Best deal for FAO Schwarz

Dec 01, 2007 10:30 PM  By

Upscale toy merchant FAO Schwarz in November acquired Best & Co., a luxury children’s apparel and accessories merchant. Terms of the deal were not disclosed.

FAO Schwarz CEO Ed Schmults plans to grow Best & Co.’s catalog and Web channels. Best & Co. is scheduled to drop 30,000 catalogs this holiday season, while FAO is mailing 7 million books.

Though Schmults sees synergies between the two brands, the cross-pollination will be held to a minimum.

“We’re going to keep them separate brands, but Best & Co. will see an immediate savings with our [United Parcel Service] contract,” Schmults says. “We’ll also be combining our finance, POS, and IT systems, but there won’t be any need to let anyone from Best & Co. go.”

Best & Co. had been an upscale New York-based department store for nearly 100 years before it closed in 1971. Susie Hilfiger (former wife of designer Tommy Hilfiger) bought an existing children’s boutique in Greenwich, CT, in 1997 and renamed it Best & Co. after the former retailer.

Best sells items such as $350 blazers and $88 argyle sweater vests for boys and for girls, $138 Lucy Sykes silk blouses, and $98 Mary Jane shoes.

Select items from FAO Schwarz’s toy collection will be available in Best & Co.’s store for the holiday season. Best also has a boutique in Bergdorf Goodman in New York.

Schmults says that FAO plans to expand the Best & Co. brand through selective wholesale and international distribution. The company is already in discussion with a few undisclosed European high-end merchants, he notes.

FAO Schwarz is backed by investment and technology private equity firm D.E. Shaw Group, which also owns eToys Direct. D.E. Shaw bought FAO out of bankruptcy in 2004 from its parent company, baby products merchant The Right Start.

Stuart Rose, managing director for investment bank Tully and Holland, says FAO Schwarz has “come a long way since their bankruptcy,” and has made a smart, strategic play with this deal.

It’s also a good way for FAO to leverage assets to hit new markets and drive value, Rose notes. FAO Schwarz and Best & Co. have the same target markets: upscale parents and grandparents. “If you can sell them clothes in addition to toys, products that probably don’t cannibalize one another, then you take more wallet share of the same customer.”