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Is your Toys 'R' Us closing?
With its sale almost a done deal, observers say the retailer could shutter a third of its stores
March 18, 2005: 10:26 AM EST
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - If you love your local Toys "R" Us, here's some bad news: There's roughly a one-in-three chance that your favorite toy store is going away.

That's assuming the deal to sell the toy chain to a group of investors for $6.6 billion goes through. The investors include a real estate holding company that analysts say is famous for turning struggling retailers' real estate into gold mines. (For more on the deal, click here.)

"A third is a reasonable number to expect, especially since one of the buyers in this sale is a well-known real estate trust company, " said Faith Consolo, chairman of the retail leasing and sales division of Prudential Douglas and Elliman.

Those at risk of closing are older stores that need renovation, stores in less visible, off-mall locations, and most importantly, stores with poor sales.

The stores Consolo deems "safe" are Toys "R" Us (Research)' flagship stores. "These typically are larger stores of over 100,000 square feet and are prominently located," she said.

For the Toys "R" Us shoppers, store closings in their area mean a few inconveniences, such as driving an extra 20 minutes to find the next closest location.

A more unwelcome side effect, according to retail analyst Craig Johnson with Custom Growth Partner, is that annoyed shoppers could very well just give up looking for the nearest Toys "R" Us and instead drive to one of the many Wal-Marts or Targets in their area.

Nevertheless, Johnson thinks the positives of a leaner and meaner Toys R Us outweigh the negatives.

"Toys 'R' Us needs to resize and reconceptualize its business according to the changing nature of the toy industry," Johnson said.

In 1997, Toys 'R' Us was the 10th largest retailer. Now it's the 17th largest U.S. retail chain in terms of annual revenue and its overall share of the holiday toys sales has fallen under 17 percent. (see correction below)

"The problem with Toys 'R' Us is that it maintained a size as if it were still operating in its glory days of the mid-90s," the analyst charged.

"There's nothing fundamentally wrong with the business of selling recreational items," Johnson observed. "But kids today are moving away from traditional toys and toward electronics at a much younger age. Toys 'R' Us has to adapt to this shift and explore new areas of the business."

For example, he said, the retailer could add a play area to its stores.

In additional to closings, analysts speculate that other possibilities down the road could include converting a few Toys "R" Us stores into Babies "R" Us stores.

Toys "R" Us could not be reached for comment. Bain Capital and Vornado said their companies do not comment on speculation. KKR could not immediately be reached for comment.

Click here for a look at the hottest toys of 2005

Click here for more on the $11 billion Federated-May deal

Correction: An earlier version of this story misstated that Toys "R" Us' overall share of holiday toy sales had fallen under 1 percent. CNN/Money regrets the error. (go to the corrected paragraph)  Top of page


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