Acquiring business for required sales

By Staff -- Gifts and Dec, February 1, 2002

If Time magazine were PLAYTHINGS, the venerable publication might have named him man of the year. Jerry Welch began 2001 as CEO of The Right Start Inc., a California-based chain carrying developmental and educational products for infants and preschoolers. Twelve months and two major acquisitions later, he's CEO of FAO Inc., a specialty retailing giant with 279 stores in three separate operating divisions, The Right Start, Zany Brainy and FAO Schwarz.

While gearing up for the American International Toy Fair in New York, Welch spoke with PLAYTHINGS Senior Editor Dave Gerardi about the acquisitions and the state of the industry.

Explain the importance of being FAO Inc. as opposed to The Right Start Inc.

FAO Schwarz is a retailing icon. The fact is, FAO is the most highly recognized name. We thought it would be the most appropriate name.

When Right Start purchased Zany Brainy, was there an existing strategy to buy FAO as well?

A couple of years ago, I put together a list of companies that I felt were the finest brands in the specialty retailing of kids' products—with the view that if we put a company together with all those brands in it, it would be a very special company. Zany and FAO were on that list.

When Zany started having difficulties last spring, it allowed us to start talking to them. With FAO, we did not talk to them until right after the Zany deal closed. We received a call from Morgan Stanley, who were the bankers for FAO. And we got engaged. I'd like to tell you we had this all mapped out, but that's not the way it happened. I was hopeful that over time, we'd get a chance to acquire them. I certainly didn't think it'd happen like it did this last year. But when the opportunity presented itself, we took advantage of it.

This was the year of putting these companies together. We look at February 1 as when the rubber meets the road.

In a prior interview with PLAYTHINGS, you discussed putting Right Start centers in certain Zany Brainy locations. Will you be doing the same with FAO?

It's a natural to put a Right Start boutique in a Zany Brainy store. In many cases, we have the same customer who has two children. One could be age 2, and she goes to Right Start; she has another, age 6, and she goes to Zany. With respect to FAO…FAO is the ultimate toy store. They've done a terrific job with FAO Baby, but it's primarily toys. With The Right Start's expertise, we'll add strollers, car seats and a baby registry to FAO Baby, but it'll still be 'FAO Baby.'

So how do you distinguish between The Right Start and FAO Baby brands?

It's a different offering. FAO is the ultimate gift-giving place for the baby. The Right Start is heavily skewed towards parents purchasing for their own kid. It's a terrific brand with moms.

Looking ahead to this year, which toy categories do you see as the strongest?

I expect preschool and video games to be the two leaders.

Given the economic climate, how will the buying season be affected? Will you be buying later in the year?

I don't think we will. We're starting off with really clean inventories. We expect this next Christmas is going to be a good one. We're not holding back, and we expect the economy to be moving in the right direction again.

What are your online plans for Right Start, Zany and FAO? Will you be coordinating them in any way? Will there be one central site?

There will never be anything central with respect to what the customer sees. The stores (and their online counterparts) will remain separate. Right Start and FAO both have very good catalog businesses. Those will continue. In addition, we intend, in the next 12 to 18 months, to have a Zany catalog.

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