Toysrus.com Expands, Eyes Holiday Comeback

In an effort to forestall a recurrence of the fulfillment and infrastructure problems that made the last holiday season a blue one for Toysrus.com, the beleaguered Internet arm of retail giant Toys "R" Us has unveiled plans to open two new fulfillment centers.

The addition of the centers, in Mira Loma, California and Chambersburg, Pennsylvania, will give the company just under two million square feet of warehouse space, including its existing center in Memphis, Tennessee.

"Our number one priority in 2000 is to strengthen our infrastructure," said CEO Jonathan Foster. "Last year, we learned invaluable lessons."

Those lessons had everything to do with follow through and fulfillment, since the company was the subject of a class action lawsuit filed by consumers who said they either did not receive items ordered, or did not receive merchandise in time for Christmas gift giving last year.

Bolstering Infrastructure

Following the very public debacle, the company took the unprecedented step of offering to send $100 (US$) to each customer whose order was unfulfilled.

Since that time, the company has acknowledged its lack of readiness for the tremendous volume of online business it experienced. At one point in early 1999, the company was filling online orders in a 5,000-square foot area in a corner of one of the retailer's distribution centers.

Late last year, the company bought its 500,000-square foot distribution center in Memphis. Each of the new highly automated warehouses will employ about 300 full time workers, a figure that will increase to about 800 over the holiday season.

Solid Financial Position

Toysrus.com remains in a position of financial strength, particularly after a deal announced earlier this year with Softbank Venture Capital and Softbank Capital Partners, two investment divisions of the Japanese technology holding company.

That deal, which came on the heels of an ugly breakup with Benchmark Capital, brought $57 million in a $60 million round of financing for Toysrus.com, with the balance coming from several other investors.

In return, Softbank and the others will receive a 20 percent stake in the company. The investors expressed their desire to take the company public as early as this summer.

While most of the cash is being spent to upgrade the company's infrastructure, the company has also announced plans to add new channels for Babies "R" Us, the parent company's infant-care business, and Rzone, devoted to electronics and computers.

Once improvements are in place, the site should be able to handle up to 60,000 simultaneous visitors.

A Formidable Competitor

Toysrus.com reportedly had sales in excess of $50 million last year, compared with its parent company's $11 billion. The online arm of the business did $10.6 million in the first quarter of this year, a figure the company claims is 30 times greater than the same period one year ago.

The company continues to actively compete with its chief competitor, eToys. The holiday season found the rivals neck-and-neck, with Toysrus.com visited by 1.49 million shoppers, while eToys drew 1.66 million.