FAO’s success would secure Macy’s outlets

If FAO Schwarz is a hit at Macy’s on State Street this holiday season, thestoried toy store could start popping up at other Macy’s department storesacross the country.
The New York-based toy retailer plans to open a shop within Macy’s downtownChicago store Nov. 1, said the companies, confirming a report in the ChicagoTribune last month.
The 5,200-square-foot in-store shop located in the children’s departmentwill give shoppers “a taste of FAO,” said Ed Schmults, FAO chief executive.
“If things go well, we would roll out to other Macy’s, first in thenorthern territory and then maybe broader,” said Schmults.
The test comes at a time when Macy’s and FAO Schwarz are striving toreinvent themselves. Macy’s created a national department store when it boughtand converted hundreds of regional department store chains, including MarshallField’s, to Macy’s. FAO Schwarz, once a national chain, filed for bankruptcyprotection in 2003, then was resurrected under new ownership the followingyear.
If the experiment works, Macy’s and FAO would be reclaiming ground lost tomass-market firms years ago when discounters, including Wal-Mart Stores Inc.and Target Corp., took command of the toy business with wide selections ofpopular toys at low prices.
Schmults, the former chief operating officer of online and catalog retailerRed Envelope Inc., joined a resurrected FAO in 2005 with a mandate to tap intothe 145-year-old toy store’s rich past. Gone are the most extravagant pricetags (no more $20,000 indoor mountains), though upscale products will be partof the mix, including a $1,200 plush moose with antlers.
“That’s not what we’re about anymore,” said Schmults. “We’ve had some veryexpensive items in the past. We’ve gotten away from that. We don’t wantfamilies to think they can’t afford to shop there.”
In their place, Schmults is scouring toy fairs around the globe for toysthat are “original,” “well-made” and, in more and more cases, environmentallyfriendly.
\Ad campaign to launch
The toy retailer is planning to trumpet its arrival jointly with Macy’s bycovering Chicago’s buses, kiosks and billboards with ads launching Nov. 1.
Macy’s is giving FAO Schwarz two windows on the main floor with which todazzle holiday shoppers. And an employee dressed as its iconic toy soldierwill roam the State Street store, directing shoppers to the toys.
Shoppers stepping off the atrium escalator to the fifth-floor children’sdepartment will be greeted by FAO Schwarz’s hallmark big, plush stuffedanimals, a Lee Middleton baby doll “nursery” and plenty of hands-on toydemonstrations. And, during the Christmas season, the line to see Santa Clauswill wind conveniently through FAO Schwarz’s shop.
The FAO-Macy’s store will be a permanent leased space inside Macy’s andshrink to 3,500 square feet from January through October.
Macy’s North Chairman and CEO Frank Guzzetta got the idea to contactSchmults in December when he saw an article in The Wall Street Journal aboutFAO Schwarz’s turnaround.
“I thought, ‘What a fabulous idea. Wouldn’t that be a great concept to dosomething with Macy’s State Street?’” said Guzzetta. “My original thoughtwasn’t necessarily a shop within a shop. My original thought was to sellspecial products they’re doing.”
But after touring FAO Schwarz’s flagship in New York and having severalconversations, the two retailers decided to do more.
FAO Schwarz needed to expand without taking on hefty real estate costs.Macy’s needed to attract shoppers into the State Street store.
“My vision is, if this works, then we have to look at other opportunitiesto do pop-up stores in a number of other stores or at our flagship storesacross the nation,” said Guzzetta. “This is an experiment and test in terms ofseeing what could be.”
\Michigan Avenue store closed
It has been almost five years since FAO Schwarz closed its showcase storeon North Michigan Avenue. At its peak in 1999, the luxury toy retaileroperated 43 stores.
Battered by price competition, the company went through Chapter 11bankruptcy four years ago before it was bought by D.E. & Shaw Co., a NewYork-based investment group, its current owner. It operates its legendaryflagship store in New York and another freestanding showcase store in LasVegas.
Consumer-behavior expert Britt Beemer expects FAO Schwarz, with the help ofSanta, will draw shoppers to the Macy’s State Street store this holiday. He isless certain how the in-store shop will fare the rest of the year.
“It all depends on how good the merchandise is,” said Beemer, founder ofAmerica’s Research Group. “Will it be a place where you can find somethingunique and different?”
The first FAO Schwarz store opened in Chicago in 1870 but was destroyed ayear later by the Great Chicago Fire. The toy store opened again in 1992 onNorth Michigan Avenue and closed in 2002.
FAO Schwarz’s agreement with Macy’s doesn’t preclude it from opening otherstores on its own in Chicago, said Schmults, “but that’s not where we want toput our focus now.”
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 smjones@tribune.com