Top Toy Sites Facing Challenges Despite Surging Sales

While shoppers have flocked to online toy stores in record numbers this year, the two toy store leaders — eToys, Inc. and Toys ‘R’ Us — have both had rough times recently.

Toys ‘R’ Us has had serious performance problems with its Web operations, earning it the moniker “Toys ‘R’ Oops.com,” while eToys has seen its stock slide precipitously despite a comparably solid online performance.

Toys ‘R’ Oops.com

Traffic to the Toys ‘R’ Us Web site has soared, putting the company in a neck and neck battle with eToys, and moving both into the top five e-commerce sites for the Holiday season. Visits to eToys hit 1.95 million last week, while Toys ‘R’ Us had 1.6 million visitors, according to a report from Media Metrix.

Online performance of the Toys ‘R’ Us site, however, has been considered dismal. The company simply was not ready to handle the massive number of orders it received online for holiday gift items.

Admitting it was not adequately prepared for the volume of business it received, Toys ‘R’ Us decided to take pre-emptive actions by offering $100 (US$) in coupons to its e-commerce customers whose orders could not be delivered on time.

Toys ‘R’ Us has also felt financial ramifications from its online experience. Profits were down 25 percent in the third quarter due to high costs in developing the Web site. Its stock price has also dropped to the $15 range from a 52-week high of $24.75.

With Orders Up, eToys Stock Plummeted

On the surface, one might think that eToys would be in great shape. During the holiday season, it was ranked as the third highest e-commerce Web site behind Amazon.com and eBay. It also did not have the same level of performance problems that plagued Toys ‘R’ Us, although shoppers did report some delivery problems.

Despite the strong performance, however, its stock has plummeted in recent weeks from a high of $67.29 on November 30, 1999 to $31 in intraday trading today — which is $1 off of its lowest price since the company went public in May 1999.

With e-commerce stocks showing strong performance during the last few weeks with little regard to fundamentals, eToys stock performance is certainly confusing. While analysts say that the dropping price reflects concern over competition from Toys ‘R’ Us, it seems inconsistent with the run most other e-commerce firms have had recently.

What’s In Store For 2000

Where do the two toy leaders go from here? Toys ‘R’ Us has the clearest pathway. When traffic quiets down in January after the post-holiday bargain period, Toys ‘R’ Us has to hunker down and fix its Web site’s technical and back end delivery problems.

If Toys ‘R’ Us can get its technical and operational act together, it will undoubtedly consider its 1999 holiday season a big success.

eToys has a more complicated future, especially over the short term. It now has to deal with investor perceptions that have cut about $5 billion from the company’s perceived value. However, it has no obvious way to accomplish that end, especially since it is about to go into a slow sales season.