NEW YORK ” U.S. retailer Sears Holdings Corp plans to launch toy shops within 85 of its namesake stores in select U.S. markets next month as it looks for a bigger bite of the holiday sales pie, a senior executive said.

The move from the operator of Sears department stores and the Kmart discount chain comes as competition heats up in the toy retail arena ahead of the biggest selling season of the year.

“We have a very aggressive plan for growing our toy business,” Julia Fitzgerald, chief marketing officer for Sears’ toy business, told Reuters in an interview ahead of an event marking the launch of Kmart’s top toy picks for the holidays.

The retailer’s shares were up 2.8% at US$72.94. They had climbed as much as 3.4% to an intra-high of US$73.37 Friday morning on Nasdaq.

The decision to allocate 1,500 to 1,800 square feet of floor space permanently at 85 existing Sears stores came after many customers showed interest to shop for toys in convenient locations such as malls, during a pilot program in 20 department stores last year.

The new shops, primarily aimed at moms of two to five-year-olds, will be in key markets including Chicago, Washington D.C. /Baltimore, Philadelphia, New York/New Jersey, Minneapolis, San Francisco, Los Angeles and San Diego.

The initiative brings Sears back to a business with which it had a rocky history. Earlier this decade, Sears experimented with “store-within-a-store” partnerships with KB Toys, but ultimately pulled the plug.

But this time, the company is comfortable expanding the business and “very optimistic” about the new initiative, Fitzgerald said.

“We are just responding to our customer base. Consumers are telling us that they would like to shop for toys at Sears when they are in the mall, when they are making their other purchases there,” she said.

Specialty player Toys R Us Inc has already announced plans to open about 600 Toys R Us Express temporary stores and 10 FAO Schwarz “pop-up” stores this year.

Sears stores will carry products from key toy makers such as Mattel Inc educational toys company LeapFrog Enterprises and others including Schylling, a maker of retro products such as tin jack-in-the-boxes.

Sears Holdings, formed in 2005 when hedge fund manager Edward Lampert merged Sears and Kmart, will also carry playsets modeled on its mainstay Craftsman tools and Kenmore appliances.

Kmart’s top holiday list features an eclectic mix of toys including Mattel’s Barbie Video Girl doll and “Paper Jamz,” an electric guitar made of cardboard that produces music from touch-sensitive electronic sensors hidden under its surface. “Paper Jamz” is made by U.S.-based Wowwee.

The list also includes Cuponk, a game that challenges players to master ball-and-cup tricks using a wall, as well as Nerf N Strike Stampede blasters, both from Hasbro Inc

Others which made the cut include Stealth Rides vehicles from Hot Wheels and educational toys like Vtech’s V reader, which Fitzgerald dubbed as the “Kindle (e-reader) for kids.”

The list also includes cute and colorful collectible toys called Zoobles made by privately held Spin Master.

The “Fab 15″ list sports toys with prices ranging from US$15 to $80.

“There is always an appetite for innovation,” Fitzgerald said, adding the company made an effort to cover a wide range of price points in a bid to target both frugal and not-so-constrained shoppers.

“We are really looking to not just put out a lot of toys that kids are going to like. We also want to help their moms be able to afford them,” she said.

The company will also continue to give its budget-conscious customers a chance to pay over a period of time through its layaway program, which is applicable in store and online.

“Moms are still being very careful in their lists and their planning,” she said.

That said, parents still wanted to buy things their kids really yearned for.

“When it comes to toys, that’s generally the last place that parents will scrimp,” she said.

Thomson Reuters 2010