Lower-priced toys. Consumers can look forward to them if the government proves its antitrust case against Toys R Us, a toy industry observer says.
A Federal Trade Commission administrative law judge isn't expected to hear the case until later this year, but mere word that the FTC is accusing Toys R Us of unfairly using its size and clout to keep prices artificially high could help its competitors attract toy buyers, analyst Jack Trout says.Thursday, Toys R Us ran full-page newspaper ads promoting "our biggest clearance event ever," with some items up to 50 percent off.
"In a world of increasing competition, you sure don't want to have the Federal Trade Commission come in and help your competitors by saying you're keeping prices high," Trout, who tracks the toy industry at Trout & Partners in Greenwich, Conn., said Wednesday after the FTC announced its action. "I think a lot of people went to Toys R Us because they thought it had low prices."
But not Kris Kosta, 30, of Silver Spring, Md.
She says Toys R Us has higher prices than other retailers, but that she shops at a suburban Washington store because it's conveniently located.
But "it would definitely make me think twice" about shopping at Toys R Us if the FTC proves its case, Kosta said Wednesday.
Toys R Us said it will fight the case in court.
"We will vigorously contest the FTC's action in court, and we are confident we will prevail," the company's chief executive, Michael Goldstein, said.
Toys R Us, with 651 U.S. stores, is the nation's largest toy retailer and commands more than one-fifth of the $19 billion U.S. toy market. But the retailer's sales have slumped in recent years because of competition from discounters like Wal-Mart and Kmart and the warehouse clubs. In February, it announced plans to close 25 stores worldwide and consolidate some operations to boost profits.
The FTC alleged that as far back as 1989 Toys R Us began forcing toymakers to agree not to sell the same toys to the warehouse clubs and Toys R Us. Manufacturers also agreed to let Toys R Us approve what they wanted to sell to the shopping clubs, William Baer, director of the FTC's bureau of competition, said in announcing the case.
Further, the FTC alleged that Toys R Us got manufacturers that were intent on selling to the clubs to agree to bundle the toys in "combination packs" or "club specials" that cost more and weren't sold by Toys R Us. This reduced comparison shopping by consumers, Baer said.
"Toys R Us was able to stop the steep discounting from going on and . . . prevent comparison shopping that Toys R Us worried would undercut its low-price image," Baer said.
Baer said it was impossible to determine how much money consumers may have lost as a result of Toys R Us' practices.
But Goldstein said, "For over 25 years, customers have benefited from Toys R Us' commitment to quality, choice and value - and they continue to do so."
He said the company invests millions yearly to develop and promote toys and defended its prac-tices as "central to our ability to compete."
He also complained about the warehouse clubs, saying they step into the toy market in the weeks before Christmas when they pick the most popular playthings and sell them at or below cost to boost sales.
"Given the combined impact of the practices of warehouse clubs, our own contribution to the industry and the intensity of the competition in our marketplace, we reserve our unquestionable right to refuse to carry the same items as warehouse clubs," Goldstein said.