Toys"R"Us Troubles, Walmart Scrutiny Signal Holiday Tension

Fun and frolic are not going to be on the agenda of retailers this holiday season, one that is getting more serious by the day.

Particularly for retailers that might get hit hard or that might score big, the season is looming like an oncoming locomotive, and it isn’t just retailers who are taking an interest.

ABC news has been reporting that the Federal Trade Commission is stepping up an investigation of baby product price fixing against Toys“R”Us. The investigation follows lawsuits filed on behalf of consumers and online retailers alleging price fixing on the products. Toys“R”Us promised ABC that it would defend itself in court and cooperate with the FTC as it denied the charges.

An FTC investigation, though, is the last thing Toys“R”Us needs right now, particularly one that suggests its prices are artificially high. To lure price-conscious consumers, the company has launched a layaway program. It’s product specific and designed to make BMX bicycles, play kitchens and basketball systems more affordable to folks who may be having cash or credit problems. The toy specialist’s move follows on a successful layaway program Kmart operated last year and expanded for the upcoming holidays. The program at Toys“R”Us signals concerns that some consumers will shy away from purchasing the big, expensive gifts that the company offers. Ironically, it is encouraging consumers to use the program as a kind of baby registry, suggesting that expectant parents can get relatives working towards pricy gifts including baby products such as cribs, car seats and strollers, just the merchandise the FTC is checking up on. Bad timing indeed.

Currently, the Toys“R”Us website leads with an offer that provides a free Fisher-Price toy with the purchase of two. So, for Toys“R”Us, touting price breaks isn’t just critical for the most expensive items. A recent study already indicated that its shoppers are gravitating toward Walmart and the bargains it offers. That retailer just keeps flexing its promotional muscles – for example it’s offer of 100 Toys for $10, one that plays in the same ballpark as the Fisher-Price deal — as the holidays get nearer.

The news isn’t all good for Walmart. It’s being blamed for turning Wall Street sour. In at least one report about today’s market session starting strong then spinning down 92 points, Walmart’s announcement of toy price reductions took its place beside a slumping dollar, oil price gains and bank-related worries as one of the ghosties that spooked traders.

The rational behind Walmart’s impact is that the lower toy prices were a sign that consumer demand remained weak. That isn’t necessarily the case, though. A Walmart source told Bnet weeks ago that the company intended to be aggressive in its promotions running up to the holidays. Even if demand isn’t necessarily robust, the retailer has a vested interest in getting consumers in the stores right now. It wants them to look at the improvements it is making in décor, private label and departments such as home and electronics while the economy has them more inclined to shop the stores. In fact, this is a big electronics department week for Walmart, as it related to employees in an internal blog noting that Straight Talk wireless, Transformers 2 and Windows 7 all are on launch mode. By driving consumers into the store now via promotion, the retailer maximizes its chances of retaining them as Walmart shoppers post recession.

And the holiday season more than any other is the time of the year when more shoppers from more demographic echelons are most likely to stop by their local Walmart. When a child wants a toy, adults go where they can get it, and Nordstrom never is going to have the selection of hot toys Walmart does.

Still, that being said, ABC got wind of FTC doings, Wall Street tanked and retail got that much more interesting as the holidays approach.