Toys "R" Us Inc. is changing hands, but shoppers at the retailer's 32 stores in Southern California shouldn't notice any difference yet.


The Wayne, N.J.-based company is being sold for $6.6 billion to Bain Capital LLC, Kohlberg Kravis Roberts & Co. and Vornado Realty Trust. The deal isn't expected to be completed until July after approval from shareholders and the Securities and Exchange Commission.


For the moment, "It is business as usual," said Toys "R" Us spokeswoman Susan McLaughlin. But things could get murky after that. There has been speculation that Vornado might push the retailer to shutter as many as one-third of its 681 U.S. locations.


"Everybody is in agreement that some stores will be closing," said Margaret Whitfield, an analyst with Ryan Beck & Company Inc. She expects the company to keep its locations open through this year's holiday season, beginning the closures in 2006.


In Los Angeles, several prime locations could become targets for mass-market retailers like Best Buy Co. "That's the reason why the company was very attractive," said Tim Keeley, former senior real estate manager. "They bought it partially for the retail business, but mostly for the real estate."


Keeley estimated that 60 percent of the stores are owned by Toys "R" Us and the rest are leased.


Los Angeles retail broker Matthew May said that for the true value of the local stores to be determined, terms of the leases would have to be examined. For instance, the stores could be less valuable if landlords have restricted subleasing, such as the type of business that can be placed at a particular location.


Overall, May and Keeley said that the stores are being leased at "below-market" rates, creating an opportunity for the new owners to benefit from flipping tenants.


Discount retailers Wal-Mart Stores Inc., Target Corp. and Kmart Holding Corp. have been growing their toy inventories and eating into Toys "R" Us' market share for years. Still, the toy merchant generated an estimated $11.1 billion in sales last year and remains one of the world's largest specialty retailers. Whitfield said consumer options will become increasingly limited as Toys "R" Us stores close, noting, "You are just not going to get that much of a product array at any of the other companies."


Charlie Woo, president of Los Angeles-based Megatoys, which manufactures Halloween costumes and Easter baskets sold at Toys "R" Us, Wal-Mart and Kmart stores, is not convinced, believing consumers prefer the convenience and low prices of a discounter. "It still remains to be seen whether the consumers will accept Toys "R" Us as a shopping destination versus a Wal-Mart or Kmart where you can shop for many things at one point," he said.


School Vending
Gov. Arnold Schwarzenegger's efforts at improving student diets may provide healthier alternatives to the daily doses of soda and chips, but it's not doing much to the folks who stock local vending machines.


Since the Los Angeles Unified School District banned unhealthy food items at the start of the school year, sales have dropped by almost half, according to Nick Nikka, president of Vending Plus, which stocks the vending machines at L.A. schools with milk, water and low-calorie snacks. Nikka said he has had to lay off eight employees.


He backs the California Automatic Vendors Council position that only half of vending machine items should follow LAUSD standards. "Its is very difficult to fill the machines with products that meet the guidelines," he said.


But Jacqueline Domac, a health teacher and policy specialist at Banning High School, said healthy items are popular in school vending machines. She noted that strawberry, vanilla and chocolate soy milk cartons are hot items at Venice High School, where Domac previously worked.


Until now, each school dealt with the vending machine companies separately. The schools get a commission ranging from 10 percent to 35 percent per sale, with the proceeds generally earmarked for student activities. But the LAUSD is now accepting bids for a district-wide beverage vending contract.


Turning Boutique
The Best Western Beverly Pavilion Hotel is being bought by Pomeranc Group, a New Jersey-based company that took over management of the Hollywood Roosevelt Hotel early this year.


Pacifica Hotel Co., based in Santa Barbara, and Investcorp International Inc., based in New York, are selling the 110-room hotel for about $21 million.


Pomeranc Group plans to turn the Beverly Pavilion, located at 9360 Wilshire Blvd., into a boutique hotel. The company's portfolio already includes the boutique properties Sixty Thompson in New York and Sagamore Hotel in Miami.


Meanwhile, Pacifica, which took over the Beverly Pavilion about six years ago, plans to expand its holdings in the South Bay, where it already has five properties. Dale Marquis, the company's president, declined to provide details on the company's possible acquisitions.


*Staff reporter Rachel Brown can be reached at (323) 549-5225, ext. 224, or at rbrown@labusinessjournal.com .

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