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FAO Schwarz toying with its future | |||
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By DAVID MOON, Moon Capital
Management FAO Schwarz, the 140 year-old institution memorialized by Tom Hanks in the movie 'Big,' just filed its second bankruptcy petition, less than a year after emerging from reorganization. This, right at the beginning of the Christmas shopping season. How in the world could this happen? And more importantly, what does that suggest about other seeming iconic institutions? A few weeks ago, my family and I visited New York. My wife, a serious shopper, wanted to take our kids to the epicenter of youthful Christmas materialism, the flagship FAO Schwarz store on Fifth Avenue. So we fought the rain for 16 blocks, trudging north toward Central Park until we arrived at a retail store that many tourist guides list alongside the Statue of Liberty as must-see attractions. It is an understatement to say we were underwhelmed. The store was cramped. The prices were too high. The floor plan was unorganized. The aisles were too narrow. The bathrooms weren't kid friendly. It was ' well, it was just a crowded, miserable shopping experience. There was nothing fun or special or magical about it. We left, fought 16 blocks south in the rain and visited the Toys 'R' Us store a block from our hotel. One word describes the store: Wow! The Times Square store is a cross between a carnival and fairy tale. It has a four-story Ferris wheel just inside the front door. Unlike FAO Schwarz, you can actually get in the front door without dropping your bags, losing your kids and having to contort yourself into an unnatural position. Even for a guy who hates shopping, it was a pretty fun place to visit. And besides, the strollers we needed to buy were half the price at Toys 'R' Us than at FAO Schwarz. While the newest FAO Schwarz bankruptcy was no surprise, it made perfect sense to me. They've had their proverbial clock cleaned by Toys 'R' Us from one direction and Wal-Mart from the other. When Toys 'R' Us opened the Ferris wheel before the Christmas season a year ago, FAO Schwarz spokesman Alan Marcus admitted that the new attraction caught the attention of some shoppers. But the company was cavalier in its confidence. "But after all is said and done," Marcus noted, "we are a different kind of shopping experience." I'm not sure the FAO Schwarz creditors and shareholders really appreciate that different kind of shopping experience. Like the food chain among animals or the process of decomposition and fertilization of plants, business has its own Darwinian cycle of birth and death. Some companies are little more than capitalist gnats, never straying far from their birth and quickly killed by a larger, more powerful foe. Other businesses grow and expand until they become those powerful foes. What they do when they get to that point determines whether or not they are powerful and resilient, like an elephant - or vulnerable, like a dinosaur. David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).
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