Macy’s Gets Back into Toys

Discussion
May 19, 2008

By Tom Ryan

FAO Schwarz will open toy stores in nearly 700 Macy’s department stores over the next two years, marking the first time in 20 years that the department store will operate a year-round toy department.

The shops, ranging from 200 square feet to 3,500 square feet, will carry a variety of FAO-made products, many exclusive to Macy’s. The first 275 shops will open this fall, in time for the holiday shopping season.

The decision came after a test selling toys in Macy’s Street store in downtown Chicago performed above expectations and pushed the entire children’s apparel business "well above" expectations.

"We expect it to drive new customers into our stores and to insert a new level of fun and excitement onto the children’s selling floor," said Macy’s CEO Terry Lundgren Friday after the company’s annual meeting.

The arrangement is the latest in a string of exclusive deals for Macy’s. Since its merger with May Department Stores in 2005, Macy’s has signed exclusive distribution deals with Oscar de la Renta, Tommy Hilfiger and Martha Stewart.

For FAO Schwarz, Macy’s brings national distribution and an opportunity to bring its stores to local communities. . The 146-year-old company continues to independently own and operate its own stores, including a flagship store on New York’s Fifth Avenue.

"I think it’s a fantastic opportunity for us to drive our market share," said FAO Schwarz CEO, Ed Schmults.

But since Macy’s was last in the category, the toy industry has become dominated by Toys "R" Us touting broad assortments and discount chains like Wal-Mart playing up low prices. A price war in 2003 pushed FAO Schwarz — as well as KB Toys — into bankruptcy reorganization.

Getting back into toys is expected to help differentiate Macy’s from competitors.

"This gets back to the need to give their customer an additional reason to visit the store if they need to go out and attract a new group of customers to replace those that have decided to shop elsewhere or less frequently," consultant Jim McComb, president of McComb Group LTD, told the Northwest Indiana Times. "So this is all a part of a strategy to build their customer base back."

But some were still concerned about a struggling Macy’s re-entering the fiercely competitive toy market.

"You’ve got to ask: Does putting two brands that are struggling together make a better product in the end?" Will Ander, a retail consultant for Chicago-based McMillan/Doolittle LLP, told the NWI Times.

Discussion Question: What do you think of Macy’s move to open FAO Schwarz shops in its stores?

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29 Comments on "Macy’s Gets Back into Toys"


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Joel Warady
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Joel Warady
14 years 6 days ago
This question has come up in the past. And it does seem similar to the question that is out there about the potential merger between Circuit City and Blockbuster. When you have two brands that are not strong, and you put them together, how does this help drive new traffic to the store? History tells us it just doesn’t work. The FAO Schwarz name is tainted, and it simply does not carry the same panache that it did in the past. Add that to the fact that they are not really doing anything special in their flagship store, and what you have is a tired toy retailer partnering with a lost department store chain. Not a very strong offering. This is not to say that Macy’s strategy is flawed. If they had announced that they had created a partnership with Hamley’s from the UK–one of the best toy stores that I have ever visited–then I think it would make sense, and make exciting news. Retailing is more than just having a familiar brand name, it… Read more »
Carol Spieckerman
Guest
Carol Spieckerman
14 years 6 days ago

This may be an alliance of two temporarily-weak BUSINESSES; however, that’s not the same as having two weak BRANDS. The joining of FAO and Macy’s makes for an understandable and relevant brand pairing at retail, even if the short term going will be tough. Mr. Lundgren is doing exactly what everyone else should be doing; building for the inevitable end of the economic downturn rather than burying his head in the sand. Macy’s and FAO are fortunate in that the “lab” results are already in/they aren’t rushing into unknown territory. The ill-timed ingestion of May stores may continue to delay the party for Macy’s; however, its well-planned inside/out brand boosting moves will set the stage for a post-recession rally.

