Holiday season crucial for online toy-sellers

A child plays in one of the many toys featured at PlayDate 2000

From Perri Peltz
CNNdotCOM Correspondent

(CNN) -- Online sales reached a record $7 billion last year, but if there's one group in the sector that really needs a happy holiday season, it's online toy-sellers.

"It's all riding on the fourth quarter, you know," said Sean McGowan, a toy industry analyst. "(Toy sellers) are looking at products like scooters and electronic dogs to bail them out in the fourth quarter, but they're nervous."

The 1999 holiday season was a mixture of highs and lows for online toy sellers. While only a small percentage of orders failed to make it by Christmas, plenty of shoppers logged on for convenience and instead found confusion. Free shipping, more advertising and better deals lured consumers, but the avalanche of orders buried even the most famous name in toys.

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eToys, which made more than any other toy seller during the 1999 holiday quarter with $107 million in sales, is teetering in 2000. As its share price drops steadily and profits suffer, eToys' survival is in doubt.

"The problem is that consumers are not only online buyers. They buy in multiple channels. We go to stores; we go to the Web site," McGowan said.

eToys is consistently given high marks for service, selection and its Web site, but without stores and catalogs, it's viewed as something of a dinosaur in today's multichannel marketplace. Investors have lost confidence in stand-alone e-tailers, but CEO and founder Toby Lenk remains faithful to the business strategy.

"We've built a brand and a platform that can grow through to profitability," Lenk said. "We have a great strategy in place. We just have to execute, execute, execute, execute."

eToys' focus on being the most parent-friendly place to shop will put it in the black, according to Lenk.

"We are focused on kids a mile deep, and mass retailers are a mile wide and a few inches deep," Lenk said.

The company has added 2 million square feet of new warehouse space and a photography studio to custom shoot images of its products. Its Web site covers everything from pregnancy to hosting parties.

So is that enough?

"Unless they find that offline partner, unless they become a significant multichannel retailer, they're probably going to succumb to the demise of dot-coms that we've seen over the course of the past 12 months," said Seema Williams, of Forrester Research.

Toys R Us tried to avoid that fate when it teamed up with Amazon.com last summer to create a giant among online toy stores. It may have been a move to avoid the 1999 holiday season's well-publicized pitfalls.

"Toys R Us was absolutely the poster child for everything that could have gone wrong last holiday season," Williams said. Understaffed and overwhelmed with orders at Thanksgiving, Toys R Us "bit off more than they could chew," according to McGowan.

But one of its original selling points was that it was tied to a brick-and-mortar store where customers could return the products. With the new deal in place, customers can't return items to the Toy R Us brick-and-mortar store. And while most major players are depending on their own mix of brick-and-click to boost sales, Toysrus.com Vice President of Marketing Greg Ahearn continues to talk up the deal.

"The world's best online experience, from A to Z -- from the experience of getting on the site and finding what you need, to having it shipped directly to your door," Ahearn said. "You're taking a 50-year-old toy expert and matching it with the world's best online retailer."

The toy business as a whole is expected to bring in about $10 billion in sales this holiday season.

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PlayDate 2000
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