With help from the flagship Macy’s Inc. store on State Street, FAO Schwarz Inc. is making a Chicago comeback in time for the busy holiday season. 

The companies announced Wednesday that FAO Schwarz will open a 5,200 square foot store inside Macy’s on Nov. 1, prompting speculation that the move will help reposition the brands in a competitive retail market.

“You’ve got to ask: Does putting two brands that are struggling together make a better product in the end?” said Will Ander, a retail consultant for Chicago-based McMillan/Doolittle LLP.

Since Macy’s acquisition and renaming of Marshall Field’s, Chicago’s iconic department store, the retailer has struggled to maintain customers.

Sales at Macy's Inc.'s department stores open for more than a year were down 0.6 percent nationwide through August. The retailer is expected to report another drop in sales in September when it reports monthly same-store sales Thursday.

Retail consultant Jim McComb, president of McComb Group LTD, said he believes that a substantial number of Chicago-areas customers stopped shopping at Marshall Field’s after the name was changed to Macy’s.  In addition, he said the company reduced the number of exclusive brands carried in its stores and increased its stock of private label merchandise.

“My analysis of the situation: Macy’s is not the same store that Marshall Field’s was,” McComb said.

The company’s struggle also reflects the increasing difficulties of department stores as they compete against discount retailers and high-end specialty stores that offer designer labels.

Retail consultants view the companies’ partnership as a way to differentiate Macy’s from its competitors. 

“This gets back to the need to give their customer an additional reason to visit the store if they need to go out and attract a new group of customers to replace those that have decided to shop elsewhere or less frequently,” McComb said.  “So this is all a part of a strategy to build their customer base back.”

McMillan/Doolittle’s Ander agreed that the addition of FAO Schwarz “probably will produce quite a bit of traffic in that one store.”

Macy’s is a major retail presence on State Street.  “This is our flagship store and we are always trying to find something new and exclusive and unique,” said Jennifer McNamara, a spokeswoman for Macy’s.

Ed Schmults, CEO of FAO Schwarz, views the partnership with Macy’s as an opportunity for his company as well.  “It’s a powerful retailer, if we could have a presence in some of those stores, it would be a tremendous thing for the FAO brand,” he said.

The store in Macy’s will be FAO Schwarz’s third location nationwide.  But the company is no stranger to downtown Chicago.  The company used to have a store on Michigan Avenue, but it closed in 2002.

A year later, FAO Schwarz filed for Chapter 11 bankruptcy.  The company, which was then sold to New York-based private equity firm D.E. Shaw & Co., has since been restructured and is focusing on a new merchandising strategy that emphasizes higher quality toys.

Because FAO Schwarz has a history with Chicago, Schmults said he has received requests from visitors at the New York location for the store to return.  He says they tell him, “You’ve gotta come back to our city.”

FAO Schwarz’s New York location is performing well.  “The signs appear pretty solid that we are on the right track and we are doing the right things,” Schmults said, citing a 27 percent increase in sales over last year.

The decision to open a new location in Macy’s is a bid to expand the company.  “How can we appropriately grow this business to continue to raise customer awareness of what we are doing?” he said.

The FAO Schwarz store will be located on the fifth floor of Macy’s, adjacent to the children’s department.

If the partnership between Macy’s and FAO Schwarz is successful this holiday season, Schmults said his company will look into the “opportunity to expand more broadly with Macys.”

Macy’s stock rose 48 cents Wednesday to close at $34.50 per share.