Competition Killed Toysmart

BOSTON (05/26/2000) - Online educational-toy seller Toysmart.com Inc. this week joined the ranks of failed dot-coms, another victim of competition and a corporate investor that was unwilling to take unnecessary risks.

Analysts have attributed recent dot-com problems to the following business issues:

- Lack of profitability or a brand name that can compete with industry leaders.

- Too much attention to marketing and not enough to solid business plans.

Simple market saturation.

Those problems could strike any Web business, they said, though no one speculated about which company might be next.

Seema Williams, an analyst at Forrester Research Inc. in Cambridge, Massachusetts, said Toy smart.com didn't do anything wrong but fell victim to competition such as Wal-Mart Stores Inc., Toys R Us Inc., Amazon. com Inc. and eToys Inc.

Waltham, Massachusetts-based Toysmart.com - originally The Holt Co. - launched its site in 1997. It was purchased last August by Burbank, California-based The Walt Disney Co.

The Recovery Group in Boston, which is handling the liquidation, said Toysmart.com owes creditors $21 million. In a statement last week, Go.com Inc., Disney's Internet subsidiary in Sunnyvale, California, discussed its decision to close Toysmart.com.

"The online toy market is an incredibly competitive business that has very strong players. . . . [W]e concluded that ceasing operations and maximizing the assets of the company was the best course of action," Go.com said.

Toysmart. com executives did not return calls; Disney referred journalists to the statement. Santa Monica, California-based eToys also declined to comment on Toysmart.com, and Paramus, New Jersey-based Toys R Us didn't return phone calls.

Slipping Through the Net

Liz Leonard, an analyst at Gomez Advisors Inc. in Lincoln, Massachusetts, said that in the online toy and book markets, consumers default to the firms that have off-line name recognition.

Other struggling dot-coms include London-based fashion retailer Boo.com Group Ltd. and RedRocket.com, which is owned by New York-based Viacom Inc. Both shut their virtual doors this month.

There have also been layoffs at Denver-based online toy retailer KBkids.com Inc. and at Drkoop.com, a health information company in Austin, Texas.

Boo.com, a sportswear and fashion retailer, struggled from the beginning. It was forced to postpone its debut from last May until November because of technical problems.

"It's no surprise that Boo. com failed," said Maureen Stancik, an analyst at Cambridge, Massachusetts-based Mainspring Communications Inc. "They thought they had the functionality they needed, but [they] didn't."

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