The new legislation does not ban boys and girls sections from shops but requires stores to also have a gender neutral section.
The gender neutral section must display "a reasonable selection" of the items regardless if they are targeted towards a certain sex.
The law was passed last month by California’s state legislature and will come into effect in 2024.
What else does the new law include?
The law will affect toys and any "childcare items" to aid sleep, relaxation, feeding, teething or sucking. Clothing will be unaffected.
The new law will apply to retailers with 500 or more employees.
If companies do not comply they will face a $250 (£184) fine for their first violation, and $500 (£368) penalties for others.
What encouraged the new legislation?
One of the law’s co-authors, Democrat Assemblyman Evan Low, previously said it was inspired by his staff member’s eight-year-old daughter, who asked her mother why she had to find a certain toy in the boys section.
He said categorising toys by gender had "led to the proliferation of science, technology, engineering and mathematics-geared toys" in boys sections whereas girls are being influenced to pursuits such as "caring for a baby, fashion, and domestic life."
Mr Low said: “The segregation of toys by a social construct of what is appropriate for which gender is the antithesis of modern thinking."
Who is in favour of the legislation?
The Consumer Federation of California, a consumer advocacy group, is in favour of the new law.
Separating items by gender "helps to disguise the unfortunate fact that female products are often priced higher than male products,” it told The Sacramento Bee newspaper.
Other US retailers have already taken steps to make their stores more gender-neutral. For example, in 2015 Target announced it would stop using some gender-based signs in its stores.
Who is against it?
Similar bills to the new legislation have been shot down in the last two years in California.
Detractors argue it impedes on free speech and business owners’ ability and freedom to adapt to the free market.
A top critic has been the California Family Council, a conservative advocacy group, accusing gender-neutral clothing entrepreneur Rob Smith of lobbying for the bill just for his own commercial benefit.
However, for the LGBT community the new law will be a win against the traditional marketing techniques which influence and pressure young children to abide by gender stereotypes.
Mr Low said: "We need to stop stigmatizing what’s acceptable for certain genders and just let kids be kids."
“My hope is this bill encourages more businesses across California and the U.S. to avoid reinforcing harmful and outdated stereotypes.”
A message from the editor:
Thank you for reading. NationalWorld is a new national news brand, produced by a team of journalists, editors, video producers and designers who live and work across the UK. Find out more about who’s who in the team, and our editorial values. We want to start a community among our readers, so please follow us on Facebook, Twitter and Instagram, and keep the conversation going. You can also sign up to our newsletters and get a curated selection of our best reads to your inbox every day.