way you do things," Moog says, noting that the company wasn't willing to match the discounts offered by online retailers for fear of upsetting store managers.
Toys' problems began years ago. Amid declining market share in the mid-1990s, management pledged to revamp its operations. It went on a campaign to renovate its stores across the country, widening aisles and training store clerks to be more attentive and helpful. It threw hundreds of millions of dollars at the problem - yet still lost share to Wal-Mart. "People hate shopping at [Toys "R" Us] stores," says Levitan, who adds that eToys in particular has successfully exploited the shortcomings of its offline rival as a marketing tool.
In Toys' renewed Internet effort, results have come slowly while costs have piled up. The company said last week that it will spend $80 million online this year (including up to $36 million in the current quarter) to spruce up its Web site.
KBkids.com, eToys and, to a somewhat lesser extent, Amazon stand to benefit from the failure of the Benchmark and Toys "R" Us partnership. Executives at eToys, though, downplay the impact that the Toys "R" Us online debacle will have on their business. "We would not change a thing we are doing because there are other competitors out there," says Steve Scoch, eToys' CFO.
Aside from cash, Benchmark was supposed to help Toys recruit a management team with e-commerce expertise, develop a strategy for shipping orders from a central location and set up shop in Northern California. For its part, Toys bought a new $30 million warehouse in Memphis and formed a separate e-commerce business division.
As of today, Toys has only the Memphis warehouse to show for its efforts. The incoming Toysrus.com CEO, John Barbour, takes the reins August 30. He's been working weekends to catch up, but he still has to attend to tasks like recruiting a management team and finding office space; it's undecided whether they'll run operations from New Jersey or California. "It's his call," says Susan McLaughlin, a spokeswoman for the company.
At this point, nobody seems to be taking Toys' bold prediction of future online supremacy very seriously.
"We've had our management team in place for six months now," says Srikant Srinivasan, founder of Brainplay and now CEO of KBkids.com, the joint Web venture between Brainplay and the 1,400-store KB Toys chain. "We've been working seven days a week since then. I find it very hard to believe that someone can wave a magic wand and make everything appear in October."
Thanks to the association with its parent, Toysrus.com management will be able to secure this year's expected top-selling products, like the Sega Dreamcast videogame system. But Barbour is inheriting a Web operation that last year was dogged with problems. While the company has been selling online since last summer, frequent site outages at the height of the shopping season, poor selection, minimal marketing and an inadequate order-fulfillment system made it a weak competitor to eToys and Brainplay last holiday season.
Toys may have the selection this year, but it could very well be outdone in an equally crucial category: marketing. EToys nabbed an $18 million, three-year marketing deal with America Online (dossier), and KBkids.com has already begun plugging its site in stores. "KB spends $60 million a year in advertising, and we're going to get tagged on that," says Srinivasan. "We'll have our own campaign, which will be many tens of millions, as well."
When asked whether Toys was sticking by its plan to lead the online toy market by the end of the year, Toys "R" Us' McLaughlin sounded a more humble note: "Whew. I'm glad I didn't say that. But no, we're not backing off. We're going to be putting everything behind Toysrus.com to bring it up to the level it needs to be."
Toy Wars
The 1998 holiday season was a milestone for commerce online and offline. After decades of dominance,
