Toys R Somebody Else

Chain's Sale Ignites Speculation About Direction, Strategy

Toys R Us Inc. executives yesterday said the company's takeover by an investment consortium will help the pioneering toy retailer survive in an industry dominated by discounters such as Wal-Mart, and played down predictions that the new owners will sell off the business store by store.

The nation's second-largest toy retailer, which started 57 years ago with a store on 18th Street NW in the District, announced yesterday it had agreed to be bought for $6.6 billion by the private equity firms Bain Capital LLC and Kohlberg Kravis Roberts & Co., and by Vornado Realty Trust, one of the country's largest owners of retail and office property.

In an interview, Toys R Us chief executive John H. Eyler Jr. said the three investors "believe in the Toys R Us brand" and that he expects they will leave the chain's management largely untouched. Under Eyler's watch the company has continued to lose ground to Wal-Mart, but has tried to battle back by renovating stores, striking exclusive product deals with toy companies and training its staff better.

"To the consumer, the message is that these new owners have embraced our strategy and Toys R Us is going to be around for a long time," Eyler said.

But analysts warned that Toys R Us still faces daunting challenges. Competition from much larger discount chains is only likely to stiffen, while changes in the way children play may force the store from the familiar territory of Barbies and Legos and further into the realm of digital entertainment.

Jim Silver, publisher of ToyBook, an industry trade publication, said the retailer must "transform itself into a store that sells all forms of family entertainment," from Legos to iPods.

"Five years from now, we may find a Toys R Us with as many problems up against an even stronger Wal-Mart," said Sean P. McGowan, a retail analyst at Harris Nesbitt Corp.

The proposed sale of Toys R Us highlights the decline of the first generation of big-box retailers, whose strategy of swallowing an entire category of goods, such as toys or electronics, drove scores of mom-and-pop stores out of business beginning in the 1950s.

Now, in a twist of fate, those same chains are under attack from discounters, warehouse clubs and, in some cases, more nimble imitators. Struggling electronics retailer Circuit City just fended off a takeover bid and investors in OfficeMax, the office supply store, are pressing managers to consider breaking up the company or selling it.

Toys R Us founder Charles Lazarus opened Children's Bargain Town in Washington in 1948 and the first Toys R Us in Rockville nine years later. The company evolved into a powerful international toy vendor, with Kids R Us, Babies R Us and Toyrus.com. It operates 1,500 stores worldwide, including 681 Toys R Us and 218 Babies R Us stores in the United States.