Toying with Wal-Mart
By Craig M. Rexford

Interestingly, Toys ‘R Us announced in late October that it would open FAO Schwarz boutique departments inside nearly 600 of its stores. It is just the latest move by the mega-toy chain to distance itself from Wal-Mart and try to gain an identity that has little to do with price and a lot to do with product.

The word is that Toys ‘R Us will stay away from the high-priced products that FAO Schwarz is famous for and instead concentrate on moderately-priced products that still carry a little upscale prestige. Products offered in the boutique will range between $3 and $65, company officials say.

But can this strategy work with consumers who are increasingly concerned with just one thing: getting the best deal on a broad selection of the most popular products? The answer is maybe, but I would not bet the house on it.

Toys ‘R Us was the big boy in the toy market for much of the 1980s and 1990s. Wal-Mart, as it tends to do, discovered that the toy business was simply too lucrative to ignore and decided to cut prices on a broad range of products to gain market share. Fast-forward a few years and Wal-Mart is now the dominant player in the category and Toys ‘R Us, after surviving a meltdown several years ago, is looking for its own niche.

Selling toys is very similar to selling pet products and, as we all know, Wal-Mart has had a big impact on the pet category, as well. Consumers want the best possible price, along with selection and convenience, when purchasing products in both categories. And, especially at Christmas time, consumers are always looking for the retail outlet that is the easiest to shop and least expensive. The answer, at least for the last decade, has always been Wal-Mart.

So credit Toys ‘R Us officials for giving the FAO experiment a shot and realizing that the move will at least create some buzz in a marketplace that is being hammered by the worst recession in decades. However, from this angle at least, offering an upscale image in a market that is focused on price and convenience can be quite a gamble.