Young Reflections owner and founder Joy Brown said the store, located in the Centre City Mall, was not getting the foot traffic nor sales needed to be viable.
It closed at the end of last month.
"There’s certainly going to be a lot of disappointed people," Mrs Brown said.
"And I’m really sorry, but if it’s not paying its way, it can’t stay — that’s the sad part.
"I tried everything I could, but I just didn’t know what else to do."
Mrs Brown said she opened the Dunedin store about 8 years ago, initially in Roslyn, in response to a growing demand for quality, durable and reasonably priced children’s toys.
She had operated the Young Reflections Invercargill store — which she said was still doing well and was not closing — for nearly 34 years.
"I had a lot of my Dunedin customers saying, ‘please come up here, there’s nothing like you’, and that was what our big point of difference was.
"We have a lot of products that you just don’t find anywhere else in the city."
The Dunedin store sold a range of books, puzzles, games and educational toys, catering for "babies right through to teenage".
She had never seen business conditions this tough before and there was a "significant" drop-off in sales in recent years, she said.
There were fewer and fewer toy stores like hers out there.
"Twenty-plus years ago, most major towns and cities had an independent children’s book and toy shop.
"But, over the years, as leases came up for renewal or people were of retiring age and couldn’t sell, they closed."
The experience of walking into a brick and mortar toy store was still very important, Mrs Brown said.
"It was more that old-fashioned kind of business.
"People still like service — they like to come in and see what they’re buying.
"They don’t want just to buy something online and then find, actually, no, it’s not what I wanted, or the quality is not what I wanted."
While there had been interest in the store from prospective buyers, nothing concrete eventuated, she said.
"I’m really disappointed.
"But at the end of the day, you just have to make a hard call."
