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Toy Retailer FAO Schwarz Files for Bankruptcy Again - 2003-12-04

One of the best known toy stores in the United States is planning to permanently close its doors at the end of the Christmas shopping season. FAO Schwarz has been waging a losing battle against discount retail giants like Target and Wal-Mart.

Frederick August Otto Schwarz opened the glamorous Manhattan toy emporium in 1870, and since then, FAO Schwarz has become a major tourist attraction. Visitors to the flagship Fifth Avenue store are first greeted by a signature three-story clock tower that sings, "Welcome to the World of Toys."

The Pennsylvania-based company is seeking bankruptcy protection for the second time this year. A company that files a bankruptcy petition is protected from creditors while it reorganizes and tries to work out a plan to pay its debts.

But this time, FAO will sell its inventory and close its New York flagship store and all 141 others, which include its educational toy chain, Right Start, if it doesn't find a buyer in the next two weeks.

Retail industry analyst Jane Fitzsimon says the upscale toy retailer, celebrated for stocking items such as $1,000 Stieff teddy bears, has been losing money for nearly a decade. "The biggest problem in the toy industry right now is the mass-market retailers. Wal-Mart has surpassed even Toys R Us as the largest merchant of toys in the United States. They've got somewhere around a fifth of the market, that's huge. It's a $21 billion a year industry, and it's very difficult to compete," she says.

FAO Schwarz warned in November that early holiday sales fell significantly below expectations.