Buyouts R Us: Dutch Acquire FAO Schwarz

NEW YORK —  After five years of reinvigoration in the hands of a small group of investors, FAO Schwarz, the venerable purveyor of $4,500 life-sized stuffed giraffes and other luxury toys, said Tuesday that it had been sold to a Dutch retailing concern.

The Dutch firm, NV Koninklijke Bijenkorf Beheer (KBB), declined to disclose the purchase price. The selling group included Peter C. Morse, the chairman; Peter L. Harris, chief executive, and other investors and executives of the toy store who acquired it in 1985. FAO Schwarz said it expects its 1990 sales to exceed $50 million, up from $20 million in 1984.

The transaction is at least the fifth sale of FAO Schwarz and the second to European owners since the firm’s founding family sold it in 1963.

Morse is expected to step down as chairman. But Harris and his management team are to remain, KBB said. In an interview, Harris refused to discuss terms of the sale. But, he said, “there would have been no reason to sell it if there wasn’t a significant profit for the investors.”

Originally opened in Baltimore in 1862, FAO Schwarz, on Fifth Avenue, was for decades best known for being the most prestigious toy store in New York. It now also has a flagship store in San Francisco and 15 other outlets around the country, including one that opened less than two weeks ago in Beverly Hills and one in Orange County’s South Coast Plaza. Additional stores are expected to open in Chicago, Boston and, eventually, Tokyo.

The firm’s growth stagnated in the early 1980s, and its share of the toy retail market plummeted as it continued to concentrate on expensive luxury toys. Customers were intimidated by the high prices, and the toy market was increasingly dominated by mass retailers such as Toys R Us and discount outlets such as K mart Corp.

But the group headed by Morse, a Philadelphia investment banker, and Harris, a Californian who is a former president of the Gemco retail chain, broadened FAO Schwarz’s inventory to include a wider selection of lower-priced items, redesigned the stores, re-established a mail order catalogue and moved the New York store from its home of 50 years to roomier and more modern quarters in the General Motors building on Fifth Avenue.

The store’s new home featured a one-minute shopping section--where shoppers in a hurry could pick up already-wrapped gifts--a hair salon for kids and plenty of display room for lower-priced, mass-market toys such as Barbie and GI Joe. There was room, as well, for FAO Schwarz’s traditional fare--life-sized stuffed animals, $500 rocking horses and toy sports cars that cost more than some real cars. The store also sought to provide an outlet for new, smaller entrepreneurial toy makers.

KBB, a publicly traded company, had sales in 1989 of $1.67 billion and a profit of $43 million. KBB said FAO Schwarz is its first acquisition in the United States. It owns several retail chains made up of over 1,200 stores in Holland, Germany and Belgium, including the six-store upscale chain of De Bijenkorf department stores in Holland and M&S; Mode, a women’s clothing retailer with more than 200 shops.

Arie Maas, chairman of KBB, said in a written statement that “FAO Schwarz is the pre-eminent retailer of fine toys in the world, and we are committed to building on FAO’s tradition of excellence.” KBB said its strategy “is to acquire highly focused chains of specialty stores.”

Times staff writer Jennifer N. Toth contributed to this story.

FACTS ABOUT FAO SCHWARZ

*Founded in 1862.

*Most expensive toys include a $6,000 toy Jaguar automobile for children and a 14-foot-tall stuffed giraffe, around $4,500.

*The store has been featured in a number of movies, recently including “Baby Boom” with Diane Keaton and “Big,” where Tom Hanks and Robert Loggia dance a soft-shoe routine on an outsize keyboard. Most of its 17 stores have the “walking pianos.”

*Its flagship store at Fifth Avenue and 59th Street in Manhattan is a major tourist attraction and features a number of specialty shopping areas, including the Grandma Shop, stocked with high-priced children’s clothes and toys; Toys of Extinction, stuffed dinosaurs and the like; Watts Current, electronic gadgetry for children; Cheap Thrills, toys under $20.

*FAO Schwarz has been mentioned in 114 novels published so far this year.

*It runs First Children’s Bank, an FDIC-insured institution to help children learn about banking. It offers checking and savings accounts, credit cards and certificates of deposit for college educations.

*San Francisco store features a miniature city, including a drive-in theater with a 2-inch by 1 1/2-inch movie screen playing Godzilla.

*The cover of this year’s FAO Schwarz catalogue, which will be released in two weeks, will feature the work of Peanuts cartoonist Charles Schulz.

*FAO Schwarz is the first U.S. purchase for the Dutch retailer NV Koninklijke Bijenkorf Beheer. The name (pronounced roughly CONIN-click BAY-in-korf BE-here) means Royal Beehive Group.

*The two Southern California stores are in Beverly Hills and at South Coast Plaza in Costa Mesa.