STRUGGLING FAO CUTS TOY ORDERS.

Byline: Brent Hopkins Staff Writer

Storied retailer FAO Inc. announced a cash crunch Friday, striking a distressing chord for local toy makers in the key holiday season.

In a statement released Friday, the King of Prussia, Pa.-based chain - operator of FAO Schwarz, The Right Start and Zany Brainy - asked vendors to reduce shipments and delay requests for payment until the first of the year. Saying that initial holiday sales had not lived up to expectations, the retailer, which emerged from Chapter 11 bankruptcy in April, expressed doubts about whether it could ``operate its business normally in November.''

For the manufacturers that supply FAO, this was hardly comforting news in an already challenging environment.

``This is terrible,'' said Maria Weiskott, editor in chief of Playthings magazine. ``Who this hurts most is small to medium-sized manufacturers ... this is a big blow, and psychologically, it's really a big hit. This is a name that's over 140 years old.''

The chain has endured increasing difficulties in recent years. Calabasas-based The Right Start, which also purchased failing kids store Zany Brainy the same year, bought the iconic chain in 2001. Although it trimmed stores and laid off employees to keep costs down, it was not enough to prevent a bankruptcy in January 2003. Hammered by cut-rate competitors like Wal-Mart and facing diminishing importance of upscale toys, the chain has not fared well even after completing the Chapter 11 process.

The cuts affect 89 Zany Brainys, including one in Thousand Oaks; 38 Right Starts, including spots in Glendale, Tarzana and Sherman Oaks; and 15 FAO Schwarzes, with the only remaining local store at The Grove in the Fairfax district.

Though most manufacturers have completed their holiday shipments by now, curtailed shipments next year and delayed payments will hurt vendors at the one time of year they can generally expect strong sales.

``Are you kidding? This comes at a terrible time for the vendors, and the company itself,'' said Kurt Barnard, president of Retail Forecasting. ``Now is the time for toys, they've been waiting for this all year round. November and December are here, and they can't deliver.''

Larger local manufacturers, including Jakks Pacific Inc., Funrise Toy Corp., MGA Entertainment and Mattel Inc. declined to comment on the chain's woes.

``We don't comment on our customers, our shipping, our ordering, our payments or anything,'' said Lisa Marie Bongiovanni, spokeswoman for Mattel. ``But I can say that our exposure to them is not material.''

Though each of these large manufacturers sells to mass retail, insulating them from FAO's problems, the venerable chain's high profile has served them well over the years. MGA chose it to debut its Me and My Shadow robot dog in FAO Schwarz, while Mattel's Barbie dolls enjoy prominent placement at its luxurious toy stores. A wound to the industry's flagship symbol, experts agree, could cloud future launches.

``Most toy manufacturers have been planning for FAO's demise for a long time,'' said Dave Schwartz, a longtime toy industry watcher and former vice president of marketing for Funrise. ``This shouldn't come as news to any manufacturer, but it's very difficult for small toy companies that look to FAO as a major account. The demise of FAO is not good for the toy industry in general, because it's interwoven into the fabric of the business. For many years, it's been a destination for kids all over the world.''

Brent Hopkins, [phone]

brent.hopkins(at)dailynews.com