The Big Story
RetailWire Discussion: FAO Schwarz Makes an Iconic Comeback in the Big Apple
Matt Stern, RetailWire
FAO Schwarz, the toy retailer that closed its famous Fifth Avenue flagship three years ago, has just as suddenly returned to the Big Apple. The retailer opened the doors of its new store in Rockefeller Center store on Nov. 16, according to Boston.com. The 20,000-square-foot store features some of the touristy attractions the original flagship was famous for including a clock tower-style entrance and a giant playable piano floor mat familiar to Baby Boomers and Millennials from the iconic scene in the 1988 film “Big” starring Tom Hanks.
The then owner of the original FAO Schwarz flagship, Toys “R” Us, blamed the closure on escalating rents in Manhattan. Toys “R” Us also closed its own Times Square store that same year. ThreeSixty Group acquired FAO Schwarz in Oct. 2016.
In addition to FAO Schwarz’s return to New York City, the retailer has been planning an international expansion, according to CNBC. FAO Schwarz plans to open permanent stores in Canada and China and has developed a pop-up strategy for Spain, Australia and London. Unlike the massive main store in New York City — currently the retailer’s only U.S. brick-and-mortar location — its stores in other countries will be small formats, many within existing department stores and taking up as little as 1,000 square feet.
Discussion Questions: Do you approve of the strategy behind FAO Schwarz reopening its flagship store in Manhattan? What will be the keys to FAO Schwarz achieving success in the U.S.?
Comments from the RetailWire BrainTrust:
FAO Schwarz isn’t just a toy store, it’s that great, elusive store experience we all talk about but rarely find. Calling it a toy store is akin to calling American Girl Place just a store to buy a doll. I’m happy that FAO is back — we’ve lost so many wonderful retailers. It’s the toy store of my childhood and the one stop we always made when visiting NYC. I’m glad to see that the toy soldiers, the clock, and the piano from Big are back, too — I can play a mean Chopsticks on that thing and I can’t wait to try it again. Return to Wonder, indeed. Rockefeller Center is going to be a busy place.
Georganne Bender, Partner, KIZER & BENDER Speaking
FAO Schwarz was an iconic NYC destination- for locals and tourists. The store became exceptionally magical around the holiday season. It’s somewhat ironic that FAO Schwarz was acquired by Toys “R” Us in 2015 and they closed the NYC location. Three years later Toys “R” Us is gone and FAO Schwarz is back in the hands of descendants of Frederick August Otto Schwarz. I believe FAO Schwarz can be THE immersive, experiential, and physical portal to global online toy shopping. They can use their physical magic to provide unprecedented click-and-deliver experiences. The key is to not limit themselves just to in-store inventory. They should use the store as a portal to access global toys.
Adrian Weidmann, Principal, StoreStream Metrics, LLC
We were there this past Saturday, the lines were around the corner by Rockefeller Center, yet my seven- and five-year-old children couldn’t be more excited. I didn’t mind at all. Once we were finally inside the store, there was some of the magic I remembered. The smiles and wonder on my kid’s faces said it all, and we left after over an hour and with a small magic trick gift that they really wanted after watching a live demo.
Yes, the objective retail strategist in me also realizes that FAO Schwarz is making a comeback in an extremely congested industry. Kohl’s, Target, Amazon, and even Kroger may compete with price. However, FAO Schwarz, if they do things right, will win on experience and wonder.
Brandon Rael, Strategy & Operations Leader | Retail Strategist | Trusted Advisor |
The FAO Schwarz flagship store in Manhattan is perfectly located to garner media and consumer attention at the right time of year. The brand’s history combined with the bold store opening statement will provide a halo effect to its international presence. Manhattan is a tourist and shopping magnet. The success of this strategy does not require becoming a dominant player in the toys category, but rather rediscovering the brand’s exclusivity and boldness. This is a well thought out move by the Three Sixty Group on its investment. Now it’s a matter of smart execution without dilution of the brand or over-extending on future investments.
Mohamed Amer, Vice President, Executive Communications, Office of the Co-Presidents, SAP Industries
Read the entire RetailWire discussion:
Headline of the Week
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Apparel & Footwear
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Athletic & Sporting Goods
Nike has taken over a corner of Fifth Avenue in New York City, an effort to remake the retail experience that has folks taking notice and gives fans of the Oregon-based footwear and apparel giant an opportunity for a new take on personalization. The six-story, 68,000-square-foot location at the corner of Fifth Avenue and 52nd Street does more than showcase product — although, expect plenty of that too. Each floor includes features the brand calls personal and responsive.
