Industry jitters abound

Independent specialty retailers candidly admit there is no love lost between Zany Brainy and them. And they harbor no remorse at the thought of more Zany closings.

But they are sentimental when discussing the fate of FAO Schwarz—the Zany sibling, along with The Right Start, under parent, FAO, Inc.—particularly the landmark Manhattan flagship store.

As PLAYTHINGS went to press, FAO's successful emergence from bankruptcy protection was still fragile, although the company did get an 11^th hour reprieve, receiving a new financing arrangement in late April.

Sentiment aside, though, an enormous business impact is likely if the famed toy emporium—or all of FAO, Inc., for that matter— were to become shuttered: Closure could drive more business to the big-boxes and discounters that specialty has knocking on its back door.

"The closing of FAO would be a sad day," says Joanne Farrugia, owner of Jazams in Princeton, N.J., and ASTRA (American Specialty Toy Retailing Association) vice president. "Personally, having a Zany Brainy by us close was good for us, but not for the manufacturers."

Jonny Girson, owner of The Learning Tree in Kansas City and ASTRA president, maintains that the FAO, Inc. model is one that has shown it cannot work in the long run. "When you use someone else's money to jump-start another company and then can't pay the bills, it harms us all," he says. "It's a travesty that the small manufacturer is hurt by this directly and that will, in turn, affect us. We understand what the manufacturers have to do to survive but personally, once burned, twice shy."

"Our company relies on the fact that we can sell to FAO and Zany Brainy; their going away would hurt us," remarks Scott Wisner, vice president, sales, CoopSport International. "For manufacturers, this whole situation makes it more difficult to come out with new toys," he adds, referring to bankruptcy proceedings.

Mike Klein, vice president of sales development, Manhattan Toy, concurs. "Overall, this is not good for vendors in the short term." He credits FAO for having helped successfully promote the company's Groovy Girls brand.

Manufacturers that sold to the FAO chain and did not get paid need to get revenues from somewhere, says Shelley DelRocco, co-owner of KidzQuest in Winter Park, Fla. That may mean they'll go to Wal-Mart, Target and Marshalls, she adds. "Or they may just close up shop" if they can't sustain the losses from debt owed by FAO. Neither scenario bodes well for the specialty market.

As FAO, Inc. comes out of bankruptcy, there's hope that the name will endure, albeit with major structural changes. "We have worked with FAO for a decade and are pleased that the company will be viable going forward," says Daniel Grossman, CEO of Wild Planet Toys. "In an industry where excitement is crucial, it would be a shame to lose the vision of FAO."