Pricing Battle Already On for Wal-Mart, Toys R Us

NEW YORK – After getting clobbered in the 2003 holiday price war, Toys R Us Inc. (TOY) is pricing many items close to — or cheaper than — its chief rival, Wal-Mart Stores Inc. (WMT).

Of the 12 toys featured on Wal-Mart's recent promotional e-mail entitled "Top Holiday Toys, Rock-Bottom Prices," half of them can be found cheaper at Toys R Us , according to the prices listed on its Web site.

What's more, the lower-priced featured items at Wal-Mart and the lower-priced items at Wal-Mart were only cheaper by as much as 75 cents, according to its Web site .

"The last couple of years Toys R Us got caught off-guard in terms of pricing, and they said they would be more aggressive this year," said Jim Silver, publisher of industry magazine Toy Book (search).

The featured toys that Toys R Us has priced lower are a good deal cheaper than the identical item at Wal-Mart.

Gameboy's Pac-Man (search) game is selling for $14.95 at Toys R Us, and nearly 33 percent higher at Wal-Mart.

Barbie Princess Anneliese (search), the latest holiday Barbie and always a hot seller, is $16.34 at Wal-Mart, while Toys R Us shoppers can nab it at $14.97.

"If this is it, Wal-Mart didn't show up," said Harris Nesbitt analyst Sean McGowan. "If this is going to be all about price and it stays this way, Toys R Us is making a major statement."

Shares of Toys R Us were up 4.7 percent at $18.86 Monday, its highest level in more than 2-1/2 years.

Sharp price cuts can hurt profit margins.

Toys R Us was hard-hit by price competition last year. The company, which also owns the Babies R Us chain, is now exploring options for the company, which could include a sale of its toy stores.

The company has opened its financial books to more than a dozen prospective suitors, including a team led by its former Chairman and Chief Executive Michael Goldstein.

The toy price war was also blamed for the bankruptcies of toy sellers FAO Inc. (search), parent of FAO Schwarz, and KB Toys (search).

Current CEO John Eyler (search) told Reuters back in May the company would "not be embarrassed on price."

"At the end of the day everybody's going to be really close in terms of price, because no one wants to get beat this holiday season," Silver said. "It could make inventory scarce in December, and it's already late for reorders. It'll come down to whomever's got the most inventory."