famous us toy retailer seeks chapter 11

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    Reuters
    FAO Schwarz Parent Seeks Chapter 11
    Monday January 13, 1:42 pm ET


    KING OF PRUSSIA, Pa./NEW YORK (Reuters) - FAO Inc. (NasdaqNM:FAOO - News), parent of posh toy store FAO Schwarz, on Monday filed for bankruptcy protection after suffering from weak sales and intense competition from discounters.

    Last month FAO warned that bankruptcy was likely unless its bank lender, Wells Fargo Retail Finance, helped it to alleviate a liquidity crisis at the 141-year-old chain.

    Piles of giant plush toys at FAO Schwarz's flagship Fifth Avenue store in Manhattan made it the ideal setting for the grown-up child portrayed by Tom Hanks in the movie "Big."

    Specialty toy retailers have been under strong pressure from discounters such as Wal-Mart Stores Inc. (NYSE:WMT - News) that can slash toy prices and make up the difference on other products.

    FAO Chief Executive Jerry Welch said in a statement: "Having already made significant strides in our restructuring efforts through the decision to close 75 to 80 stores, we are now able to turn our focus toward ensuring our long-term financial health."

    Last month FAO said it would close 70 of its 253 stores, including 55 Zany Brainy outlets. FAO did not immediately return a call seeking comment.

    Welch said FAO agreed with lenders to use cash collateral that will let the King of Prussia, Pennsylvania-based company pay its suppliers and employees as it restructures. FAO said it also plans to hire an investment banker to help it raise equity capital.

    Store policies on returns, exchanges, special orders, credit purchases and gift certificates will not change, it said.

    FAO Schwarz was founded in 1862 by Frederick August Otto Schwarz, six years after he arrived in the United States from Germany.

    The parent, which also runs The Right Start, a toy retailer for infants and toddlers, listed $257.4 million of assets and $238.4 million of debts in its filing with the U.S. Bankruptcy Court for the District of Delaware.
 
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