Toys "R" Us Counting on Cyber Spree to Boost Share

(MoneyWatch)  Although Toys "R" Us improved operating earnings in its most recent quarter, payments on debt dragged its bottom-line results into the red, so it may seem surprising that it not only acquired FAO Schwarz, the upscale purveyor of unique playthings and sometimes elaborate variants on popular brands such as Barbie, but then pulled an expanding program at Macy's that provided sales opportunities in hundreds of stores beyond the two boutique operations in New York and Las Vegas. While Toys "R" Us won't go into detail about its plans for FAO Schwarz, there is a virtual answer that explains its strategy, for the company will concede it has been on a cyber spree. It has been acquiring web operations related to children since its February purchase of eToys from The Parent Co. While eToys is roughly in line with Toys "R" Us in terms of its approach to the marketplace, the acquisition deal also included the BabyUniverse and ePregnancy sites, additions that have expanded the scope of the Toys "R" Us offering, giving it room to play in new markets and build on its existing electronic commerce infrastructure.

In fact, one of the first things Toys "R" Us did after acquiring FAO Schwarz -- about the same time it quashed a Macy's arrangement didn't figure into its Internet integration program -- was yank the purchasing component of the FAO web site

Toys "R" Us spokeswoman Kathleen Waugh said the FAO site is down for "system alignment. It will launch again this fall."

In time for the holidays, of course.

"We've been on an acquisition spree," she noted. "It's market share focused."

BabyUniverse continues to sell everything from rockers to baby bags to tiny Adidas tracksuits and eToys still pushes cameras and laptops alongside dolls. However, as is the case with FAO, the ePregnancy site is down as Toys "R" Us integrates what has been an advice provider into its broader plans. It also will relaunch in autumn.

FAO Schwarz provides Toys "R" Us with a ritzy addition to its line up. Critically, it's an addition that gives the parent company more sales opportunities, making it less dependent on the hot toy selling approach that has dominated holiday sales in the mass market. The hot toy phenomenon favors conveniently shopped, price oriented retailers, including Wal-Mart, Target and Amazon, that consumers visit first to ensure they can grab the video game or action figure the kids will be screaming for and that, with their sales heft, can compel manufacturers to give them priority in product shipment and terms. The big price points FAO can coax out of consumers certainly can't hurt Toys "R" Us feelings either.

The integration of FAO gives Toys "R" Us the opportunity to cross promote various sites and their content, providing the retailer with a more powerful selling proposition in children's products for the holiday season and beyond. The retailer can accomplish this on the web without the associated costs of opening stores at a time when it might rather pay down debt, thus gaining visibility online that it might lack in the real world. After all, most folks have to drive past Wal-Mart, Target or both to get to a Toys "R" Us, and if the hot toy of the moment is all they want, why bother? In cyberspace, Toys "R" Us" is just as close to consumers as its rivals, one click away.