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Toysmart shutting down

CNET News.com learns that the privately held online toy retailer is shutting its doors, the latest casualty in a recent downturn of e-tailers.

Toysmart.com, the privately held toy e-retailer that is majority controlled by Walt Disney, is ceasing operations, its chief executive disclosed today.

As first reported this morning by CNET News.com, Toysmart chief executive David Lord confirmed the online toy company is closing its doors. "We're ceasing operations as we speak," he said.

According to Lord, Toysmart's board voted late Friday to cease operations because a last-minute investment in attempt to reposition the company "broke down." A majority of Toysmart's board members are Disney appointees.

Toysmart is "in the process" of laying off its remaining 110 workers, Lord said.

The company's Web site said it is "closed this weekend for inventory."

Toysmart becomes the latest e-tailer to suffer from increased competition and a slumping market.

"It's a tough market," Lord said. Disney took a controlling stake in Toysmart last August as an attempt to step into an already hypercompetitive space dominated by Amazon.com and eToys. The stake, valued at between $40 million and $50 million, gave Disney the opportunity to add an e-commerce revenue stream to its online efforts, embodied in its Go Network Web portal.

But the recent see related story: Stellar e-commerce IPOs falldownturn of consumer e-commerce businesses has had a serious effect on companies scraping their way to survive. Last week it was revealed that Toysmart and KBids.com were suffering from employee departures and layoffs.

Toysmart's closure comes on the heels of another media company-owned toy e-retailer shutting its doors. Just two weeks ago, Red Rocket, an online retailer of educational toys owned by media giant Viacom, ceased operations, citing difficulties in sustaining its business.

The closure of Toysmart also signifies the latest blow to Disney's Web efforts. Go.com, as its Web portal is called, has struggled since its inception in January 1999. The company has suffered from executive shuffles, lower-than-anticipated growth, and a rethinking of its strategic direction.

The media and entertainment giant has recently decided to step back in competing against general portal leaders such as Yahoo and America Online. Instead, the company is trying to revamp Go.com into a more entertainment- and leisure-focused site.

Toysmart's Lord said an official announcement of the shutdown is expected later today.

News.com's Jim Hu contributed to this report.