Services & Software

FAO Schwarz gears up for online holiday season

FAO Schwarz is celebrating plans for a more customer-friendly Web site this holiday season, but industry observers say the toy retailer will still have a difficult time competing with online rivals.

FAO Schwarz is celebrating plans for a more customer-friendly Web site this holiday season, but industry observers say the toy retailer will still have a difficult time competing with online rivals.

The company will announce plans to offer live customer service for its specialty toy site,, at a press event tonight with its new partner In addition, will launch a redesigned site and offer a gift registry for the holiday season, according to a company statement. Launched in 1997 to little fanfare, FAO Schwarz's Web store has been eclipsed by eToys and other online toy retailers.

FAO's push comes during a year of big changes for the online toy industry. eToys last year surprised most industry observers by grabbing an estimated 70 percent of the online toy market over better-known competitors such as FAO Schwarz and Toys "R" Us.

Since then, e-commerce giant has gotten into the game, and observers say offline toy retailer KB Toys has improved its standing by merging its online operations with Meanwhile, offline giants Wal-Mart and Toys "R" Us have seen their hopes for the holidays dashed by setbacks and delays at their online sites.

After breakthrough sales last year reaching roughly $80 million, according to Forrester Research, the online toy industry is poised for big gains this year. Forrester projects that online toy sales will reach $253 million this year, with about 40 percent of that coming during this holiday season. That represents less than 1 percent of the more than $28 billion total toy market.

"The competition is steep and the stakes are high to get those eyeballs and consumer dollars," said Gomez Advisors analyst Liz Leonard.

FAO Schwarz announced its deal with, formerly, last month. sells children's videos and music and offers gift-buying advice for parents. The two sites will provide access to each other's selections so that customers can shop on either site. Jonathan Kaplan, chairman and cofounder of, said that the partnership is poised to do well against its online competitors.

FAO Schwarz is a specialty retailer that focuses on offering upscale toys and hard-to-find items. That gives the company a niche that Toys "R" Us and eToys can't match, Kaplan said.

Meanwhile, offers just kids entertainment products. Although eToys and offer similar products, Kaplan said consumers think of those stores as simply toy stores.

"Consumers don't think to go to a toy store to buy a book," Kaplan said. "That's how we compete. That's how we are different."

Kaplan called the deal with FAO a "long-term partnership," though he declined to specify the length. Unlike other e-commerce partnerships, Kaplan said that FAO Schwarz did not take an equity stake in the company. The two companies did agree to a revenue sharing arrangement, Kaplan said.

Additionally, the agreement extends into FAO's offline stores, where the company will promote and the children's entertainment site will provide content to the stores, such as a list of the top ten kids products.

While Wal-Mart and Toys "R" Us will largely sit on the virtual sidelines this holiday season, observers say that FAO's deal with gives it the boost it will need to at least compete on the same field as eToys and Still, most observers expect eToys to reprise its dominance this year, because it has already built up its brand recognition as an online toy seller and has a large customer base to build on.

"eToys is still positioned to be the winner this holiday season," said Michael Goodman, a senior analyst with the Yankee Group.

Gomez's Leonard says that FAO is revving up its strategy a bit late to have a big effect this holiday season. Many of its online competitors have already revamped their Web sites or strategies to gear up for the holiday season, she said. offers FAO some much-needed online expertise and allows FAO to diversify its online offerings, said Forrester analyst Seema Williams. But's site is so obscure that it won't help FAO gain much on eToys or

"FamilyWonder is not that big to start with," Williams said. "It's not big enough to shift FAO's online positioning."

Last week, No. 1 toy retailer Wal-Mart delayed its site relaunch until early next year. Meanwhile, Toys "R" Us has struggled to put its Web strategy in place all year.