Don Delzell
Guest
Don Delzell
14 years 6 days ago

The toy business is extremely difficult to run, profitably, within the context of a department store. Given that Macy’s believes that it “needs” to have some form of a toy department, the co-branding probably serves to manage as much risk as possible. On the other side, FAO lacks the resources for any form of aggressive expansion, and this deal does something they couldn’t do on their own.

Having said all that, I’m just not sold on the value of this to Macy’s. Toys are a fourth quarter business, and always have been. The merchandise inventory investment, square footage commitment, and other resources have to be present for all 12 months, subsidized by the last 3 months. Is this appropriate for Macy’s? I don’t think so, and the argument I’m making is not new. Flexing the space and inventory isn’t really possible…at least not to the extent that would be appropriate given the probably volume fluctuations.

James Tenser
Guest
14 years 6 days ago

“In today’s retail environment, the status quo is perhaps the greatest risk of all,” Macy’s chairman Terry Lundgren told a conference audience here in Tucson a month ago.

The move to a name-brand experience in the toy department is a clear break from the status quo, and bid to stand for something in a world where rare retailers display the courage to step outside the “big middle” of the marketplace.

Yes, the seasonality of the business will be of great concern. And yes, the price focus of TRU and Wal-Mart will necessitate a distinctive merchandising approach. But I can see FAO-Macy’s scoring big, especially in the chain’s landmark downtown stores, where this department can become a destination for upscale and upwardly mobile families.

Jon Rasmussen
Guest
Jon Rasmussen
14 years 6 days ago

Again, another example of Macy’s trying to differentiate itself from other department stores. This move only proves the power of what one brand can do. What will come next? I am excited to see what Macy’s will do to revive the “dinosaur.” Other department stores are “homogenized” and Macy’s is stepping out ahead and attracting a younger customer as well as those that remember the fun of going into a grand toy store! Keep up the good work Terry!

Mark Lilien
Guest
14 years 6 days ago

Given the size of the average Macy’s and its principal toy competitors, 200 to 3,500 square feet just isn’t very impactful. Macy’s succeeds in the departments whose assortments are dominant compared to the competition. As usual for retailer “new assortment” press releases, Macy’s hasn’t said which categories will lose space. If the latter are losers, maybe toys will lose less. Besides, Macy’s claims that toys help sell children’s clothing. Returning to Macy’s toys for a moment: do children, parents and grandparents want and appreciate brands, or items? In the past 10 years, name a single unique bestselling FAO Schwarz toy. The past 20 years? 30 years?

Christopher P. Ramey
Guest
14 years 6 days ago

Shopping at FAO Schwarz used to be exhilarating. It was impossible to visit the store without discovering something someone you knew would love. However, the information age has made it more difficult to find hip unique products to create merchandising excitement. It’s all available on your computer. Just ask Sharper Image.

Does Macy’s have the fortitude, floor space and funds to recreate the drama and sense of exploration to bring out the child in all of us? A dumbed-down version of FAO Schwarz will turn off those who remember the old, as well as render the branding and floor space irrelevant. Somehow I have visions of FAO Schwarz kiosks for convenience.

Recognizing the risks, the upside is another positive piece in the puzzle for Macy’s mad dash to escape mediocrity.

Steve Steinberg
Guest
Steve Steinberg
14 years 6 days ago

Brilliant! Growing up in Cincinnati as a kid, (now a 50 year-old baby boomer) there was nothing more “magical” than going to the department store for toys. I never forgot those experiences and furthermore, it gave my mother much deserved time to do her shopping without me complaining. In 1967, we took a family trip to New York City and visited FAO Schwarz for one of the most memorable experiences of my young life at that time.

Department stores need to redevelop their relevance and have items that attract young people to their stores and cultivate them into lifetime customers. I can’t imagine any young person, (12 years old or younger) that looks forward to going to the department store today…what’s in it for them? If Macy’s and FAO Schwarz does this right, business will increase and they will have created a generation that will be “loyal” to their store for years to come. Best of all, it will recycle with that generation’s children going through the same experience.

