In a warped sense, you could say that Toys R' Us (NYSE: TOY) moves like an Web company.
Organizations operating on "Internet time" are supposed to be bastions of rapid fire, continuous change, so the e-commerce unit of the most recognized toy store brand in the United States must be considered a full-fledged Internet operation. After all, not every company can announce two CEOs and cancel a supposedly major strategic partnership in a little over a month.
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Today saw Toys R' Us report second quarter results in line with analyst estimates. Leaving aside the details of the company's core business -- obviously it's the most important thing for Toys R' Us, but not for anyone reading this technology- and Internet-centric news site -- note that toysrus.com racked up expenses of $4 million in the quarter. More significantly, it spent that money without help from venture capital firm Benchmark Capital, which was supposed to be the key investor in the Toys R' Us subsidiary.
So far no one has publicly given any reasons for the break up, but given toysrus.com's recent difficulties, Benchmark had reason enough to bail out. VC investors like to know to invest in companies with a strong leadership and a coherent strategy; toysrus.com has had trouble just finding a CEO.
University Games founder Robert Moog decided to take the toysrus.com top job, then last month took back his decision. In its weirdly worded press release accompanying the news, Toys R' Us implied he had no choice ("Bob Moog ... has been unable to extricate himself from his responsibilities as founder and CEO of University Games...") just before a paragraph that hinted Moog was happy to get away from toysrus.com: "We understand Bob's desire to return to his roots and his passion for University Games."
Hmm. A month before that Moog was more than happy to leave his roots and his passion. And a little more than a month after the announcement, Benchmark is gone.
Losing Benchmark's money isn't a big deal, since Toys R' Us and its billions in quarterly revenue can easily subsidize the website's start-up costs. But losing the endorsement is a much more troubling issue; Benchmark has a reputation for picking winners in its brief (although four years isn't so brief for the Web) history, and now it doesn't think much of toysrus.com's chances.
Toysrus.com finally has found itself a CEO in former Hasbro executive John Barbour (Nit-pick time: Toys R' Us in today's earnings report says Barbour's hiring was announced during the second quarter, which ended July 31. But the public announcement is dated Aug. 2), but the company has lost plenty of momentum. eToys Inc. At least from a perception standpoint, (Nasdaq: ETYS) leads the market, followed by Amazon.com
Speaking of price, you have to wonder if toysrus.com would be willing to engage in the types of price wars that seem inimical to the e-tailing. We know Amazon.com will lose whatever it takes to gain market share, and eToys appears willing to do the same, judging by its latest quarterly report. eToys certainly won't hesitate to outspend toysrus.com; the former posted second quarter expenses exceeding $20 million, or more than five times what Toys R' Us shelled out for its online subsidiary.
But the biggest worry is that Toys R' Us just isn't that good; as Gerard Klauer Mattison analyst Sean McGowan recently pointed out in an interview with The Internet Analyst, Toys R' Us has had many complaints with messy stores and ignorant salespeople. If you stink in the physical world, why would you be any better online? Quality starts from the top. Unfortunately, until Barbour comes aboard at the end of this month -- assuming he doesn't rethink things -- toysrus.com doesn't even have a top.
Unfortunately, that was then. The company has since struggled to avoid dying in the face of Windows NT, Solaris and Linux. SCO's stock is rising today on news of a deal with Oracle and others, but the long term trend still looks lousy.
Broad market indices were sliding in the afternoon. With two hours left in regular trading, the Nasdaq Composite Index was down 4.06 to 2,633.75, the S&P 500 down 2.88 to 1,324.80 and the Dow Jones Industrial Average marginally up 0.95 to 10,974.60. 22GO>