Foot Locker Inc. shares soared 15% after the sneaker retailer reported earnings that exceeded expectations, but Cowen analysts fear the company may be too reliant on basketball shoes. “The overwhelming reliance on premium Nike sneakers, especially premium basketball, concerns us as our channel checks and observations point to a slowdown in basketball footwear sales,” Cowen wrote in a note. Cowen rates Foot Locker shares market perform with a $56 price target. Susquehanna Financial Group analysts, on the other hand, are bullish about basketball.
Blackstone has finally sealed an exit of orthopaedic medical device business DJO Global after more than a decade in its portfolio, through a $3.15bn trade sale. Diversified tech business Coldax Corp has agreed an all-cash deal for DJO, which provides products including modern joint braces, cast and slings, artificial joints and wearable body monitoring systems. Reports from this summer suggested Blackstone was weighing the sale of DJO, which it bought way back in 2007. Colfax said it expects the deal to close in the first quarter of 2019.
Cosmetics & Pharmacy
Drugstore owner Walgreens Boots Alliance Inc. and health insurer Humana Inc. are in preliminary discussions to take equity stakes in each other, according to people familiar with the matter, as health-industry players scramble for tie-ups that will help them compete in a rapidly evolving environment. The companies, which already have a partnership focused on serving seniors from two Walgreens locations, are having wide-ranging talks that also include the possibility of expanding that venture, the people said. Details of the talks couldn’t be learned and there’s no guarantee there will be any new deal between the companies.
CVS Health said that it now anticipates to close its $69 million purchase of health insurer Aetna after the Thanksgiving holiday, according to a regulatory filing with the Securities and Exchange Commission. Earlier this month, CVS Health said it expected the acquisition to take place by Thanksgiving. In its filing, CVS Health said it has received approval from 26 of the 28 state departments of insurance. “CVS Health has made significant progress and is in the final stages of the approval process with the remaining two states. CVS Health is confident that these remaining approvals will be secured,” the filing said. In October, CVS Health received the Department of Justice’s conditional approval for the acquisition with the requirement that Aetna divest its standalone Medicare Part D prescription drug plan, a move that had been announced with WellCare Health Plans set to take over the plans, which have roughly 2.2 million members.
Warby Parker will be tapping into a fast-growing market — aging Baby Boomers on Medicare — via a deal with UnitedHealth. The health insurer announced that Warby Parker’s prescription eyewear is now available to approximately 2 million people enrolled in its Medicare Advantage plans, either at more than 80 Warby Parker stores nationwide or on the retailer’s website. It is the first time Warby Parker is accepting Medicare insurance. Enrollees in Medicare Advantage plans that include eyewear benefits through UnitedHealthcare Vision can purchase eyewear Warby Parker’s stylish eyewear for little or no out-of-pocket cost — often for less than $50, according to UnitedHealthCare.
Discounters & Department Stores
Target delivered mixed earnings results for the third quarter on Tuesday, generating more revenue than expected but falling short on earnings as the company spent more on its same-day delivery service and raised wages. Despite the earnings miss, Target maintained its forecast for the full year. It also said it’s “better positioned for this holiday season than ever before” against a backdrop of strong consumer confidence in the U.S.
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Emerging Consumer Companies
Adore Me, the direct-to-consumer intimates company, opened its second retail store (and its first outside of New York). The new store is located at the Bridgewater Commons mall in New Jersey. Earlier this year, Adore Me and mall operator Brookfield announced a plan to open 300 Adore Me stores within the next five years. The Bridgewater store is part of that plan.
Beyond Meat, maker of plant-based foods, has filed for a $100 million IPO. Founded in 2009, the company is the first of the meatless snack brands to go public. Through the first nine months of 2018, the company reported $56 million in revenue and a $22 million net loss.
Italic, a marketplace for consumer to buy products directly from the manufacturers of some of the world’s best-known brands, launched. It also announced that it raised $13 million from investors that include Comcast Ventures, Global Founders Capital, Index Ventures, Ludlow Ventures, and Kindred Ventures. The company manages the consumer-facing side of the business, such as product design and marketing, but it doesn’t actually purchase or produce anything. Instead, it operates as a marketplace, connecting consumers and manufacturers of products for brands like Prada, Christian Louboutin, Givenchy, and Luxottica.
