Holiday must-haves at Toys 'R' Us

(Fortune Magazine) -- Geoffrey the Giraffe, the Toys "R" Us mascot, has every reason to feel he's suffering from whiplash. In 1998 the chain ceded its status as the nation's top toy seller to Wal-Mart (Charts, Fortune 500). Then U.S. same-store sales slipped for four consecutive years. And in 2005, KKR, Bain Capital, and real estate investment firm Vornado Realty Trust took the company private in a $6.6 billion LBO.

Last year the new owners charged Gerald Storch, the former vice chairman of Target (Charts, Fortune 500), with turning Geoffrey's frown upside down. Fortune's Matthew Boyle talked to the former McKinseyite about the China recall crisis, lackluster retail sales forecasts, and the must-have toys this holiday season.

Jerry Storch is a Toys 'R Us kid

More from Fortune

Lowering health-care costs for employees Making Detroit a tech hub - One CEO's vision New ETF is a way into smaller China

FORTUNE 500 Current Issue Subscribe to Fortune

Many stores struggled in September, and holiday forecasts are not as upbeat as last year's. What do you expect?

I don't think you can forecast the holidays based on fall sales. I'm not an economist, but I can tell you that Christmas will come. We're very optimistic. The toy area is one of the most immune to any [negative] economic climate. Parents buy toys for their kids in good years and in bad.

In the wake of the recalls of China-made toys, are U.S.-made toys selling better this year?

As a rule, people do not shop by country of origin. Parents simply want to know that the toys they buy are safe. With all the testing and the scrutiny that's been done this year, we believe this will be the safest holiday season ever. We feel we're the advocate for parents. We are insisting that vendors shorten the time frame between the identification of a problem and the recall. They are complying with that, and we are holding them to it.

If we feel a vendor is not acting with enough speed, then we are willing to terminate them. We have done that to two Chinese vendors this year. But the first thing on my wish list is more funding for the Consumer Product Safety Commission.

What are shaping up to be the hot holiday toys this season?

It varies by age. For 8 to 11, you have EyeClops from Jakks Pacific, which is a handheld bionic eye microscope that plugs into your TV. You can view any item at 200 times its regular size. For older kids, Guitar Hero III will be one of the hottest toys out there. Playing rock star is a big trend. Hannah Montana is one of the hottest properties out there.

So tell us -- have you played Guitar Hero?

Well, I have played it with my kids, but I don't want to talk about which songs I play. I'm so bad. I think I'm tone deaf.