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Tech Industry

Toysrus.com faces skimpy Christmas ahead

With the departure today of the toy giant's designated chief executive for online, Toys "R" Us is about to enter the rocky world of e-commerce this holiday season without someone to steer its ship.

With the departure today of Toysrus.com's designated chief executive, Toys "R" Us is about to enter the rocky world of e-commerce this holiday season without someone to steer its online ship.

In a crowded toy sales market, Toysrus.com faces intense competition, the challenge of meshing its online operations with offline stores, and the possibility of cannibalizing its in-store sales.

With such challenges ahead, Jupiter Communications analyst Mike May said Toysrus.com needs to find a new executive to replace outgoing Bob Moog soon.

"The clock is ticking," he said. "If they're not able to find a chief executive and have one comfortably in place by the fourth quarter, they could feel the impact."

Toys "R" Us awoke late to the e-commerce game. After watching eToys dominate the online toy category last Christmas, Toys "R" Us prepared early for this year's holiday season. In April, the company announced that it would spin off the Toysrus.com Web site. The company hired Moog as CEO in May and launched a redesigned site last month.

But now Moog is leaving, citing differences with the company over the role it expected him to play. And his departure isn't the only sign of choppy waters at Toysrus.com.

According to Moog, Toys "R" Us still hasn't set up Toysrus.com as a separate company, and the online division has yet to be funded. This in turn has delayed the hiring of a management team.

"It's difficult to hire people without having the company formed," Moog said.

Toys "R" Us representatives did not immediately return calls.

Aram Rubinson, who covers Toys "R" Us for PaineWebber, said Moog's departure will slow the company's online strategy, but may not have much of an effect long-term. Still, he added that it's unclear how important the Internet is to the Toys "R" Us strategy.

"From their verbal cues, it's important," he said. "But from an action standpoint, we have yet to see how important it is."

Part of what may be delaying action is the possibility that Toysrus.com will appropriate sales from land-based stores. For instance, a recent report by Merrill Lynch suggested that while the company's online sales will grow rapidly this year, as much as 100 percent of Net sales will come at the expense of the its bricks-and-mortar stores.

But Toys "R" Us may have little choice but to sail online. Forrester Research predicts that by 2003, the market for online toy sales will reach $1.5 billion, or about 5 percent of the total toy market.

Forrester predicts eToys will follow up on its success last year and once again be No. 1 online. But Forrester analyst Seema Williams said the overall category will be competitive. In addition to eToys and Toys "R" Us, Williams said Amazon.com and Wal-Mart are likely to enter the market.

"Those will be the big four this year," she said, adding that the Net pure-plays such as eToys and Amazon will fare better this year than Toys "R" Us and Wal-Mart "because they know how to sell online."

Still, if Toysrus.com can make it through this holiday season in one piece, Williams predicts a clearer fight ahead. Christmas 2000 could end up as a battle between traditional bricks-and-mortar retailers that can offer the most convenience to their customers.

"It's going to be Toys "R" Us vs. Wal-Mart all over again," she said.