Toy store alliance comes under scrutiny

Date: 03/10/1996

By Chris Johnstone

DUTCH retail giant Blokker has altered plans to strike a deal with US superstore Toys R Us, but still faces the prospect of a probe by the European Commission.

Blokker says it has shelved an initial project to purchase the Dutch subsidiary of the US company. Instead, it is now negotiating a franchise deal with Toys R Us, which it expects to bear fruit soon.

The Dutch government has warned the changed deal could still be referred to the Commission's Directorate-General for competition (DGIV).

“We will examine the new deal when it is finalised,” said a spokesman for the ministry for economic affairs. Another official said an examination by DGlV would be almost automatic after the initial alert by the Dutch government.

Economic Affairs Minister Hans Wijers turned to a little-used clause in the EU's merger regulation in July to ask Competition Commissioner Karel Van Miert to probe Blokker's take-over plans. The Dutch government said the deal could give the privately-owned company a dominant position in the toy retail market.

Blokker, with 450 shops in the Netherlands including subsidiaries Bart Smit and Intertoys, and Toys R Us, with nine 'pile them high, sell them cheap' stores on the outskirts of most of the country's major cities, would together corner over half of Dutch toy sales.

A merger between the two would hit consumers, small and medium-sized shops and the toy manufacturing industry, said the Dutch government. Blokker also has stores in Belgium and Germany.

The next-biggest force on the Dutch toy market, rival retailer Speelboom-Wigman, has a market share of around 33&percent;.

Toys R Us is the world's biggest toy retailer. It has been the subject of an inquiry by US competition authorities for using

its market power to put pressure on toy makers not to supply rival warehouse clubs.

The Dutch toy manufacturers' association said it was following the Blokker case, but it was too early to comment.

The 60,000-strong national consumers' association, the Consumenten Bond, said it was “not a subject we want to interfere in”. But it added that a survey carried out three years ago showed tough competition between Dutch toy retailers.

“Some shops have special offers on some lines and other stores have their own promotions. It is very competitive,” said an official, adding that this situation was likely to continue even if Blokker and Toys R Us were allied.

Nevertheless, the association has decided to conduct a fresh market study of Dutch toy retailers in time for Christmas which should reveal any anti-competitive practices.

The case highlights yet again the Netherlands' problem in not having an office to vet mergers and acquisitions for the possible creation or reinforcement of a dominant position - something Economics Affairs Minister Hans Wijers is aiming to put right with new legislation.

He is concerned to end the Netherlands' reputation - deserved or not - as a 'cartel paradise', in a country where certain sectors, such as brewing and the media, are dominated by a handful of firms.

The lack of a national office has forced the government to make references to the Commission when local alliances are forged which may be tiny in European terms but dominant in national terms.

The most recent example was Holland Media Groep, an alliance between the Netherlands' largest television producer Endemol, independent channels RTL4 and RTL5 and private broadcaster Veronica.

The group threatened to win 60&percent; of national advertising and 42&percent; of viewers in the Netherlands. Van Miert only cleared it after Endemol left the alliance and the nature of RTL5 was changed.