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Learningsmith spread too thin

The fun and games are over for Massachusetts-based educational toy retailer Learningsmith. The beleaguered chain filed for Chapter 11 bankruptcy protection last month and plans to cease operations at all 87 of its stores by the middle of this month. Employees...
January 1, 2000

The fun and games are over for Massachusetts-based educational toy retailer Learningsmith. The beleaguered chain filed for Chapter 11 bankruptcy protection last month and plans to cease operations at all 87 of its stores by the middle of this month. Employees at different LS locations confirmed published reports in U.S. newspapers that their stores would shut down this month, however several calls KidScreen made to Learningsmith headquarters in Burlington, Massachusetts, as well as to the company’s legal reps at Boston-based Hanify & King, were not returned. With the closure of stores in 33 states, 2,350 employees will reportedly lose their jobs.

Learningsmith, which posted revenues of US$35 million in `98, was rumored to have been losing money for years. In the last six months had fallen behind on its payments to vendors, says Peter Reynolds, president of Germantown, Wisconsin-based Brio Trains, a supplier to the privately held retailer.

Reynolds says that Learningsmith’s recent attempts to secure new investment partners had fallen through, which likely sealed its fate, a claim that’s backed up by several othern industry sources.

One of the problems contributing to the company’s lackluster sales was the absence of a clear merchandising focus. LS, which carried such products as Beanie Babies and train sets by Brio and Learning Curve, had a 50/50 split of educational products for kids and adults, but that mix could and did change from year to year, says Reynolds.

‘One of our concerns was how many people actually went to LS to specifically buy toys. They were filling many different product areas and weren’t, it seems, strong enough in any of them to be a destination for consumers other than as an impulse buy,’ he adds.

Another factor that hurt the company was location costs. Many LS stores were situated in high-rent malls. ‘Regional malls and the educational toy category are not at all compatible. To be in those centers, you have to hit about US$500 per square foot, and that’s about 25% to 30% more than the category could provide,’ says John Lee, CEO of Elke Grove Village, Illinois-based Learning Curve.

Lee says that Learningsmith will likely use the time that Chapter 11 affords it to sell off those valuable lease holds to other retailers, before filing for Chapter seven or the total liquidation of its assets.

Neither Lee nor Reynolds see Learningsmith’s problems, however, as a symptom of a larger malaise afflicting the US$1-billion specialty toy retail market, but rather as a feature that has always attended the sector.

‘There’s a joke in the industry that the specialty chains have a life span of seven years. If you look at Imaginarium, which filed for bankruptcy protection in ’97 before Toys `R’ Us bought them out last fall, or Sesame Street stores, which went out of business in 1996, you know this sort of thing happens from time to time. I don’t think it’s going to hurt our business at all. I believe the other chains will pick up the slack,’ says Reynolds.

Vendors that have yet to be paid for product shipped to Learningsmith, including Brio and Learning Curve, which each move between 2% and 5% of their annual sales through the retailer, can now file claims to recoup their losses.

‘We’ll get in line with the other secured creditors and hope like hell there’s something left over once they’ve sold off all their assets. But clearly, we’re going to get paid something materially less than what we’re due,’ says Lee.

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