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In business just a little over a year, Babies "R" Us is already the largest retailer of baby and juvenile products in the country.

"Our intention is to make this a nationwide chain," Toys "R" Us vice chairman and ceo Michael Goldstein told DSN. He did not give a timetable for achieving this goal. "We'll have several hundred stores fairly soon."

The fledgling chain within the Toys "R" Us organization has 83 stores with approximately 20 more coming on line in time for the busy fourth quarter holidays. A number of new markets are included in the fall opening schedule, although Goldenstein declined to identify the sites. He wants to keep a "low profile" on the subject of Babies "R" Us.

BRU is the newest addition to the Toys "R" Us family, created in May 1996. Nine months later, on Feb. 4 (the final day of its own fiscal year), it acquired the Baby Superstore chain of Duncan. S.C., for $376 million. The integration process has just been completed on that 78-store acquisition, creating a combined entity with more than $450 million on 1996 sales. This year, sales should exceed $600 million, according of several sources.

The cost of the integration process took its toll on the bottom line. Toys "R" Us reported that comp store sales for the division suffered during the first half of the year. This was due mostly to the costs of inventory clearance sales and the installation of new systems at the former Baby Superstore units. Also, Toys "R" Us did not advertise Babies "R" Us during the transition. All that is changing as a new ad campaign has just begun in some locations, which should help bolster third quarter and fourth quarter sales results. In fact, Amy Ryan of Prudential Securities recently wrote in her Aug. 20 research report on Toys "R" Us that she expects Babies "R" Us to show solid improvement during the second half of the year. In May, she wrote that she expects Babies "R" Us to contribute a dime to Toys "R" Us' 1998 earnings.

Ryan is projecting yearend sales at Babies "R" Us to total $605.9 million from 98 units. Operation profit should total $24.4 million, rising to $52.4 million next year when store count rises by 45 units to 143 stores and sales advance to $874.0 million, she estimated.

This projection would put Babies "R" Us ahead of Kids "R" Us next year. Ryan estimated Kids' sales $850.6 million for the next fiscal year.

"Babies `R' Us definitely has the potential to be as big or bigger than Kids," added Ursula Moran, special retail analyst, Sanford C. Bernstein. Her estimates for BRU are more aggressive than Ryan's. Moran puts yearend 1997 sales at $627 million from 103 stores, rising to $1.1 billion in 1998 from 163 units.

When Toys "R" Us acquired Baby Superstore earlier this year, the baby supplies chain was the largest baby and juvenile product retailer in the country with yearend 1996 sales of $445 million. The other large retailer in the group, Dallas-based LiL' Things, which is currently in Chapter 11, posted sales of $100 million from 20 stores. Lack of consistent execution caught up to the chain, and its new president and ceo, Daryl Landsdale, plans to pare stores down to 13 units.

Baby Superstore was apparently wilting under its rapid expansion program at the time of the TRU acquisition, sources told DSN. But TRU was attracted to the chain for two reasons: the depth of its personnel ranks, many of whom have been absorbed into the company; and its dominant position in the marketplace. It also liked the idea of juvenile products retailing, which already was part of the company's merchandise mix. For TRU, the creation of Babies "R" Us was a logical next step in its development, prompted in part by slower growth opportunities for its traditional toy stores in the United States.

The Babies "R" Us prototype is an airy 40,000 sq ft. with about 30,000 skus of product spanning children's apparel, toys, furniture, assorted juvenile products, gift registry, free gift wrapping and a mother's room for nursing babies. The store features low-profile fixtures except along the outer walls of the stores, providing shoppers with a panoramic view of the departments and their assortments. Like most apparel departments these days, the apparel pad at Babies "R" Us is carpeted and features such mid-tier brands as Carter's and Buster Brown.

Brands get a high profile throughout Babies "R" Us, with such popular labels as Playskool and Fisher-Price, Little Tikes. Graco, Century and others prominently displayed and signed.

At the time of the Baby Superstore acquisition, Goldstein told DSN that there was a realization between the two chains that the prototype was a little larger than it needed to be and that store size would probably be reduced in forthcoming units. The typical Baby Superstore unit was 42,000 sq. ft. There is still no word on changes to assortments or store layout.

Juvenile products is a $4.23 billion market with lots of player, according to the Juvenile Products Manufacturers Association. While the baby superstore arena has two dominant chains, Babies "R" Us and LiL' Things baby and juvenile products are big business for discounters, department store retailers and specialty stores.

"Babies `R' Us," is a natural for Toys `R' U," said Dorothy Lakner, senior vp at Oppenheimer & Co. "They've done a very wonderful job with it. Everybody is talking about the baby business."

Babies "R" Us isn't the only chain on the move. In addition to the added attention of baby and juvenile products at discount and department stores and specialty shops, the 4 million new babies born each year is fueling activity throughout retailing. At the Gap's Gap Kids division, freestanding Baby Gap locations will come on line this year. Lakner said that the baby products part of Talbot Kids also is experiencing strong activity.

Lakner has been "very impressed" with the original Babies "R" Us stores and said that the transition "appears to have gone very well." Growth now will be done by the surviving organization and not via another acquisition. "That one [Baby Superstore] definitely gave them a leg up. Now that they have a concept, I think they'll try to grow that concept," Lakner said.

Babies "R" Us still faces a number of challenges, arguably the most important is providing top-notch service. To do otherwise would be "catastrophic," said Moran, who noted that Toys "R" Us record in service is "erratic" at its toy stores. This aside, Moran said the early sales results are good, especially at the original BRU stores, which are running "ahead of plan."

"Babies 'R' Us is a good concept," said Neal DePersia, national sales manager, Toys "R" Us and Babies "R" Us at Today's Kids, a toy manufacturer. "[The] chain has a lot of opportunity and is well-timed and a smart move on Toys `R' Us' part."

DePersia has been involved with TRU and Baby Superstore for the last 10 years. He watched the growth of each chain and ultimately Baby Superstore's acquisition. He said that TRU quickly saw that the Baby Superstore concept was a viable one, especially in the very aggressive way Baby Superstore approached the market.

What hurt Baby Superstore was its difficulty in dealing with its rapid growth, especially after its successful IPO of several years ago, DePersia said. "Toys `R' Us saw an opportunity there; they saw somebody that was quickly becoming a very viable operator."

The new Babies "R" Us organization began with a fairly tight vendor list and a close watch on sku count, mirroring the activity now in place at the toy division. "Their plan was to consolidate the number of vendors they would buy from, to try to make bigger statements with fewer skus and make sure their in-stock in key issues make the kinds of statements they want them to," said a vendor who asked not to be identified.

As a result of this program and the existence of Babies "R" Us, this vendor said his company's business "is likely to grow faster with them than [the business] would have done in the category without them." Babies "R" Us also will be more aggressive in how the program is merchandised, working to stimulate fourth quarter activity and ultimately year-round performance, the vendor said.

But is Toys "R" Us striking a hot iron with Babies "R" Us? Some say no.

"It's a good opportunity, not a great opportunity," said Sid Doolittle, partner in Mcmillan/Doolittle, Chicago-based retail consultants. "It would have been a great opportunity eight to 10 years earlier," when the market was really hot.

"Babies `R' Us in the 1980s would have been a great store. Today, it's a store that may be a little past its prime. People have already figured out where the best place to buy is. They'll have to fight their way to success. Big store aren't performing as well as the smaller stores or the off-pricers," Doolittle said.