Great ResignationInflationSupply ChainsLeadership

Exclusive: Toys ‘R’ Us Is Selling Off Iconic FAO Schwarz Brand

October 4, 2016, 12:45 PM UTC
An employee dressed as a toy soldier outside FAO Schwarz on 5th Avenue in New York May 18, 2015. The famous toy store, founded in 1862, the oldest toy store in the United States and in its current location since 1986, will be closing in July 2015 due to rising rents. The FAO Schwarz brand is now exclusively operated by Toys "R" Us Inc., which is currently shopping for a new location for the brand. AFP PHOTO / TIMOTHY A. CLARY (Photo credit should read TIMOTHY A. CLARY/AFP/Getty Images)
Photo by Timothy A. Clary AFP/Getty Images

FAO Schwarz, which closed its iconic New York City toy store in July 2015, has been sold off by parent company Toys ‘R’ Us after it owned the brand for a little over seven years.

Fortune has learned that Toys ‘R’ Us, which remains the world’s largest specialty toy and baby products retailer, has sold the FAO Schwarz assets to California-based ThreeSixty Group—which manufactures and distributes toys and other consumer products for over 70,000 retail stores across the country.

Terms of the transaction weren’t disclosed.

“For over one hundred and fifty years, FAO has provided a magical experience for children and we hope to keep this tradition alive by crafting fine toys and transformative retail experiences for generations to come,” said Kirk McLean, co-founder of ThreeSixty Group.

FAO Schwarz generated headlines last year when Toys ‘R’ Us moved to shutter the brand’s final—and most iconic—location on Fifth Avenue in Manhattan, ending a 145-year-long era in New York City retailing. Toys ‘R’ Us, which also recently closed its own Manhattan-based flagship, has moved away from operating massive, behemoth retail locations that aren’t profitable. It is aiming to compete more nimbly in a world where it is threatened by e-commerce rivals, most notably (AMZN).

But the FAO Schwarz brand has lived on as a way to market and sell some toys. Currently, Toys ‘R’ Us lists 107 FAO Schwarz toys on the company’s website, mostly plush animals.

McLean told Fortune that ThreeSixty Group’s goal is to extend the brand beyond stuffed animals and move into other toy categories, including arts and crafts and STEM (which stands for Science, Technology, Engineering and Mathematics). Both have been popular segments of the toy aisle in recent years.

The new FAO Schwarz toy collection that will be designed by ThreeSixty will start being available at retail by the fall of 2017. Until then, FAO Schwarz merchandise will still be available online and at Toys ‘R’ Us stores across the U.S.

A specific retail strategy hasn’t been outlined just yet—more will likely be known after ThreeSixty presents goods at industry toy fairs, including New York’s own Toy Fair, which will be held in February. “We would be thrilled if Toys ‘R’ Us wanted the current and future FAO Schwarz collection,” McLean said. He believes the future line will be geared for department store and specialty retailers—but he stresses it is too soon to say where interest will be strongest.

There’s also a possibility that FAO Schwarz could again become a brick-and-mortar retailer. Again, no concrete plans have been made by ThreeSixty Group—but it does believe that a marque location or locations could boost the brand.

“We think it would continue to speak to the legacy of the brand to have a flagship location or two,” McLean said.

ThreeSixty, which was founded in 1999 as MerchSource, designs, sources and distributes toys, crafts, home decor, and other consumer products under a portfolio of owned and licensed brands. It received an investment from private-equity firm AEA Investors LP last year and since then, ThreeSixty has been on the hunt for consumer brands.

McLean told Fortune that interest in the FAO Schwarz brand started around five years ago. Eventually, they were able to connect with Toys ‘R’ Us and make a deal happen.

McLean, who is 39 years old, recalled his own fond memories of FAO Schwarz when explaining why the brand should live on and scale up more than where it stands within bigger Toys ‘R’ Us today. He says that when he was 11, he went on a trip with his family to New York City and he vividly remembers walking in the door, having the door held open by the nutcracker guards, and being in awe of the store experience.

“It was such a magical experience,” McLean said. “I could only liken it to that feeling of walking downstairs for Christmas, or being in Disneyland in California where I’m from.”

His goal? To re-create that childhood memory by making FAO Schwarz-branded toys a compelling sell at retail shelves next year and beyond.

“We genuinely hope we can continue the FAO Schwarz tradition and build upon it,” he added. “It is a heck of a legacy to live up to but we are ready for it.”