TOUGH GUYS IN THE TOY DEPT.

By VALERIE MARCHANT/NEW YORK

Competitors of Toys "R" Us have been slapping the retail giant silly in recent years. Last week the Federal Trade Commission took a whack, ruling that Toys "R" Us had illegally forced such manufacturers as Mattel and Hasbro to withhold their products from warehouse clubs like Costco. The FTC barred Toys "R" Us from blacklisting toymakers for selling to low-price clubs. The company says it will appeal.

The ruling surprised some in the industry. Although the Toys "R" Us tactics may sound like bullying, retailers do this sort of thing all the time in an effort to get exclusive merchandise or to protect themselves from price wars. Toys "R" Us was already under severe pressure from discounters such as Wal-Mart when the warehouse clubs, led by Costco, started to move in on toys. The Toys "R" Us share of the $30.2 billion industry has fallen from 25.4% in 1990 to 20.5%, while Wal-Mart's has grown from 9.5% to 15%.

To protect its turf, Toys "R" Us threatened its suppliers: toys sold to the discount clubs would not be sold at its stores. Exhibit A: Barbie, a hot seller that Toys "R" Us did not want available elsewhere at next to nothing. Manufacturers don't like the clubs either, because they stock a limited number of items at very low margins. Toys "R" Us, on the other hand, might stock everything Mattel makes. Admits Costco CEO James Sinegal: "You could fill Madison Square Garden with the people who don't want to sell to us." Industry watchers say the FTC may be sending a message to other retailers whose market power exceeds their market share. "It's a warning shot across the bow," says Isaac Lagnado, president of Tactical Retail Solutions, Inc.

--Reported by Valerie Marchant/New York