over the next two years.

Under the agreement, FAO Schwarz has named Macy's the exclusive United States retail store host of FAO Schwarz departments, and FAO Schwarz will be the exclusive toy department in Macy's stores. FAO Schwarz continues to independently own and operate its own stores, including the Fifth Avenue Flagship store in the heart of New York City and its website, FAO.com.

In fall 2008, full-size FAO Schwarz shops of between 1,000 and 3,500 square feet will open in approximately 75 Macy's locations across the country. Another approximately 200 Macy's stores will host smaller FAO Schwarz departments of between 200 and 300 square feet. Plans also call for FAO Schwarz products to be sold on macys.com.

The FAO Schwarz assortment at Macy's will feature its own private label collection that is exclusive to Macy's and FAO Schwarz stores, in addition to the select group of brands that have made FAO famous for the last 146 years. The FAO Schwarz store-within-a-store concept was tested successfully in fall 2007 at Macy's on State Street in Chicago.

"This is an outstanding partnership that will bring toys back to Macy's in an exciting and unique way," says Terry J. Lundgren, chairman, president and chief executive officer of Macy's Inc. "FAO Schwarz is the world's most famous toy retailer with interesting and distinctive products that appeal to our customers and will drive store traffic, particularly to our children's departments. Following agreements with great names such as Martha Stewart, Donald Trump, Tommy Hilfiger, e-Spot electronics and Lush Cosmetics, this is the latest example of an exclusive partnership with a leading brand that differentiates the merchandise assortments at Macy's."