FAO Inc. has announced that it plans to file for Chapter 11 bankruptcy protection this week and to sell its 15 FAO Schwartz and 38 The Right Start stores.  It will liquidate 89 Zany Brainy educational toy stores.  If a buyer isn't found by December 15th, the FAO Schwartz and Right Start stores will be liquidated as well. 

 

FAO Inc. was staggering almost a year ago (see 'Wal-Mart Hammering Specialty Retailers'), then seemed to regain its balance (see 'FAO Inc. Emerges From Chapter 11'), only to once again get hammered by the price wars between chains Wal-Mart, Toys 'R' Us and Target (see 'FAO Needs a Big Holiday Season,' 'FAO Schwartz Feels a Chill in Sales' and 'Wal-Mart Applying Toy Category Kill Shot').  This most recent Chapter 11 filing has been precipitated by FAO Inc. receiving a notice of default from its lenders in November.  The company predicts that shares in the company will be worthless as a result of the bankruptcy.

 

FAO Inc. has stated that store customers and employees will 'not see any significant difference' in store operations as the remaining retail locations complete wind-downs into early next year.  Inventory liquidations will leave some normally available products no longer on the shelves and all sales will be final.  Non-store employees are being fired immediately.

 

Saks, Inc., which has an existing relationship with FAO, has been listed as a potential buyer.