FAO Countdown Continues

Bankrupt FAO received an extension of its store liquidation removal option through Wednesday, Dec. 17. Originally the toys cataloger/retailer had until Dec. 15 to find a buyer for its FAO Schwarz and Right Start brands or begin shutting the business, should its creditors demand. But as of the afternoon of Dec. 17, a buyer had not yet stepped forward to save the King of Prussia, PA-based marketer. FAO started liquidating its third brand, retail chain Zany Brainy, days after filing for Chapter 11 on Dec. 4.

But Washington-based entrepeneur Ken Hakuta, also known as Dr. Fad, says he is still interested in purchasing FAO Schwarz’s catalog and online operations as well as some of its stores. “My strategy is not to save the whole chain because it is already in the process of liquidation, but to save a few key locations,” Hakuta says. He wouldn’t be able to close any deal until next week, he adds.

Hakuta has no interest in buying Zany Brainy or Right Start, because he feels these two entities have been a drag on FAO’s finances. “Its expansion strategy was not well thought out,” he says of the company. “Buying Zany Brainy was not a good idea. It just diluted the management. What they failed to do was to export the fun and imagination to different malls around the country.”

Besides focusing on quality rather than quantity, Hakuta says he would try to develop unusual, proprietary products as a way of competing with the large discount retail chains that many blame for FAO’s collapse. “Creative products are not the forte of Walmart or Toys R Us,” he points out.

But Stan Fridstein, general partner of Agura Hills, CA-based catalog and retail consultancy Synapse Infusion Group, who founded Right Start and was its president from 1985 to 1996, says FAO would have a hard time competing in the “hits-driven” toy market.

FAO, which made a name for itself selling high-end specialty toys, does not seem to be what consumers are searching for. “The non-hits segment is the bastion of specialty toy stores that are largely going away,” Fridstein notes. “Ken will need to control costs and resonate to the people who want the status of giving a gift from FAO as opposed to Toys R Us. None of the specialty toy merchants have made money in a long time trying to appeal to that market.”

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