eToys anticipates shutting down in April

The struggling toy e-tailer issues layoff notices to its remaining 293 employees as it anticipates going out of business in early April.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
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Game over for eToys?
Jill Frankle, director of e-commerce, Gomez
Struggling toy e-tailer eToys on Monday issued layoff notices to its remaining 293 employees as it anticipates going out of business in early April.

"With today's action, the company has now issued job elimination notices to all of its employees, with service dates continuing up to April 6," eToys said in a statement.

"In order to continue operations in 2001, the company will require an additional, substantial capital infusion," the company said, adding that it "does not believe that additional capital will be available to the company."

The job cuts came at the toy retailer's Ontario, Calif., and Blairs, Va., distribution centers.

eToys was once considered among the top Internet merchants. But analysts have been pessimistic toward the viability the online-only retail model, saying brick-and-mortar stores that venture online would fare better.

"The realization has to be that for every dollar spent online, there is going to be another $7 spent offline," said Rob Leathern, an analyst with Jupiter Research. "If you're a multi-channel player, you're able to address all eight of those dollars."

eToys' stock, which peaked at about $90 in 1999, closed today at 28 cents. In after-hours trading, the shares plunged to 15 cents following the announcement of the pending closure.

Last month, Los Angeles-based eToys laid off 700 of its 1,000 employees. In December, the company warned that its third-quarter sales would fall sharply short of expectations and that it anticipated only having enough cash to last it until the end of March. Monday was the first time eToys indicated that it did not think it would get additional funding.

Only a year ago, analysts and investors put eToys on a high pedestal. Many said the 4-year-old company had the right combination of high-powered backers, a well-designed Web site and a growing customer base to become a "category killer."

There was talk that eToys could eventually prevail over Toysrus.com and Amazon.com in the Web's toy wars. But in the past year, with the onset of the Internet purge that has seen hundreds of businesses go under, the toy sector has seen its ranks dwindle.

Toysrus.com gave up on running its own store and turned much of its online operations to Amazon. Other smaller competitors, such as Toysmart and ToyTime.com shuttered operations.

Since December, eToys has reeled. Each new day appeared to bring another round of bad news. Last month, eToys executives said the company owed its creditors about $200 million. Seven of the company's creditors, including Hasbro, Lego Systems and Mattel, are part of an informal committee that was formed to coordinate with eToys' lawyers.

eToys also said Monday it received a notice from the Nasdaq that its stock has failed to maintain the required minimum bid price of $1 over a period of 30 consecutive trading days. The exchange has given the company 90 calendar days to regain compliance or be delisted from trading.

With a reputation for owning advanced Web site technology, some analysts have said eToys might be an attractive acquisition. Analysts speculated that a brick-and-mortar company looking to buy a ready-made Web store might be interested.

But with the size of eToys' debt, any buyer would be responsible for paying off creditors, making the company an expensive acquisition.