FAO Schwarz toy stores will open inside Macy's

CINCINNATI -- The two companies announced Friday that about 75 full-size FAO Schwarz toy stores will open across the country in the fall, along with about 200 smaller shops that will be up to 300 square feet.

Macy's shareholders learned of the venture at their annual meeting Friday.

Macy's CEO Terry Lundgren told shareholders that FAO Schwarz will open stores in up to 275 of Macy's stores this fall, and the companies plan to expand over the next two years to include 685 Macy's stores that have children's departments.

The partnership will bring toys back to Macy's, said Lundgren, chairman, president and chief executive officer of Cincinnati-based Macy's.

"We expect it to drive new customers into our stores and to insert a new level of fun and excitement onto the children's selling floor," he told shareholders.

Lundgren said FAO Schwarz gave its first Macy's store-within-a-store a trial run in Chicago late last year.

"Not only did it perform beyond our expectations, the entire children's apparel business performed well above our expectations," Lundgren said.

Lundgren told reporters after the meeting that the deal was one more step toward reinventing department stores — one that he said would give customers another reason to choose Macy's over its competitors.

Patricia Edwards, a retail analyst with Wentworth, Hauser and Violich, thinks the move is a good one.

"Macy's had gotten away from having a toy department, but I think that if you can incorporate more of the shopping experience and give the consumer one more reason to come into the store and keep them in your store longer, it's a good thing," Edwards said.

FAO Schwarz CEO Ed Schmults said Friday that products in the smaller shops will be from the FAO private label collection, but the larger stores will carry a mix of private label and other brands sold by FAO Schwarz. The 146-year-old company continues to independently own and operate its own stores, including a flagship store on New York's Fifth Avenue.