11 filings. Country Road, an Australian apparel chain, also filed for Chapter 11 protection last week.

"This restructuring doesn't mean that Toys "R" Us is in trouble. I think it is a strong move, and they did the right thing," said Stephen Yalof, president of Robert K. Futterman & Assoc., a retail leasing firm.