Chain retailer Toys ‘R’ Us is acquiring the legendary toy retailer F.A.O. Schwarz.  Founded in 1862, F.A.O. Schwarz is perhaps best known for its flagship Fifth Avenue store where Tom Hanks cavorted in the 1988 movie Big. At one time F.A.O. Schwarz had a substantial chain of outlets, but price-cutting competition among toy retailers led by Walmart forced F.A.O. Schwarz into bankruptcy where it was trimmed back to just two stores.  Toys ‘R’ Us is acquiring both the Fifth Avenue store and the F.A.O. Schwarz outlet at Caesar’s Palace in Las Vegas as well as the F.A.O Schwarz online and catalog operations. 

While Wal-Mart, TRU’s chief competitor, is cutting by more than half the space it devotes to toys (see “Walmart Cutting Toy Space”), Toys ‘R’ Us has been moving aggressively during the current recession by acquiring eToys.com, ePregnancy.com, and babyuniverse.com, making F.A.O. Schwarz its fourth acquisition of 2009 so far.

Toys ‘R’ Us was taken private in a nearly $6 billion deal in 2005 by a group of investors led by Bain Capital Partners, Kohlberg Kravis Roberts and Vornado Realty Trust (see “Toys ‘R’ Us Sold for Six Billion”).