December 26, 2000, 9:55 AM

March of the Virtual Soldiers

The editorial group at Amazon.com is no longer just a bunch of book, music and video reviewers content to read, listen and watch. The group’s newest staffers are a bit more active-they’re busy taking notes as they unpackage and play with Sassy rattles and Betty Spaghetty dolls.

“It’s made the office more fun,” says Brian Birtwistle, product manager for toys at Amazon, who sits near a Wave Rider Elmo as he talks about one of the company’s latest ventures, a fully stocked online toy store.

Amazon entered the world of online toy selling in July, about a year after the company sent a troupe of buyers out to line up inventory in plenty of time for this year’s holiday season. The store, with recognizable Amazon features such as a star-rating system for products and customer reviews, is the latest entry into a field that’s getting more competitive all the time.

To claim their share of the online toy market-where sales could reach $158 million this year (up from $68 million last year)-retailers are positioning themselves as carefully as a kid lining up a parade of toy soldiers. Companies such as Amazon, eToys, Toys “R” Us and KB Toys are investing millions of dollars in marketing campaigns as well as efforts to build up their Web sites and get bigger and better distribution centers up and running.

Online players are battling one another and the bricks-and-mortar stores that are trying to carve out a Web presence. Even many toy manufacturers are starting to get into the game. “You are going to see a very interesting fourth quarter this year,” says Srikant Srinivasan, CEO of KBkids.com, which is betting its e-commerce initiative will be enhanced by its network of KB Toys mall-based stores around the country. “It’ll be a brawl.”

Online toy sales are worth fighting for. Forrester Research Inc. in Cambridge, Mass., predicts toy transactions on the Internet will hit $1.5 billion in 2003, which will still account for only about 5% of toy sales overall. “These are the early days for this category online,” says Birtwistle. “There’s a huge opportunity here.”

Noisy and whiny

In 1997, eToys led the move to sell kids’ stuff online in a major way. Founded by Toby Lenk, a former Disney executive, eToys won venture capital money on the premise that it could offer adults an alternative to shopping at a traditional toy store. The idea: parents wouldn’t have to lug children into crowded, noisy retail stores full of things the kids probably wanted, weren’t going to get, but might whine and ask for anyway.

After its launch, eToys expanded into categories such as video games, children’s music, educational software and, most recently, baby toys and equipment. Last spring the company made an initial public offering of stock that valued the company at $7.8 billion.

EToys’ initial sales pitch-about the convenience of buying toys online-is still the market’s biggest draw, says Seema Williams, e-commerce analyst with Forrester Research. “Not having to take the kids to Toys “R” Us is probably the number one appeal. People are shopping online so they don’t have to bundle the kids into a car and head off somewhere.”

But online toy shopping offers other advantages, such as shopping more effectively. Rather than looking at all available dolls, customers can also browse by age range or educational features. Emerging online shopping tools are getting much better than walking down the aisle in a toy store, says Williams.

EToys got a head start offering those advantages to consumers, but now Toys “R” Us and other traditional toy store chains would like to challenge eToys’ top position. Toys “R” Us, which launched an e-commerce initiative fraught with problems last year, recently announced a new $80 million effort.

The company, with additional funds from a venture capital firm, plans to turn Toysrus.com into a separate company and expand Web site features. Yet the venture hit a roadblock recently when its president, University Games founder Bob Moog, stepped down from his post just weeks after accepting the job. (Sidebar, page 34)

“Toys “R” Us has got its work cut out,” says Lauren Freedman, president of the e-tailing group, an
e-commerce consulting firm in Chicago. “EToys is more aggressive, and Toys “R” Us is playing catch up.”

Toys “R” Us has a strong brand, however, and could make a great showing online this year, Forrester’s Williams says. The company has to become a contender now, however, especially as Amazon enters the market, she says. “Amazon already has more than 10 million customers. Toys “R” Us cannot risk having Amazon acquire all of those customers for its toy store.”

Another bricks-and-mortar toy chain working to make itself known as an online destination is KB Toys, a subsidiary of Consolidated Stores Corp. with 1,400 stores in 50 states. KB Toys had already opened a small storefront on the Web but this summer announced plans to improve it. The company recently partnered with BrainPlay.com, an online seller of video games and toys, to launch a separate Internet company called KBkids.com. The BrainPlay.com staff will become KB’s Internet group, Srinivasan says, and the new company plans to go public early next year.

The right stuff

“We have a number of advantages, but the biggest is KB’s buying clout,” Srinivasan says. “These guys know how to buy and sell well, and they have great access to toys. This is a hits business, and there’s a lot to be said for having access to the hits.” KB Toys had plenty of the popular Furbies last year, for instance.

Indeed, online retailers don’t need thousands of toys, they just need the right ones. “The toy business is about hot toys. What you need is the right toys-the right video games, the right Barbie-and enough of them,” observes Freedman.

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