It's Christmas. People shop for gifts. Retailers shop for ways to
outshine the competition. And, as Eric Arnold learns, no store offers
quite as much variety - in product or marketing strategy - as FAO
This holiday season, like any other, parents and children are queuing up
outside FAO Schwarz's Fifth Avenue store in New York, the line circling
the block. They hope to snap up some of this year's hot new products,
and get a peek at a $3,400 stuffed gorilla, a $7,500
Bentley pedal car, and a host of other goodies few parents have the
mindset - or bank account - to actually buy.
Of course, all toy retailers are concerned about sales being soured by
the slumping economy and public mood. But they're not veering from the
age-old approach of distinguishing themselves from their
And, as one would expect, FAO Schwarz is no exception.
For this shopping season, FAO's 140th, the store chose to place a
heavier emphasis on its exclusive products not available at other
retailers. "It's always been a top priority," says Alan Marcus, VP of PR
and special events at FAO. "Between 60% and 70% of our goods are
exclusives." But this year, FAO is focusing more on rebranding itself,
washing away the image of upper-crust toy store, and instead making
itself known as the as the ultimate "children's lifestyle"
James LaForce, partner of agency LaForce & Stevens (on a six-month
retainer to push FAO's 140th anniversary), explains, "There hasn't
really been a brand out there that owns a luxury kids market. The luxury
corner of the universe is Fifth Avenue and 59th Street. The parents are
shopping in the nearby stores - it made sense that the retailer
anchoring that corner would be a place parents could bring their
With that in mind, the flagship store in New York has a new look and
feel. Of course, the giant clock is still present, and the "Welcome to
our World of Toys" song still echoes through the store. But the familiar
tune is squelched by the new FAO look. The front area, still devoted to
stuffed animals of nearly every species on the food chain above
bacteria, now has more open space to encourage shoppers to look around,
and pick up and play with what appeals to them.
The back section of the store, with an entrance facing Madison Avenue,
was redesigned for what's now called FAO Baby (and is marked as such
over the Madison Avenue entrance). The aisles are wider to accommodate
stroller traffic, and from Madison Avenue to the main entrance, the
products are arranged to escalate by age and brand, with one side for
boys and the other for girls. The color scheme even darkens the further
one walks into FAO Baby, where the focus steers toward
non-gender-specific educational toys.
The upstairs sections have been redesigned as well, with a new special
section for collectors' dolls (complete with doll adoption agency), a
Barbie special-edition section (Marcus claims that two custom-made
Barbies recently sold for $8,000 each), a modern Barbie section,
an area devoted entirely to the Star Wars franchise, a Lego area, and
FAO Schweetz, the in-store candy shop. But the store's upstairs is also
where the focus on children's lifestyle becomes most apparent.
Near the personal shoppers' offices, one sees the new FAO Schwarz
signature luggage collection. Similar to Fendi accessories, the leather
pieces (from CD case to doll case to diaper bag) have pebble-grain print
F's, A's, and O's. The backpack ($295) even comes with a leather
mobile phone case dangling from its side. The philosophy behind the line
- and the products sure to follow it - is that kids need these things
anyway: Creating a luxury line was the next step, and FAO was the
obvious choice to deliver it.
Along with the shift in product offerings, FAO has changed its PR
"We identify story opportunities by looking at trends," Marcus says. "We
reach out to travel, food, and gourmet publications, as well as teen
girl magazines. First and foremost is understanding broader trend
stories that identify the direction we're going in now."
Marcus does concede that some of FAO's marketing prowess is due to plain
luck. As it happens, CBS' The Early Show has office space in the same
building as FAO's corporate offices. Together, they developed the
"Countdown to Christmas," which consists of 20 live segments that began
on November 27, and will run through December 24. "They're four-minute
spotlights highlighting a new toy. We sit down with the producers and
map it out, crafting what the segments will be and who the spokespeople
will be. Having a partnership like that is incredible," Marcus says.
Marcus also considers himself lucky that the FAO name attracts the media
every holiday season. "I can't pick up the phone fast enough to answer
questions over what the hot new toy is," he claims. Marcus won't,
however, disclose FAO's PR budget, as it's considered a privately held
That's the first sign that the toy industry isn't all fun and games.
On November 19, educational product retailer Right Start, which only a
few months prior bought bankrupt competitor Zany Brainy, paid Dutch
holding company Vendex International $55 million for most of FAO
Schwarz's assets (Vendex will become a major shareholder in Right Start
as part of the deal). The news sent Right Start's stock up 12.7% (from
$5.25 to $5.92), but left one major analyst cold.
John Taylor of Arcadia Investment Group in Portland, OR, believes that
adopting a narrow focus in a business that changes so quickly can be
very dangerous. Specifically, he cites the age-compression phenomenon:
The age at which kids actually want to play with toys continues to get
lower and lower. All the while, the retailers scramble for answers; most
have responded by going for exclusives, just as FAO Schwarz claims to
have been doing all along in its 40 stores.
But Taylor thinks that other retailers are better positioned when it
comes to exclusives, particularly Toys 'R' Us, which has reduced its
product count by 40% over the past two years in order to broaden
exclusive product lines. However, that doesn't mean that Taylor thinks
Toys 'R' Us will be left standing when the dust settles. "The retailers
who are naturally positioned well are Target and Wal-Mart," Taylor says.
"Both are destinations for families, who are there to shop for a variety
of needs, and those folks can merchandize in a way that they can target
specific age groups once the traffic is already there."
Jim Silver, publisher of The Toy Book, a trade magazine for the toy
industry, agrees, and is skeptical of FAO's new approach. "They're
looking to spread into just about anything a kid would like - that's why
they have FAO Schweetz and FAO Baby. But at the end of the day, it's
still all about toys," says Silver. And he, too, cites age compression
("when you have a three-year-old on a computer") as the primary
That's not to say that FAO isn't well aware of the challenges it faces,
though LaForce indicates that FAO's naysayers have difficulty
understanding the company's new tack. "Toy retailers are just battling
each other on price, up against companies like Wal-Mart. That's totally
different positioning," he says. "But we still have to recognize that
elephant in the room." (Incidentally, a stuffed one costs $650 at
For now, however, Marcus contends that FAO is on the right track.
Weekend store traffic, he claims, is only slightly off from previous
years (typically, the holiday season draws 20,000-70,000 shoppers to the
Fifth Avenue store every day), and he's positive about Right Start's
acquisition. "It's a great move for our business," Marcus says. "When
they bought FAO, they bought everything we do. They fully support the
direction we're going in."
Apparently, FAO is headed there in its own $65,000 backyard
bumper cars - appropriate for the ride ahead facing toy retailers.
VP of PR and special events: Alan Marcus
Agencies: Edelman (launched FAO Baby); LaForce & Stevens (promoting
FAO's 140th holiday shopping season)
PR budget: undisclosed