Grocery & Restaurants
In an expansion of its retail grocery business, food distributor SpartanNash Co. plans to acquire Indiana chain Martin’s Super Markets Inc. Financial terms of the deal, announced Tuesday, weren’t disclosed. A wholesale customer of SpartanNash, Martin’s operates 21 stores, including 18 in northern Indiana and three in southwestern Michigan. The South Bend, Ind.-based retailer totaled more than $450 million in sales for its fiscal year ended July 29.
The future of cell-cultured “meat” — food products that have been grown from animal cells with no livestock slaughter involved — is almost here. After a joint meeting and call for public comment last month, the Food and Drug Administration and U.S. Department of Agriculture have released a statement announcing the joint oversight of this new alternative-meat industry. The joint statement from both agencies further explained that the FDA will oversee the product cultivation, including cell collection, cell banks, and cell growth and differentiation, while the USDA will regulate production and labeling of the food products.
Mercato Inc., an online marketplace that offers same-day delivery of groceries and specialty foods from more than 600 independent stores in eight U.S. markets, will expand to three additional markets by the end of the first quarter and plans to be in a total of 15 markets by the end of 2019. Mercato recently launched its service in Los Angeles and will soon open up in Seattle, Washington; San Diego, California; and Austin, Texas, says Mercato CEO Bobby Brannigan. In addition to Los Angeles and the soon-to-be-launched new markets, Mercato operates in New York City (Brooklyn, Manhattan and Queens); Chicago; San Francisco; Alameda, California; Washington, D.C.; Boston; and Philadelphia.
Home & Road
Nectar Sleep, an e-commerce mattress company, will open its first physical storefront, at Tyson’s Corner Center here this week, part of a new online-to-offline retail concept called BrandBox. Nectar is one of six digitally native brands debuting in BrandBox, which was created by real estate developer Macerich and offers online retailers a physical space for them to develop a brick-and-mortar presence. It offers short-term, flexible leases and an array of services such as in-store analytics, employee schedule management, housekeeping and tech support. Other well-known brands joining Nectar in BrandBox’s Tyson’s Corner location include Winky Lux, Naadam, Interior Define, UrbanStems and DKNY, whose collection is exclusive to BrandBox.
Lowe’s Cos. continues to streamline as it refocuses on its core operations. After pulling the plug on its Orchard Building Supply division and announcing the closure of 47 stores in the U.S. and Canada, the home improvement giant said it will trim even more ventures in an effort to focus on its core business and profitability. Lowe’s intends to exit Mexico, where it has some 13 stores. It also is exiting its contracting service, Alacrity Renovation Services, and Iris Smart Home business.
Progressive Business Media announced it is being acquired by BridgeTower Media, the premier provider of business information, research, events and marketing solutions in more than 20 local and regional markets across the U.S. As part of the transaction, PBM’s leading magazines, events and industry research services will be integrated into BridgeTower’s growing B2B portfolio. Financial terms were not disclosed. PBM was formed by CEO Matthew Slaine and includes a roll up of home furnishings and gift trade media brands and related sub-brands, including: Furniture Today, Home Accents Today, Designers Today, Casual Living, Exterior Design, Gifts and Decorative Accessories, HFN, and Home Textiles Today.
Jewelry & Luxury
De Beers recorded its lowest-value sales cycle this year as weak Indian demand prompted it to drop prices of cheaper goods. Proceeds fell to $440 million in November as the miner reduced prices by high-single-digit percentages for rough diamonds costing $100 per carat or less, sightholders said last week. The Indian manufacturing sector has struggled with thinning profit margins due to relatively high rough prices and the weak rupee, while tighter bank lending has further contributed to a decline in demand. November is also seasonally slow as factories close for the Diwali festival.
Employees of several jewelers can give thanks that they are getting the day off this holiday. Both Kay Jewelers—the biggest jewelry chain in the United States—and Rogers & Hollands have issued statements saying that they will give their workers the day off this Thanksgiving. “Love and gratitude are two values we stand for every day at Kay,” said Bill Luth, Kay’s executive general manager, in a statement.
Rio Tinto doesn’t release many details when sharing the results of its annual Argyle tender but, then again, one doesn’t need many specifics to trace the trajectory of red and pink diamonds prices. They are climbing and will continue to do so as the closing date for the Argyle Mine in Western Australia draws closer. And though the London-based miner always has been tight-lipped about the Argyle Pink Diamond Tender results—it doesn’t reveal the sale’s total, prices paid for individual diamonds or names of buyers (unless allowed)—it did note that the 2018 sale set numerous records, including tender total and prices per carat.
