What’s the Story with Net Toy Sales?

A year ago at this time, the online toy market was wide open, with a broad range of e-tailers great and small vying for dominance in the space.

Now, only two primary candidates remain, but neither the intensity of the competition, nor the stakes, have diminished.

Pure-play eToys, Internet powerhouse Amazon.com, and brick-and-click Toysrus.com were the only major players left in the online toy game by the end of this past summer, as Toysmart and ToyTime headlined the list of dot-coms that dropped out of the battle.

Then at summer’s end, the competition turned into a duel. Toysrus.com and Amazon.com agreed to move the Toys “R” Us-owned site to Amazon’s pages, and share operating responsibility for a co-branded store that would battle eToys head on.

By this time next year, as far as e-commerce is concerned, the most symbolic online toy game may be solitaire.

Ready to Play

What is clear at this point is that Amazon.com/Toysrus.com and eToys have fortified themselves for all-out online toy war with much more than a squadron of G.I. Joes.

“eToys is looking at its last big holiday season this year because the Toysrus/Amazon relationship is still developing,” Forrester Research analyst Seema Williams told the E-Commerce Times.

Added Williams: “Toysrus is building on its brand name, and Amazon is offering its online selling capacity, but eToys is the big player when it comes to online toys. It’s not going to be easy for anyone to unseat eToys. Even so, all of the players in this sector have gotten stronger this year, including Target, Kmart and Wal-Mart.”

Drawing on Strengths

A quick glance into the Amazon/Toysrus.com camp reveals that responsibilities have been divided according to ability. Toysrus.com is in charge of buying and managing inventory, while Amazon is handling site development, order fulfillment and customer service.

When Toysrus.com decided to move its online store to Amazon.com, the traditional retailer essentially admitted that even if it knows a lot about toys and has a household brand, those elements alone are not enough to succeed on the Web.

Although seen by some analysts as a defeat for the Toysrus.com operation, others believe that handing the order fulfillment tasks to Amazon was a brilliant step. After all, Toysrus.com was one of several e-tailers that faced heavy fines from the U.S. Federal Trade Commission (FTC) for failing to meet shipping deadlines during the 1999 holiday season.

Getting Physical

In contrast to Toysrus.com, eToys did not face delivery disasters during the 1999 holidays. Even so, after a long look at its operations, eToys decided to cut ties with FingerHut, its third-party fulfillment partner. eToys brought all of its back-end operations in house in time for the rush season.

Company spokesperson Jonathan Cutler told the E-Commerce Times that the company now has “two brand-new operations hubs on the East and West Coasts, totaling more than 2.2 million square feet of space — twenty times the space we had last year.”

The Los Angeles-based company also expanded its horizons in cyberspace, opening both a party supplies store and a hobby store, in a bid to increase its offerings and gain business going into the holidays. eToys said it estimates the total market for kids’ party goods at US$5 billion a year, and the hobby market at $4 billion.

eToys also launched several marketing initiatives geared toward gaining holiday dollars, including a line of proprietary products organized by themes such as sports and jungle. The eToys Web site also offers a “Holiday Hot List” of most popular gifts and a “Big Gift” section highlighting products in the $100 range.

Shakeout Central

Redecorating the site and double-checking the shipping process may boost eToys in December 2000, but it is unclear whether those steps will be enough in the long run. Despite new financing brought in over the summer and a strong second quarter, eToys has yet to find profitability. However, for that matter, neither has Amazon.

This year’s increased demand for profitability among all e-commerce companies started a ticking clock on the online toy battle. Indeed, many analysts believe that the online toy sector is ground zero for the e-commerce shakeout. In a report predicting that more than half of all e-tailers will fail by the end of 2001, Forrester Research analyst Joe Sawyer pointed to the Web toy market as a likely epicenter.

Sawyer said that there are too many players in the toy market, “selling undifferentiated products at razor-thin operating profits of less than 3 percent.”

Wrapping It Up

Amazon/Toysrus.com and eToys — as well as every other online toy shop — know that a positive online experience and competitive delivery terms will be of considerable consequence this holiday season.

Just as kids are eager to see what is awaiting them under the tree Christmas morning, avid e-commerce watchers might not be able to sleep until they find out which Web toy store emerged triumphant from the 2000 holidays.

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