Toysmart Goes Out of Business

BOSTON (05/23/2000) - Toysmart.com Inc. in Waltham, Massachusetts, has shut is virtual doors, the victim of more well-known online toy retailers such as Toysrus.com and Walmart.com.

A self-described seller of "good toys," the company has closed its corporate headquarters as well, which also housed its bricks-and-mortar retail store. The company sold some 75,000 products, including educational toys and games.

With the announcement of its demise yesterday, Toysmart, which was owned by owned by The Walt Disney Co., became the second online toy store owned by an entertainment company to go out of business this month. On May 5, New York-based Viacom Inc. shut down its online toy store, RedRocket.com. Burbank, California-based Disney had purchased 60 percent of Toysmart.com last August.

Last week, Denver-based KBkids.com said it had laid off 45 employees and its CEO Srikant Srinivasan had been fired.

Analysts said it's not that Toysmart.com did anything wrong, but rather that it ran up against online toy retailers with a more established customer base.

In a statement issued yesterday, Toysmart.com CEO David Lord said month-long negotiations to reorganize the business failed last week, and the firm officially ceased operations at midnight, May 19. Lord said Toysmart.com had retained management consultations, The Recovery Group in Boston, to try and sell the company.

"(W)hile a plan to fund the company's activities . . . was actively under way, negotiations collapsed at the last minute," Lord said in the statement.

He said the company's 170 employees, based in its Waltham headquarters and Worcester, Massachusetts, distribution center, were laid off Friday. He added that orders placed through midnight Friday, May 19, would be filled.

Seema Williams, an analyst at Forrester Research Inc. in Cambridge, Massachusetts, said Toysmart.com didn't do anything really wrong, but was in a crowded market and suffered from strong competition from such established toy retailers as Wal-Mart Stores Inc., Toys R Us Inc., Amazon.com Inc. and eToys Inc.

"Toysmart had a tough time attracting customers, even though they did a lot of advertising," Williams said.

Forrester analyst David Cooperstein agreed that Toysmart.com fell victim to the competitive toy business as well as a corporate investor unwilling to take unnecessary risks.

"I think (Disney) decided to cut its losses before they invested in another round of consumer marketing," he said.

Alan Alper, an analyst at Gomez Advisors Inc. in Lincoln, Massachusetts, said, "The toy industry is a tough place to make a living, and Toysmart.com thought Disney was going to be its salvation.

"Disney decided, though, that (selling educational toys) was not a business it wanted to be in," Alper added.

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