James Avilez
Guest
James Avilez
14 years 6 days ago
I like the idea of a Toy Department as an impulse item for infants to 3 years old though. When I was growing up in the ’70s, Macy’s was THE best store in town, and I remember the Toy Department which was behind Sporting Goods–ski equipment, parkas, upscale sportswear etc. Their Toy Department was fantastic with a huge in store Lego section, model cars like Corgis and Hotwheels, dolls, trikes, wagons, Steiffs etc. Then they 86’d it. I also remember when Macy’s had Wine & Spirits, Gourmet Foods and Candy Departments next door to the Housewares with cooking demos and book signings 7 days a week. Years later in the ’80s there was also a big section of name brands and all the designers that mattered in a very sharp sophisticated environment but I guess I am in the minority now in liking that sort of thing; those days are past. It’s either not “cost efficient” or it’s all about “the economies of scale.” The current leadership has better things in mind for Macy’s. How’s… Read more »
MARK DECKARD
Guest
MARK DECKARD
14 years 6 days ago

Department stores in general are so generic these days, it’s hard to tell which one you’re in once you’re past the front entrance.

This decision could certainly move Macy’s from a tired, boring and uninspired retailer back to the vintage age of the department store with some youthful energy, fun and excitement. If it gives parents and grandparents another reason to enter the store, it could provide a great overall lift in sales.

I’m looking forward to seeing how they execute what could prove be a great move.

‘Ya better watch out….

Janet Poore
Guest
Janet Poore
14 years 6 days ago
It makes sense if they do it right. It has to be a special and entertaining shopping experience, as the FAO Schwarz stores always were. If it is just a toy department with the FAO Schwarz name, it will fail to compete on price. Just as Starbucks gave people a reason to pay more for a cup of coffee, Macy’s can make this succeed by providing what Toys ‘R’ Us or Target can’t. It may turn out that the smartest thing is to make the FAO Schwarz department a seasonal store in a store with all the hype, if it doesn’t bring in enough revenue year round. I think the negatives surrounding FAO Schwarz are more of an insider thing and the average consumer doesn’t even know about it, or care. On the subject of Macy’s, I recently “discovered” a Macy’s Furniture Gallery store in Moorestown, NJ. Found it by accident as I drove to a meeting. Although it has been there for 7 years, nobody knows about it. They don’t advertise. The store is… Read more »
Theresa Fortune
Guest
Theresa Fortune
14 years 6 days ago

This marriage of businesses will do well for both FAO and Macy’s. In our current marketplace, we have reached a point where we have to bring business “strengths” together in order to succeed.

I remember when I worked at Macy’s from 1989 through 1992 while attending school that the Toy department they had was the most amazing place for kids and adults to get all the latest toys and gadgets, and it was just a fun place to be. When Macy’s decided to do away with the toy department, I can’t tell you how many people, both locally and returning tourists, were disappointed by its removal.

To me bringing back the toy department is not just about selling toys, it is recreating the fun of shopping at Macy’s…like it was years ago. I look forward to returning to the toy department, especially at Christmas time (it will be crazy, but that is what it is all about).

John Hyman
Guest
14 years 6 days ago

From the perspective of a retailer: a noncompeting and marketable, well-known branded business is willing to pay me more $$$ per square foot than I am producing (this is the children’s area, remember)… sounds like a win for Macy’s in the short run.

Joel Rubinson
Guest
14 years 6 days ago

I think this is a GREAT fit! It can energize Macy’s and can provide a real alternative to the mass market toy store based on low price. There are two big “if-s”, however. first, Macy’s needs to create an “over-the-top” experience; FAO Schwarz, as always, had a theme park aspect to it and that can draw people into Macy’s. Will they do that? Second, there is a great opportunity to merge children’s apparel and toys together; will they find the synergies? I’m not sure of the plans and how much retail space will be devoted.

