The New York Post is reporting that the giant 1,300-store KB Toys chain 'has stopped paying some suppliers in an attempt to conserve cash.'  This holiday season has been extremely hard on specialty toy retailers, who are suffering from brutal price competition brought on by Wal-Mart's determination to dominate the category (see 'Wal-Mart Applying Toy Category Kill Shot').  Earlier this month FAO Inc., which owns the FAO Schwartz stores as well as the Zany Brainy and Right Start chains, filed for bankruptcy (see 'FAO Will File Chapter 11'). 

According to the Post, KB is withholding payment from some suppliers in order to maintain enough cash reserves to pay lease obligations and meet employee payroll, but the situation at KB is not as dire as it is at FAO--the Post reports that the privately held KB Toys still has about $100 million available on its credit line.  The equity firm Bain Capital purchased KB Toys, which was founded in 1922 as a confectionary company, from Consolidated Stores for $300 million in December of 2000. 

In order to avoid price competition with the major discount chains, KB is considering shifting the bulk of the inventory carried in its stores to exclusive items and private label products.  The ruthless price competition on the standard branded toys has led to an increased emphasis on 'exclusive' merchandise at Toys R' Us and other retailers.  It may not be enough to save the mall-oriented KB chain, but look for this trend toward exclusive merchandise to continue and flourish among those retail organizations that survive the 'toy wars' of 2003.