But... I STILL Don't Want to Grow Up!

Pounded by competition from discount retailers and increasingly shunned by kids moving on to fancy cell phones and iPods at younger ages, Toys R Us (TOY) says it might shed its toy business in a major restructuring.

The company, eager to maximize its fast-growing Babies R Us unit, announced Wednesday that it is "pursuing the separation" of the baby and toy stores that might include a sale.

Wayne, N.J.-based Toys R Us is the No. 2 toy seller after discount giant Wal-Mart (WMT). It and other toy chains have faced intense price competition on the most popular toys from Wal-Mart, Target and other discounters. Already, mall-based toy retailer KB Toys and high-end toy merchant FAO Schwarz have been pushed into bankruptcy protection.

Further wounding the industry is kids' ever-earlier attraction to video games and sophisticated consumer electronics.

Separation of Toys R Us' businesses, through a sale of the toy stores or spinoff of the baby unit, makes sense to Art Turock, sales growth strategist at Art Turock & Associates. "It will allow both companies to concentrate on the niches that they serve best. A lot of businesses get into trouble because they go for efficiency and (do) not let the distinctiveness of the two businesses evolve," Turock says.

Babies R Us, the largest baby products specialty-store chain, has 200 U.S. stores. Toys R Us has 683 U.S. toy stores and 579 abroad.

While it considers its options, the company plans immediate steps to cut costs. They include $150 million in markdowns in the second quarter, mainly to liquidate U.S. toy store inventory, and a cut in operating expenses for the corporate headquarters and U.S. toy business by more than $125 million by 2005.

It said no stores will close before the end of the 2004 holidays, but closings are expected.

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