Christmas cancelled as toy store faces endgame

Santa may still have his usual sack of toys this year, but he certainly didn't buy them at FAO Schwarz. On the eve of Christmas, America's most famous toy store is teetering on the brink of bankruptcy.

In happier times, the seasonal queues for the group's flagship store on New York's Fifth Avenue stretched on to the street. But a collapse in US consumer confidence has hit toy buying and left FAO, the parent company, in trouble with creditors. It has now said that unless borrowing restrictions are eased, it will seek Chapter 11 bankruptcy protection.

Shares in the company have nosedived in recent weeks as consumer confidence reports have rolled in with worsening news. The stock has fallen 93 per cent since April, and now trades at under $1.

The slump in seasonal sales is not restricted to New York. The company owns 253 stores across the US, some branded as FAO Schwarz, others as Zany Brainy. The entire US retail sector is braced for a poor Christmas, and it was last week revealed that most stores will be offering heavy discounts this weekend.

But there are also problems specific to the toy sector. Strikes by Californian dock workers in the autumn disrupted the most crucial period of the year for shops stocking up with imported toys. The group is also affected by the longer-term trend of children moving away from traditional toys and towards video games. FAO raised eyebrows earlier in the year when it said it would not be stocking computer games in its Zany Brainy stores.

The company was founded in 1862 by the Westphalian immigrant Frederick August Otto Schwarz, and has its HQ in the Pennsylvanian town of King of Prussia.