TOY TROUBLE: FAO Schwarz May Have To Move

The world's oldest toy store, FAO Schwarz, may have to leave its neighborhood of 80 years if it cannot extend its current lease which expires next year. Its current lease expires in 2012, but it is negotiating to exercise an option to extend it for five years at fair market value. The problem is, after whopping deals for Fifth Avenue flagships by Zara and Uniqlo, "fair market value" has increased dramatically. While the 60,000 square foot store has been at the GM Building since 1986, its previous location since 1931 was across 58th street in the space currently occupied by Bergdorf Goodman's Men's Store. According to Crain's, the store's current landlord, Boston Properties, paid a record price for the building in 2008, and has made it known that it would prefer a lucrative tenant. It is said to be looking to score the kind of huge multimillion dollar lease deal that Zara and Uniqlo recently made for similarly large retail spaces at 666 Fifth Avenue.

FAO Schwarz has been owned since 2009 by Toys "R" Us which pared the once sprawling chain back down to the single store, but maintained its image as a specialty toy store with unique items, meant to be seen in a class by itself with unique in-store shops and unusual limited edition items. It remains a tourist magnet, especially during the Holiday Season. Toys "R" Us, however, is not seen as likely to invest the kind of resources in a Fifth Avenue lease that an international fast fashion chain, for example, could.

Even if FAO Schwarz can negotiate an extension, the question is, where would it ultimately move? It has spent 80 years in a prime location among prime locations nestled among Bergdorf's and the Plaza Hotel, and there are few, if any spaces on Fifth Avenue between Saks and Central Park that could accommodate the store, let alone one it could afford. Even a move to Madison Avenue could be seen as something of a comedown. Crain's notes that Times Square, the tourist hub, would put it in competition with the only other Toys "R" Us location in Manhattan, it's giant flagship store. Will the iconic, nearly 150-year-old brand finally fold over real estate, or is it enough of a draw for customers to survive in a less exclusive location? Stay tuned.

FAO Schwarz fights to extend GM lease (Crain's)