2HRS2GO: Toy wars redux

I'm too easy.

Too soft. Not ruthless enough.

How else to explain my failure regarding eToys (Nasdaq: ETYS) and Toys R Us (NYSE: TOY)?

Have an opinion on this?

You probably don't recall a piece back in early December that suggested Toys 'R Us -- whose Web partners include ZDNet's largest shareholder, Softbank -- wasn't a lost cause online. At the time, Toysrus.com surpassed eToys in visitors during one holiday week.

A few people responded along these lines: Visitors mean nothing. eToys is doing great.

I pointed out that no one said Toysrus.com is kicking eToys around. It just seemed premature to write off Toys 'R Us, as many people had been doing for most of last year.

More than five months after this insignificant debate, what do we find? Toysrus.com is still drawing more attention than eToys. PC Data found Toysrus.com attracted the most shoppers in April. Media Metrix figures also indicated the traditional retailer's website drew 185,000 more visitors than the pure e-tailer eToys.

So my earlier assertion turned out to be incorrect. Toysrus.com isn't surviving.

It's winning.

Granted, visitors doesn't equal sales. But the fact that Toysrus.com continues to draw the most online attention after an inaugural holiday season marred by reports of problems -- eToys also enjoyed its share of complaints -- demonstrates clicks-and-mortar is more than holding its own. After several months of competition, people remain more interested in the familiar Toys 'R Us brand rather than the upstart.

Although on the Web, the real upstart might the bricks-and-mortar guy who came to the game relatively late, as Toysrus.com did.

Consider that Walt Disney (NYSE: DIS) already folded its own toy store on the Web, as did Viacom. Amazon.com (Nasdaq: AMZN) still doesn't break out results for its online toy store after three quarters of operation.

Neither does Toys R Us, but at least the operation is still hanging around, which is more than most people expected, including eToys' CEO Edward Lenk, who dismissed his physical store competitors as "morons" during an investment conference presentation earlier this year.

During that talk, Lenk also said his competitors' need to show quarterly profits was a hinderance. The money-losing eToys closed last week at 5 3/64, down 95 percent from its 52-week high and down 72 percent since that investment conference.

Toys R Us has gained 65 percent from its 52-week low, though at least some of that was accomplished through the financial smoke-and-mirrors of stock buybacks. Still, since its management overhaul last year, the company seems to be cleaning up its act a bit, even if a mountain of work remains. Toys R Us surpassed analyst estimates in the April quarter.

Toysrus.com reported an operating loss of $9 million, or about one quarter of what eToys lost in the latest quarter. At the same time, Toys R Us is generating a profit, so it can presumably subsidize its Internet operations for awhile, particularly with Softbank as a partner.

I still believe eToys will ultimately succeed, as long as it can continue funding itself until those profits come home. But it's not the front runner anymore. At least not at the moment. 22GO>