With its future dependent on the outcome of 2004 holiday shopping, Toys R Us is focusing more on setting itself apart from discounters that have battered its sales in recent years. So the nation's second-largest toy retailer is stocking its shelves earlier than it did last year, has more exclusive merchandise and is making its stores look more interesting and inviting.

"We are looking at making the shopping experience magical, where consumers will find things in the store they don't expect," said John Barbour, who became president of Toys R Us' U.S. stores in August as part of the company's restructuring. He had been president of Toys R Us International.

"We are not going to be embarrassed by price," he said.

Wayne, N.J.-based Toys R Us has steadily lost market share to discounters, particularly Wal-Mart, which carry many of the same toys but at lower prices. In August, Toys R Us, whose profits plunged more than 60 percent last year, said it was considering selling its toy business; how it fares this holiday season will be a big factor in its decision.

The season could turn out to be another disappointment if Wal-Mart slashes prices as deeply and as early as it did last year, a move that, in addition to squeezing Toys R Us, contributed to the bankruptcies of FAO Schwarz and K-B Toys Inc. It's also expected Target Corp. will be even more aggressive on price.

Toys R Us is selling toys that can't be found elsewhere, having worked with toy makers. Among them are a Hummer from Little Tykes and a fashion mall for Barbie from Mattel.

Toys R Us is also hoping to recharge sales of past holiday hits such as Fisher-Price's Hokey Pokey Elmo and Hasbro Inc.'s Go Go My Walking Pup.

Analysts say its merchandise selection may be a key to Toys R Us' future - it may need to be less of a mass merchant and more of a specialty toy store.