FAO Schwarz Announces Bankruptcy

Citing competition from mass market outlets such as Wal-Mart and Target, FAO Schwarz Inc. has announced plans to file for bankruptcy protection.

FAO said it will file for Chapter 11 and sell its FAO Schwarz stores, as well as The Right Start chain of educational book-sellers and Zany Brainy educational-toy chain, the largest of FAO’s holdings with 89 stores.

FAO, which had only just emerged from bankruptcy in April 2003, stated on Nov. 10 that it had received a notice of default from its lenders after the company claimed sales were "significantly below expectations." FAO claimed to be cutting shipments and asking suppliers to extend payment deadlines.

FAO´s announcement has come amid ever fiercer price wars in the toy industry, which began earlier than usual this year. Wal-Mart began to slash prices in mid-October. Target has gone even lower, offering the steepest discounts to date for the holidays.