HACKENSACK, N.J. — FAO Schwarz and the Apple Store stand next to each other at Fifth Avenue and 58th Street in Manhattan.
"Two of the greatest names in toys are side by side," quipped toy editor and consultant Chris Byrne, who said he usually stops by FAO when making a trip to the Apple Store. Yet Byrne and other toy experts acknowledge that for today's kids, the Apple Store probably seems much more magical than FAO.
The juxtaposition of the stores highlights the challenge facing FAO's parent company, Toys R Us, as it tries to capitalize on a venerable brand in 2012.
Toys R Us announced last week that in recognition of the 150th anniversary of the founding of FAO, it has turned the Fifth Avenue store into a toy museum with vintage toys, including a 1905 Steiff teddy bear and a 1935 version of Monopoly, on display throughout the store.
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The company also has installed new signs touting the 150-year milestone, remodeled parts of the store and reinstalled the animated singing clock face that was a beloved feature in an earlier incarnation of the store. Toys R Us also launched an updated FAO Web site.
Toys R Us bought FAO in 2009 from investment firm D.E. Shaw for what was thought to be a bargain basement price. FAO had filed for bankruptcy protection twice in 2003, and the flagship New York store was forced to close for several months the next year. Analysts at the time praised the acquisition, saying it gave mass-market retailer Toys R Us an entry into the upscale toy market.
"They may have bought it strictly so nobody else would come into New York and pump some life into it" and rival the flagship Toys R Us store in Times Square that opened in 2001, said Jonathan Samet, publisher of The Toy Book and Toy Insider. "As a brand, it probably doesn't generate all that much."
Toys R Us does not break out sales figures for the FAO store and FAO.com, and FAO sales probably account for a small portion of the $13 billion in annual sales at Toys R Us. Richard Barry, chief merchandising officer for Toys R Us, said the New York store "is doing great" and the company is "seeing (a) nice increase" in sales at the store.
Luxury retail expert Pam Danziger, president of Unity Marketing, said Toys R Us could be sitting on a potential gold mine if it can use the FAO brand to reach the wallets of the surge of baby-boomer grandparents.
"Certainly parents want to buy special gifts for their children, but it's really much more the grandparents," she said.
"There's a need for, and an interest in, these high-end, more distinctive specialty toys," said Danziger, author of Putting the Luxe Back in Luxury.
Toys R Us has tried to spread the FAO brand beyond New York City, but without success so far. Toys R Us, within months of buying FAO, installed holiday displays of FAO products in its Toys R Us and Babies R Us stores. In 2010, it opened 10 FAO holiday pop-up stores in suburban malls but did not repeat that strategy this past Christmas.
FAO previously expanded into suburban malls in the 1990s and had 42 stores in 2000. The chain began closing stores soon after that peak year. Only two stores remained, in New York and Las Vegas, when Toys R Us bought the brand. The Las Vegas store closed in 2010.
Barry, the Toys R Us executive, said the FAO boutiques in Toys R Us and Babies R Us stores "will remain a very important part of our strategy going forward."