FAO Bankrupt Again

December 3, 2003
For the second time this year, toy retailer FAO says it will file for bankruptcy. The operator of FAO Schwarz, Zany Brainy and Right Start stores succumbed to pressure from Toys "R" Us, Target and Wal-Mart.

FAO launched immediate fire sales at its 89 Zany Brainy educational-toy stores and is likely to do the same at its 15 FAO Schwarz and 38 Right Start infant toy stores. The company blamed poor sales and pressure from creditors.

The company is trying to sell off its inventory before the Christmas season ends. All sales will be final.

Wal-Mart put the retail toy business into a tailspin when it launched the holiday season early with steep discounts on popular toys. Competitors complained the giant warehouse chain was selling below cost.

Target responded aggressively to Wal-Mart's move, marking down its toys even lower than Wal-Mart in many instances.

The fierce competition among discounters left FAO, KB Toys and Toys "R" Us at a serious disadvantage.

FAO has been in trouble for years. It filed for bankrutpcy protection last January and emerged in April with $107 million in new financing. It closed many of its less successful stores and began an effort to open small boutiques in Saks and Borders stores.

But none of FAO's efforts were enough to fortify it for the fierce competition that broke out in November, when Wal-Mart launched its pre-emptive strike.

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