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Switching Tracks: Toy store's retro concept is major gamble
[May 28, 2006]

Switching Tracks: Toy store's retro concept is major gamble

(Sacramento Bee, The (CA) (KRT) Via Thomson Dialog NewsEdge) May 28--Toy retailers have skinned their knees in recent years, but Troy Carlson is placing a half-million-dollar bet that he can run where the industry's giants have stumbled.

The Sacramento entrepreneur's formula for success: Create a toy store that is a theme park in miniature. Stock it with hard-to-find, throwback and educational toys. Then get everything out of the box and encourage kids to play in the store.

Ring up the sales.

"This is going to be a 'do touch' zone," Carlson said during a recent tour of G. Willikers Toy Emporium on Front Street, just a few blocks from the California State Railroad Museum in Old Sacramento. "And no video games."

Depending on your point of view, the store's Saturday opening is either the debut of a dynamic retail concept or an elaborate exercise in wishful thinking and a ticket to serious debt.

The $21 billion retail toy trade has been flat for years, caught between price-slashing discounters like Wal-Mart Stores Inc. and the migration of younger children to video games and high-tech gizmos that once were the domain of teenagers.

Carlson estimates that starting the 3,100-square-foot store will cost up to $500,000. His lender, River City Bank, took some convincing. "They know how tough the toy industry is," Carlson said.

Independent toy sellers are as hard to find these days as an original G.I. Joe. The Sacramento area has about a dozen locally owned shops, but the number has dwindled over the years.

"I've seen a lot of small toy stores in Sacramento go away," said Joe Svec, manager of Toy Knights in Old Sacramento. "Those that have survived have done it by finding a niche and sticking there."

The toy chains that drove most independents out of business are now in a pitched battle of their own with discounters such as Wal-Mart Stores that sell toys more cheaply and carry high-tech electronics that kids are clamoring for at an ever-younger age.

"The problem (for G. Willikers) will be competing with the big-box players," said Dennis Tootelian, a marketing professor at California State University, Sacramento. "(Carlson) isn't in the toy business, he's in the child entertainment business."

Wal-Mart takes in one dollar of every five spent on toys in America, according to market researcher NPD Group. Large-format discounters together account for about 54 percent of U.S. toy sales.

By contrast, Toys "R" Us was once America's leading toy seller with a 25 percent market share. Today the New Jersey-based company and all other traditional toy sellers combined have about 20 percent of the market.

That shift has humbled some of the toy industry's biggest names and forced several companies into bankruptcy proceedings.

After struggling for several years, Toys "R" Us last year sold itself to a real estate company and two equity investment firms. This year it is closing 75 of its 1,400 stores.

FAO Inc., the owner of the iconic FAO Schwarz chain, twice filed for bankruptcy protection in 2003. It emerged from a $41 million hedge fund buyout with only its New York flagship and a second store in a Las Vegas casino.

Poor sales pushed KB Toys into bankruptcy protection two years ago. It eventually closed about a third of its 1,000 U.S. stores.

"It's amazing how an entire industry can get lost," said KB's chief marketing executive, Ernie Speranza.

Like Carlson, KB thinks that the way to win back kids is to let them play. The Massachusetts-based company recently launched a remodeling program for 600 of its remaining stores that will include interactive play areas where kids can test some toys.

Carlson, a 34-year-old father of two, has long thought that toy retailers were missing the mark. The idea for G. Willikers -- a play on the phrase "gee willikers," an exclamation of surprise or emphasis -- struck him a few years ago after taking his daughter to a toy store.

"Everything was in sealed boxes and plastic clamshells," Carlson recalled. "One store even had a sign that said, 'THIS IS A NO TOUCH ZONE,' in big bold letters."

That went against everything he learned in 1994 as a California State University, Sacramento, marketing intern with entertainment conglomerate Walt Disney Co. The Burbank-based company sets up its retail shops as a sort of interactive theater: Customers are the audience and the store is the stage.

Using Disney's principles, Carlson in 1999 opened a Hollywood-themed pop memorabilia and souvenir store, Stage Nine Entertainment, in Old Sacramento.

G. Willikers takes the Disney concept up another notch, beginning with its theme park overtones.

The store's centerpiece is "LGB Mountain Express," a 15-foot-tall mountain inspired by Disneyland's Matterhorn thrill ride. Model trains roll on five tracks around the mountain while computer-controlled "lava" flows down its face and hidden speakers rumble.

LGB, a German model train manufacturer, is sponsoring the mountain and supplying maintenance for the display trains. In exchange, LGB received naming rights to the exhibit.

A half-dozen themed rooms and play areas ripple from from the store's mountainous core. Patrons can wander over to a looping, 140-foot slot-car track, tinker with robots and wind up tin toys in the "Atomic Toy Lounge" or check out collectibles and souvenirs from the road on "Route 66."

The store will emphasize old standbys such as Slinky, building logs, Tinkertoys and plastic army men that can be purchased by the piece, an 8-foot-tall pavilion filled with live butterflies, a wall of ant farms and a storefront room dedicated to miniature villages and figurines.

Everything in the front will be out of the box. Employees will pull new stock from a back room when making a sale.

But will kids and their parents test toys and then shop elsewhere? Can a conventional toy store compete with big box retailers in the consumer electronics age?

"I'm not optimistic about this concept," said Rita Gunther McGrath, a professor at Columbia Business School in New York. "Toys today are competing with many other distractions, electronic and digital, that toys from the 'retro' era didn't contend with."

Market researcher NPD Group reports that conventional toy sales have been flat or declining for several years while sales of children's electronics, a fairly new category, rose 40 percent in 2004 to $694 million.

"Kids are growing out of toys at an ever-younger age," McGrath said. "That narrows the niches that a store can appeal to."

Six-year-old Hector Yerena is an example of the "age compression" that is putting huge pressure on toy sellers. The idea of a store with a different mix of toys appealed to him and his mother, Turlock resident Marina Yerena, as they wrapped up shopping at KB Toys at Westfield Downtown Plaza.

But Hector, a self-professed Game Boy master whose favorite pastime is playing "Ed, Edd n Eddy," seemed to have trouble grasping the concept of a toy store without Nintendo, Xbox or computer games.

"I'd go to the new toy store," he said. "But no video games? Not even for Game Boy?"

San Francisco toy and play expert Stevann Auerbach thinks that G. Willikers will tap into basic needs that kids have for active play and meaningful social interaction, things that she says video games don't provide.

"This kind of store is what customers want, a place to play with toys where children and adults can sample them," said Auerbach, known in the industry as Dr. Toy. "It works for wine, why not toys?"

But some toy manufacturers and distributors aren't convinced Carlson has the right idea. They took a pass on G. Willikers when he presented them with the store concept at the American International Toy Fair in New York in February.

"They said, 'Retro toys?' 'Kids playing in the store?' 'Live butterflies?'" Carlson said. "Some people just didn't get it."

Designer Richard Bay prepares a giant Tinkertoy display at G. Willikers Toy Emporium in Old Sacramento. The store will emphasize old standbys such as Slinky, building logs, Tinkertoys and plastic army men rather than video games and high-tech devices, which are becoming increasingly popular with children. Sacramento Bee/Andy Alfaro

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