• The Wall Street Journal, Friday, May 16, 2008 10:15 AM

Macy's is expected to announce today that it will open FAO Schwarz toy boutiques in all of the 685 stores that carry children's clothing. As many as 275 of Macy's 812 locations--including those in downtown Minneapolis, Union Square in San Francisco and Dadeland Mall in Miami--will get the toy boutiques in time for the 2008 holiday shopping season. The rest will open in 2009 and 2010.

The venture is part of a broader trend in which big retailers are teaming up with specialty merchants to create stores within stores. With traffic down at many malls, department stores and other big chains are scrambling to give shoppers more reasons to step inside.

Along with its potential advantages, however, the strategy poses the risk of tarnishing the specialty retailer's more-exclusive brand. "We spent a lot of time thinking about the risk" before concluding that the Macy's rollout would broaden the store's image and help counter the perception that all of its toys are expensive, says FAO Schwarz CEO Edward Schmults.

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