Fao Schwarz

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Case Study Final: Battle of the Toys—FAO Schwarz Is Back! Cindy Smith
Professor Miller
MBA 5110 – Management Information Systems
October 12, 2012

Battle of the Toys—FAO Schwarz Is Back
FAO Schwarz is a high end retailer that began in 1862 by German immigrant Frederick Schwarz. The store was moved several times before settling at 745 Fifth Avenue in 1931. After filing bankruptcy twice in 2003, the store finally closed its doors in 2004. The company ran into trouble by trying to compete with discount retailers such as Wal-Mart and Target. The rights to FAO were purchased in 2004 by the New York investment firm of D.E. Shaw and Co and reopened the Manhattan and Las Vegas stores. This reopening of the New York store occurred during the Macy’s Thanksgiving parade on November 25, 2004. They have taken the company back to offering what customers came to expect when they first began and away from trying to compete with stores such as Wal-Mart and Target. 1. Why did FAO Inc. have to declare bankruptcy?

Because of their inability to keep up with stores such as Wal-Mart and Target. Some people believe that selling items such as the Sesame Street toys for $9 when Target and Wal-Mart sold them for less than $3 contributed to their downfall. 2. Describe the issues with FAO’s original business model. FAO was not and is not a discount retailer and trying to compete with those types of stores was not a viable option for them. Their customers run along the lines of the rich and that was who they should have been catering to. When given the option of buying a Barbie doll for $9 or buying one for $3 then there really is no comparison.

3. Identify the toy retailer’s new business model. Do you believe it will keep the new company in business? Why or why not?

They are no longer trying to compete with discount stores, they have stopped offering mainstream toys that other retailers offer except for high end Barbie dolls and hot wheels. The new...
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