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Last Updated: Thursday, 12 August, 2004, 17:10 GMT 18:10 UK
Heavy competition hits Toys-R-Us
Toys R Us store
Toys R Us has 700 stores in the US
US retailer Toys-R-Us is considering getting out of the toy business after being hit by intense competition from discounters such as Wal-Mart.

The company, whose shares fell 6%, may also spin off its Babies-R-Us unit.

Decisions on store closures will come once the end-of-year holiday season is over, the firm said.

Aggressive discounting by general retailers, led by the giant Wal-Mart chain, has hit the toy business hard, sending several big names to the wall.

Iconic toy store FAO Schwartz was forced to declare itself bankrupt and seek protection from its creditors in December 2003, with KB Toys following suit in January.

Shoppers have increasingly turned to Wal-Mart and other low-cost superstore chains such as Target, which have been able to undercut the specialist retailers.

The idea of separating Babies-R-Us was met with approval by analysts, with Prudential's Mark Rowan dubbing it the company's "crown jewels".

Moving into property

Toys-R-Us is expected to give up between 100 and 200 stores.

Given that many have long leases at low rents, they could prove a profitable source of revenue if offered to other retailers.

Deutsche Bank has estimated that the group's property could be worth more than $2.9bn (1.6bn).

There are some 700 Toys-R-Us outlets in the US and 600 more abroad, as well as almost 200 Babies-R-Us stores.

But analysts said the firm should not wait to make up its mind, following its poor showing in the past year.

"Sure, it's before the holiday season," said Sean McGowan of Harris Nesbitt.

"But after 2003, what more do we need to find out?"

In the meantime, Toys-R-Us is expected to take $150m (82.3m) in markdowns in the second quarter of the year, to account for inventory build-up.

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