The company declined to specify how many customers are affected by the problem, and only said it's a "small" percentage of holiday orders on its Web site, Toysrus.com. Most of the customers affected ordered before the Dec. 10 deadline for delivery by Dec. 24 with standard shipping, the company said.
The company said it underestimated the crush of online orders it got. While the retailer revamped its Web site in October in anticipation of holiday sales, it still was unable to keep up with demand. That could hurt sales eventually as customers turn to more reliable Web sites, analysts said.
"Yes I'm disappointed, but we're taking a proactive approach to this," Toysrus.com chief executive John Barbour told CNET News.com. "We're telling people up-front what the problem is and we're trying to make it right with them."
Barbour said the toy retailing giant is planning a "significant overhaul of the site's back-end systems" next year.
Still, "Not delivering a toy on time will damage their reputation in the consumers' minds," said analyst Liz Leonard of Internet research firm Gomez Advisors. "That could ultimately be lost revenue in the future."
In early November, Toys "R" Us was forced to turn customers away from its online store after running a promotion that offered free shipping, discounts and a free "Tickle Me Elmo" doll to online shoppers buying $100 or more.
Customers whose purchases won't be delivered on time will be offered the option of canceling orders or receiving $100 to shop at its stores, the company said. There is still a chance some of the items may be delivered before Christmas, the company said.
Margaret Doyle, a lobbyist and mother of two young sons who lives near Boston, said she ordered holiday gifts from Toys "R" Us's Web site Nov. 29. She said the company originally told her they would arrive in about a week--guaranteed.
As of Monday, Doyle had yet to receive a package. A customer-service worker told her Sunday that she was confident the items would arrive by Dec. 24. Doyle originally ordered the items with free shipping. Toysrus.com has now agreed to ship her items via express delivery at no cost to her, she said.
"I work full time, and I don't have time to go to the mall," she said Monday. "I was hoping this would be so much quicker."
Toysrus.com isn't the only Web site that's having trouble meeting demand. Consolidated Stores' KBkids.com and eToys also are struggling to ship orders, analysts said. "Fulfillment issues across the toy industry have reared their ugly head this year," said Leonard.
Internet retailers that have had difficulty handling orders could be faced with a flood of returns after the holidays, analysts said.
Consumers who are worried about not getting products delivered on time may order from multiple sites to increase the chance of receiving the items. Or, they may head out to the malls to buy gifts in case the Web orders don't arrive.
In either case, they'll keep any item they can get their hands on first, and return the rest. That may result in some retailers restating their Christmas sales numbers, said Wally Buran, a principal with Deloitte Consulting in Atlanta.
"The capabilities across the Internet world are insufficient to handle what's going on during Christmas," Buran said.
The problem was reported earlier by financial news network CNBC.
News.com's Greg Sandoval contributed to this report.
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