According to the Commission, beginning in 1992, Toys 'R' Us entered into vertical agreements with 10 manufacturers to restrict their sales to clubs. The Commission found that Toys 'R' Us did this by inducing its suppliers to sell to the clubs only toys that were unique and highly differentiated - most often so-called 'combo' packages of two or more toys - from the toys sold to Toys 'R' Us. Contemporary estimates predicted that they would grow to occupy a significant percentage of the toy market, bringing down retail prices in all channels of distribution as they grew.įearing that warehouse clubs presented a greater threat than Wal-Mart and Target had to Toys 'R' Us’ prices and profits, Toys 'R' Us planned to restrict or cut off the clubs’ supply of key toy products. The warehouse clubs - by reducing costs, selling branded products at low prices and increasing product turnover - soon became the fastest growing retail outlet of toys. By the end of the 1980s these clubs had emerged as increasingly important toy retailers in much the same way that Wal-Mart and the other discounters had done before. The Commission found, however, that Toys 'R' Us behaved quite differently when confronted with the dramatically lower prices of the warehouse clubs. In the past, when Toys 'R' Us faced new, lower-priced competition from Wal-Mart, Target and other regional and national discount chains, Toys 'R' responded by lowering its own toy prices and improving the presentation of toys in Toys 'R' Us stores. Warehouse clubs sell toys at prices as low as 9 percent above wholesale cost. Toys 'R' Us’ average margins are close to 30 percent above cost. The Commission noted that retail margins enjoyed by different types of retailers vary widely. According to the Commission, no other toy retailer carries as many toys or purchases such a large percentage of the toy manufacturers’ output.

Toy manufacturers who participated in the boycott account for 40 percent of all toy sales in the United States and therefore have market power, the Commission determined. The company also buys about 30 percent or more of the large toy companies’ total output and is usually their most important customer. Toys 'R' Us offers an assortment of about 11, 000 individual toy items throughout the year. Toys 'R' Us, based in Paramus, New Jersey, has about 650 stores located throughout the United States and roughly another 300 stores in foreign countries. 'Indeed, a remarkable irony of this case is that if the law were as Toys 'R' Us contends - if a large could cut off or encumber a new or innovative source of supply by exercising market power against suppliers - then Toys 'R' Us, itself an innovative marketer resented by larger and less dynamic a generation ago, could have been denied an opportunity to compete on the merits and win in the marketplace.' 'Toys 'R' Us rose to its current position as the largest toy retailer in the United States by offering a larger selection of toys than any other retailer at the lowest prices,' said Chairman Pitofsky. The Commission’s opinion, authored by FTC Chairman Robert Pitofsky, explains that Toys 'R' Us wanted 'to prevent consumers from comparing the price and quality of products in the clubs to the price and quality of the same toys displayed and sold at Toys 'R' Us, and thereby to reduce the effectiveness of the clubs as competitors.' The Commission determined that to eliminate this threat, Toys 'R' Us used its dominant position as a toy distributor to extract agreements from and among toy manufacturers to stop selling to warehouse clubs the same toys that they sold to other toy distributors. Toys 'R' Us, the FTC said, was concerned that warehouse clubs - with substantially lower prices - presented a threat to its low-price image and its profits. Toys 'R' Us, the nation’s largest toy retailer, was ordered today by the Federal Trade Commission to stop engaging in illegal practices that keep toy prices higher and reduce choice for consumers. About the FTC Show/hide About the FTC menu items.

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