“Littlest” Net Surfers Mean Big Money

Child’s play just got a whole lot more serious on the Net as two more big-name companies intensify their efforts to transform little Web surfers’ parents into big online spenders.

Consolidated Stores Corp. (NYSE: CNS) weighed in with its announcement that its KB Toys division is teaming with BrainPlay.com, Inc. to form a major new e-commerce toy site, kbtoys.com.

The move comes as online toy retailer eToys (Nasdaq: ETYS) goes public Thursday with an offering at $20 a share, jacked up from $12 to $14 a share on Wednesday. The 8.32 million shares are expected to raise about $166 million (US$).

And just two weeks ago, Toys “R” Us, which has lagged in developing a strong Web presence, promised to change that with an $80 million investment supporting a new online unit to be based in Silicon Valley.

Toy Industry Slow to Go Cyber

Though the toy industry has been slow to build e-commerce when compared with, say, books and music, that’s expected to change quickly as major players strive to gain dominance well before this year’s Christmas shopping season.

There’s plenty of room for growth: The online toy market will grow from about $52 million today to some $555 million in 2002, excluding children’s videos and books, says Jupiter Communications.

Consolidated, based in Columbus, Ohio, hopes to combine the brand recognition of the more than 1,300 KB Toy stores with the reach and convenience of the Web, to create an Internet powerhouse.

Under the deal, Consolidated will contribute $80 million and hold an 80 percent share in the new venture. BrainPlay.com, which will run the site from its Denver, Colorado headquarters, will put in all its assets, including its Web site, and hold a 20 percent stake.

‘Next Phase of E-Commerce’

“This new venture heralds the beginning of the next phase of e-commerce,” said William G. Kelley, chairman and CEO of Consolidated Stores. “Both our companies firmly believe that the long-term winners will be those who combine the strengths of bricks-and-mortar retail leaders such as KB Toys with the entrepreneurial environment of Internet startups such as BrainPlay.com.”

That strategy is in part a measure of the difficulties inherent in pure Internet enterprise, as evidenced by big losses even among the top Net retailers like Amazon.com. Thus, more and more large companies are moving toward building business through complementary alliances between established chains and e-commerce sites.

But eToys, based in Santa Monica, California, is bucking that trend, in a big way, banking on attracting huge numbers of Net-savvy children to the site. The eToys IPO reflects the optimism. The increase in pricing marks one of the biggest since powerhouse iVillage raised its range from $12-$14 a share to $22-$24 a share.

Add the coming Toys “R” Us Web venture to the mix, and it’s a pretty good bet millions more children will be making their Christmas list this year while sitting by a computer.

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