Office & Leisure
Barnes & Noble reported that second quarter total sales fell 2.5% year over year as store comps fell 1.4%, its best quarterly performance since the fourth quarter of fiscal 2016, according to a company press release. Thanks to cost cuts, the retailer’s consolidated operating loss in the quarter shrank to $26.8 million from $52.2 million in the year-ago quarter. Barnes & Noble’s comp sales achievement offers “some small crumbs of comfort,” according to GlobalData Retail Managing Director Neil Saunders. Barnes & Noble founder Leonard Riggio is back at the helm after the bookseller in July let go yet another chief executive, Demos Parneros, who was fired for allegedly violating company policy, a claim Parneros has gone to court to deny. The company has now had five chief executives in as many years.
Audax Private Equity announced that it has acquired PlayMonster, LLC from Topspin Partners. PlayMonster, headquartered in Beloit, WI, is a designer, manufacturer and marketer of games and toys. The Company’s portfolio of games and toys for children and adults features brands such as Yeti in My Spaghetti, 5 Second Rule, My Fairy Garden, and Relative Insanity. PlayMonster products are distributed through mass, e-commerce, and specialty retailer channels across the U.S. and U.K. Geoffrey S. Rehnert, Co-Chief Executive Officer, Audax, said, “We look forward to working with the PlayMonster team to continue building a leading platform through organic growth and add-on acquisitions.” Bob Wann, CEO of PlayMonster, said, “We are excited to partner with Audax for the next stage of our growth.”
KKR and Bain Capital, the private equity firms that owned Toys R Us before the company declared bankruptcy earlier this year, said Tuesday that they have each pledged $10 million to create the TRU Financial Assistance Fund, which aims to distribute severance funds to former employees. The move is unusual for the firms, as they are not required under bankruptcy law to do such a thing. In a joint statement, KKR and Bain said the fund is being established in response to “an extraordinary set of circumstances” for both of the firms. In order to be eligible for the payments, those who were left jobless as a result of the company’s liquidation will have to meet certain criteria. The ex-employees will have to have worked at Toys R Us for at least a year, they can’t have more than $110,000 or less than $5,000 in annual income, and they must have met the termination and employment guidelines in the Toys R Us plan.
Technology & Internet
Coupang, Korea’s largest e-commerce firm, revealed that it has raised $2 billion from the Vision Fund. No valuation was announced, but a source close to the deal told TechCrunch that it values Coupang at $9 billion post-money. This deal, which we understand is entirely new stock with no secondary sales, takes Coupang to $3.4 billion raised to date.
Traffic might appear lighter at some malls this holiday season, but that’s because people are shopping on their smartphones. Mobile spending during the holidays is expected to continue to climb this year, as retailers have been investing to improve their apps, and shoppers are growing more comfortable with ringing purchases up in just a few clicks. A large fraction of the pressure on retailers to improve the mobile shopping experience has been driven by Amazon, which has roped in more than 100 million people in the U.S. to pay for a Prime membership that includes perks within Amazon’s own app. With online holiday sales forecast to hit nearly $125 billion in 2018, smartphones are expected to drive nearly half of shopper traffic on the web, more than desktop computers, according to Adobe Analytics, which measures transactions for 80 of the top 100 internet retailers.
Finance & Economy
At first glance, it looks like a $9 trillion time bomb is ready to detonate, a corporate debt load that has escalated thanks to easy borrowing terms and a seemingly endless thirst from investors. On Wall Street, though, hopes are fairly high that it’s a manageable problem, at least for the next year or two. The resolution is critical for financial markets under fire. Stocks are floundering, credit spreads are blowing out and concern is building that a combination of higher interest rates on all that debt will begin to weigh meaningfully on corporate profit margins.
U.S. auto sales rose slightly in October, hit by rising interest rates and higher vehicle prices, and No.2 carmaker Ford Motor Co. warned of slipping consumer confidence, indicating sales volumes would continue to moderate in 2018. U.S. car sales, which dropped 2 percent last year from a record high of 17.55 million in 2016, are expected to fall further in 2018, hurt by rising interest rates and the return of more late-model used cars to dealer lots. But automakers have been helped as more U.S. consumers shift away from traditional passenger cars to larger SUVs and trucks, which tend to be more profitable for producers.
U.S. consumer prices increased by the most in nine months in October amid gains in the cost of gasoline and rents, pointing to steadily rising inflation that likely will keep the Federal Reserve on track to raise interest rates again next month. Though overall inflation could slow in the months ahead following a recent slump in oil prices, economists said Fed officials were likely to regard any retreat as temporary and focus on underlying price pressures.