Amazon, Toys 'R' Us in E-Commerce Tie-Up

SAN MATEO (08/14/2000) - Leveraging each others' core strengths, Amazon.com Inc. and Toysrus.com Inc. last week announced a 10-year partnership to develop a co-branded toy and video game store Web site this fall and a baby products Web site next year.

Toysrus.com, based in Paramus, N.J., will buy and manage inventory and Amazon will oversee site development, order fulfillment, and customer service.

Seattle-based Amazon is widely recognized as owning one of the better CRM (customer relationship management) systems among e-commerce companies.

"This showcases their ability to turn online transactions into reality," said Vernon Keenan, senior analyst at Keenan Vision, in San Francisco, noting that Toysrus.com failed in this arena last Christmas.

Amazon has been criticized for its expensive real-world warehousing infrastructure, but this deal will allow it to rationalize the cost of that, said David Cooperstein, research director at Forrester Research, in Cambridge, Mass.

Indeed, many analysts see the partnership as a validation of Amazon's strategy, which has yet to be emulated by other companies.

The problem many brick-and-mortar companies have, not just Toys "R" Us, is figuring how to go from receiving an order to getting products to the doorstep, Keenan said.

The deal also shows that Amazon no longer believes it can single-handedly become a global online shopping center, Keenan added.

Toying with online sales

The Toysrus.com and Amazon.com is deal is structured as follows.

* Toysrus.com will identify, buy, and manage inventory* Amazon.com will create a co-branded site for toys and video games and a site for baby products* Amazon will do order fulfillment and customer service* Amazon will house inventory* Toysrus.com will make fixed periodic payments to Amazon, per-unit payments, and a single-digit percentage of revenue.

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