Forget price wars. When it comes to selling toys this holiday, it's real estate that matters.
Just look at Toys "R" Us.
The Wayne, N.J.-based toy seller is barreling into the holiday season by adding 1 million square feet of toy-selling space from October to January under the name Holiday Express.
The roughly 340 shops are set to make their debut in early October nationwide inside 260 Babies "R" Us superstores and at 80 malls. The mall stores will operate as "pop-up" locations, taking advantage of the growing number of vacant storefronts left in the wake of the recession.
The rollout of holiday shops, a first for Toys "R" Us, comes as retailers fight for a piece of shrinking holiday gift budgets and families settle into a newfound routine of frugality.
The expansion also comes on the heels of a buying binge in which Toys "R" Us snapped up weaker rivals including the bankrupt KB Toys' brand name and Web site in September, tony toy store FAO Schwarz in May and online retailer eToys.com in February.
"The economic situation represents an opportunity to be bold and aggressive," Gerald Storch, chairman and chief executive of Toys "R" Us Inc., said in an interview. "When markets are in turmoil, that's an opportunity to shift market share. We see this as a chance to grow in ways not possible before."
Toys "R" Us lost its rank as the nation's largest toy retailer to Wal-Mart Stores Inc. a decade ago and never regained the title. It is neck-and-neck with chain Target Corp. for the No. 2 spot.
This latest expansion tactic could put Toys "R" Us solidly in second place, at least for the holiday season, said Reyne Rice, toy trends analyst for the Toy Industry Association in New York. In the past two years, Target has been "more aggressive" in beefing up its toy department, she said.
"I think it's a good move," Rice said. "All the retailers are looking for ways to reach customers they wouldn't otherwise be able to reach."
Sears Holdings Corp., for example, returned to the toy business in August by opening toy shops at 20 Sears stores. The department store chain withdrew from the toy business decades ago as price competition intensified from Wal-Mart and other big box chains.
Historically, toys have been viewed as recession-resistant. Parents will cut back elsewhere before skimping on their children, the traditional thinking goes. But analysts are skeptical about the holiday season. Many predict shopping behavior has changed permanently and, as long as unemployment remains high and the economy uncertain, that consumers simply won't spend much no matter a retailer's tactics.
Toy sales have held help up better than apparel and home decor sales, but the revenue stream is shrinking.
In 2008, toy industry sales fell 3 percent to $21.6 billion with the most significant sales decline of 5 percent in the last three months of the year, according to NPD Group, a consumer research firm. Industry sales for the year through June fell 2 percent to $7.8 billion from the corresponding period a year ago, NPD said.
