Following the announcement this week that the on-line toy retailer
eToys is shutting down its UK operation, the US company has said it
is dismissing 700 of its 1,000 staff and closing two of its four
warehouses to cut costs following a Christmas sales season that
fell far below its expectations.
The company, based in LA and founded in 1996, is one of the
world’s largest internet retailers. It has admitted that it will
probably not now meet its target to break even in 2003 and has
hired Goldman Sachs to explore strategic alternatives, including a
possible sale or merger of the company. The company is said to have
cash to last only until 31st March.
According to traffic statistics, eToys was the number two
shopping site over the Christmas period, behind only Amazon.com.
However, Amazon.com’s lead was significant, enjoying around five
times the number of visits received by eToys. The main rival of
eToys is Toysrus.com, the on-line division of the “traditional” toy
shop, Toys ‘R’ Us. Toysrus.com ate into eToys’ market share this
year by virtue of its strategic partnership with Amazon.com.
However, sales by Toysrus.com, which now trades only as part of
Amazon.com’s site, were also said to be below analyst hopes, at
around $150 million for the fourth quarter, on expectations of
around $250 million. One of the reasons given for the failure of
on-line toy sales to materialise is that many parents still prefer
to visit shops and examine the toys themselves. Another reason
appears to be the absence of a “must have” toy this year, with the
exception of the PlayStation 2 which was in short supply.
The share price of eToys dropped again yesterday to just 16
cents from a peak of $86 in October 1999. Its fourth quarter sales
are expected to fall between $120 to $130 million, around half the
company’s forecast.
