Wal-Mart Triggers Tumult in Toyland

Independent Stores Can't Match Chain's Buying Power

In 1997, Tree Top Toys Inc., an independent retailer with stores in the District and McLean, began carrying a nifty children's toy called Chunky Farm. At $32, the collection of large plastic farm items, including a barn, a rig and a cow, sold briskly and earned Tree Top a nice profit because each cost Tree Top only $16.

About 18 months ago, however, the store dropped Chunky Farm from its lineup, not because it sold poorly but because it had suddenly begun flying off the shelves at a nearby Wal-Mart. Tree Top's toy buyer spotted it there for about $14.

"I can't compete with that," said the buyer, Susan Hancuff-Sellers.

When it comes to Wal-Mart Stores Inc., the toy industry is learning how to play by a painful new set of rules. Analysts estimate that Wal-Mart now controls at least 22 percent of the U.S. toy market, meaning one out of every five toy purchases occurs at its stores. With more than 3,000 stores, the giant discounter is three times the size of Toys R Us and is bigger than all of the nation's independent toy stores combined, according to the American Specialty Toy Retailing Association, a trade group.

Because it wields vast buying power, Wal-Mart's decisions reverberate throughout the toy market. Even in the Washington region, where the Bentonville, Ark.-based chain has 14 Wal-Marts and six Sam's Club stores, all of them outside the Capital Beltway, its practices influence prices, what retailers carry and what stores are around town.

This year two toy chains, FAO Schwartz Inc. and KB Toys Inc., filed for Chapter 11 bankruptcy protection from their creditors. A third, Toys R Us Inc., said it would sell 146 of its Kids R Us children's clothing stores and 35 Imaginarium stores, which offer educational toys. Analysts say fierce price competition from Wal-Mart was the chief reason.

Less understood is Wal-Mart's impact on smaller retailers such as Tree Top, which appeal to wealthier customers who do not necessarily make purchases based on price. It is those stores that take big gambles on new toys, only to see them snatched up by Wal-Mart.

Tree Top, the flagship store of which is in Foxhall Square in Northwest Washington, opened 25 years ago. The two stores, which together have about 40 employees, carry about 10,000 products, most of them from small manufacturers that favor independent toy stores, said Susie Waterstreet, who manages Tree Top's District store.

Inside, the store's narrow aisles are crammed with high-end train sets, dolls and books. There are Groovy Girls, a line of dolls with matching accessories. There is a Thomas & Friends Circus Train, a three-car set made of wood and plastic. And there is Pretend and Play's Teaching Cash Register, with a built-in coin identifier.

There is no Barbie, Hokey Pokey Elmo or Monopoly, three of the industry's best-selling toys. There are no realistic-looking guns, no blood-spattering video games or weapon-wielding military action figures. "We want toys that spark the imagination," Waterstreet said.