R Toys Not Us Anymore?

Toys “R” Us Inc. (Wayne, N.J.) has suggested it may be getting out of the toy business.

The nation’s second-largest toy retailer (behind Wal-Mart Stores Inc., Bentonville, Ark.) announced plans to restructure its toy business, but said it is considering selling the business outright as part of an effort to dramatically reduce operating and capital expenses. However, it said that right now it is focusing on preparing its toy stores for the upcoming holiday season and did not expect to make a decision before then on any store closings.

John Eyler will continue as chairman and ceo. Vice chairman Richard Markee was named president of Babies “R” Us, and will serve as president and ceo of the unit upon its separation. John Barbour, president of Toys “R” Us International, will replace Markee as president of U.S. toy stores.

The $11.6 billion company is also pursuing a possible spinoff of its fast-growing Babies “R” Us division, whose 200 stores sell furniture, including cribs and bedding, as well as accessories. The company will begin operating the toy and baby business as separate entities in the meantime. The Babies “R” Us division has been the company’s growth vehicle, and has not been as vulnerable to discounters.

The company’s U.S. toy division, however, has been inconsistent since the mid-1990s, when Wal-Mart ramped up its toy department as it also dramatically expanded the number of stores.

Babies “R” Us, which represents 15 percent of the company’s total revenues, posted sales of $1.76 billion, up nearly 11 percent, for the year ended Jan. 31, 2004. Meanwhile, the Toys “R” Us’ U.S. revenues fell 4 percent.

Eyler said the global toy and Babies “R” Us businesses are at “fundamentally different phases in their growth cycle,” and separation would give the baby business more opportunity to continue its healthy growth. Company officials declined to elaborate on their plans.

Toys “R” Us has been retrenching for much of the last year to improve its bottom line. In November, it said it would close 146 freestanding Kids “R” Us clothing chain and 36 Imaginarium specialty toy stores, which sold educational toys. Regarding the latest plan, Eyler said, “whatever form the separation takes, these steps should facilitate the execution of a restructured — and substantially leaner and more focused — global toy business that we believe can generate significant cash.”

Toys “R” Us also said it planned to “substantially restructure” the company’s Wayne headquarters, reducing operating expenses in the headquarters and U.S. toy business by more than $125 million by fiscal 2005 as compared to fiscal 2003. It declined to say if layoffs are contemplated.