Dick Seesel
Guest
14 years 6 days ago
On the surface, the addition of an FAO Schwartz shop to larger Macy’s stores is in keeping with their overall marketing strategy. Macy’s national advertising is centered around celebrities and well-known brand names (Martha Stewart, Donald Trump, and so on) even though their assortments continue to be driven by private brands. FAO Schwarz adds a recognizable brand name to an area that may be lacking. However, there is a counterargument to be made: 1. Is the kids’ business a “headquarters” at Macy’s, justifying investment in real estate, marketing and fixturing? Or would Macy’s be better off focusing on its women’s, men’s and home areas? 2. Is FAO Schwarz really a brand name with the cachet that Macy’s is looking for? It is not a household name throughout the U.S. any more and has been tarnished by its financial problems the past few years. 3. Is a year-round investment in the toy business a smart move? Will the assortments be driven by exclusive product development or by the breadth of “hot” toys that can probably be… Read more »
Max Goldberg
Guest
14 years 6 days ago

If FAO Schwarz can bring panache and entertainment value along with proprietary products to Macy’s, this could be a great offering. It differentiates Macy’s from its competition and can create a sense of fun inside what have become routine stores. It will be interesting to see how Macy’s uses FAO Schwarz to attempt to drive store traffic.

Doron Levy
Guest
Doron Levy
14 years 6 days ago

I’m on the fence with this strategy. On the one hand, I like the ‘Macy’s wants to be different from the pack’ direction. On the other hand, department stores are going the way of the buggy whip. They just can’t compete in selection and price (and in most cases service) with big box specialty retailers. So I have to agree with Mr. Adner that 2 broken businesses don’t necessarily make a working one (see Circuit City and Blockbuster).

FAO’s model doesn’t work in the big box world and they should stick to fancy and fun stores in tourist destinations. Hooking up with Macy’s just seems like wasted resources that could go elsewhere.

Gene Hoffman
Guest
Gene Hoffman
14 years 6 days ago

I don’t want to toy around with my response but this move seems like two intoxicants trying to pull the other up onto the curb. But it is compatible with Macy’s grand strategy, so let’s wish them well.

Bob Phibbs
Guest
14 years 6 days ago

FAO Schwarz, the company featured in one of Tom Hanks’ biggest early films “BIG” is tainted? Hmmm…Macy’s seems very smart if they can capture the imagination in design that similar retailers like LEGO are providing in their best stores.

Li McClelland
Guest
Li McClelland
14 years 6 days ago

Is the FAO name so magical that people will buy the same toy in the same packaging (probably at a higher cost) from their shop at Macy’s rather than from Wal-Mart, or at Toys ‘R’ Us, or on-line? I doubt it very much.

The “successful trial” the article refers to was limited to right at the Christmas gift buying rush, which sort of made sense for Macy’s. A year round presence of children’s toys there does NOT make sense–especially when Macy’s recently removed a lot of the eager potential toy buyers and their parents from Macy’s stores when they stopped selling children’s shoes!

Janis Cram
Guest
Janis Cram
14 years 6 days ago

This is exciting news but Macy’s caters to middle class people looking for bargains and FAO shoppers are not bargain shoppers. How will the two meet up inside a Macy’s store? Will the shopper looking for Tommy Hilfiger also shop for toys? Or will the mother with two kids shopping the sale rack be the one to hear the whining of “why can’t I have that $700 stuffed animal???”

Mel Kleiman
Guest
14 years 6 days ago

This is going to be one of those “time will tell” stories. But I think it will have a somewhat happy ending.

Yes, both brands are struggling and Macy’s needs some help. FAO Schwarz needs a new life.

In this case, Macy’s has the real estate and I think a great Toy department will help to separate it from the standard the competition and will give the shopper who is looking for something a little different at least a reason to walk into a Macy’s’ store. If that happens, then it has accomplished the goal.

Ed Dennis
Guest
Ed Dennis
14 years 6 days ago

Hey, Macy’s just found another reason for me to enter their store! I will carry to my grave memories of standing in line (indoors) at FAO Schwarz in New York City to buy Furbies for my two daughters.

The employees were fantastic and entertained everyone in line for over two hours to buy this hard to find “must have” in 1998. If Macy’s can present FAO Schwarz in a way that preserves some of its cachet, they will have a year-round winner.

Jeff Hall
Guest
14 years 6 days ago

I give credit to Macy’s for having the courage to revive a once-storied brand. The strategy is challenging, given the limited floor space they’ll be able to devote to toys, compared to a typical FAO footprint. If Macy’s can infuse the department with a unique product mix and memorable retail experiences for parents and children, they could very well make progress in raising a new generation on the FAO mystique.

William Passodelis
Guest
14 years 5 days ago
I really wish them the best. These are two GREAT Brands in American retailing lore. I MUST agree with Mr. Warady, however, “…a tired toy retailer partnering with a lost department store.” I agree with his post above. Macy’s is still in the process of completion of its’ May Co. merger and the space available to FAO Schwarz is not that great. I think in the larger stores and Flagships this has the MOST potential given the potential of space and personnel that can be given over. I am afraid that in many branches, the toy area will be small, and has the possibility of being uninspired and unimaginative. There will be benefit from having a higher level of associate who knows the merchandise and there needs to be activity and a creation of an atmosphere of fun. I am not sure that this is going on even in the actual FAO Schwarz stores–let alone the Macy’s branch in Mishiwaka, Indiana or Mesquite, Texas. This does have potential and these are two great brands but… Read more »
Justin Time
Guest
14 years 4 days ago

I’m afraid for Macy’s that they won’t capitalize on any resurgent toy craze this time around. After all, it isn’t the ’70s anymore. Besides, a great toy like cast model Corgis are sold by a lot of retailers on the internet.

I tend to not see much upside with this announcement. Where they compete with Boscov’s, they will find trouble because Boscov’s has always had a toy department. So for Macy’s, this is not something unique in the markets they share with Boscov’s

I get the feeling that a Macy’s 20 percent off coupon this holiday season will list FAO Schwarz purchases as not valid for the coupon discount. That alone will put the Scrooge in many toy shoppers and discourage them from making toy purchases at Macy’s.

Robert Craycraft
Guest
Robert Craycraft
14 years 3 days ago

My concern with the “successful test” this past Christmas would be if they are relying on the data from the Marshall Field’s flagship store on State Street, which is hardly an accurate test market for a hum-drum “1 of 770” nationwide group of second-tier department stores we have as today’s Macy’s.

I believe Macy’s would do well to have a flagship strategy for Herald Square, State Street, Union Square, and the former flagships of Wanamakers, Kaufmann’s, Famous-Barr, Bon Marche, and a few others that includes large leased departments like this FAO example, several restaurants, special events, etc, to brand “Macy’s” as a very special and exciting place and then hope to heck that some of that halo effect shines on the hundreds and hundreds of tired stores in tired malls around the nation.

Good luck.

Odonna Mathews
Guest
Odonna Mathews
13 years 11 months ago

I am not sure of the synergy here. My questions are-what toys are they offering to what target market and how do their prices compare with other toy retailers? Is Macy’s developing a marketing plan to encourage young families to visit other areas of the store? I can see some interesting tie-ins such as “get 20% off children’s wear with a $25 toy purchase.”

Ray Grikstas
Guest
Ray Grikstas
13 years 11 months ago

If Macy’s diversification stops at toys, it could fizzle. However, if more and more departments are added over time, we could see the resurgence of the old-fashioned “everything under one roof” model.

Granted, the category killers will always offer better prices. Their advantage fades, however, if those prices can only be had by spending the afternoon driving around, burning increasingly expensive gas.

With expensive gas in the picture, a single ‘destination’ store becomes a cost advantage in itself. Macy’s seem to be toying with this idea. Good for them.

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