February 1, 2001, 12:00 AM

The eulogies start for not-yet-dead eToys

Everyone loved the idea of eToys--a great site with a targeted market. But great reviews probably won`t save the faltering e-retailer.

Internet Retailer

Great reviews probably will not be able to save faltering eToys Inc. The online retailer gained consistently high marks from analysts and consultants. But online consumers have shown a decided preference for shopping the offline brands. “The online brick-and-mortar retailers had a very strong holiday season,” says Barrett Ladd, senior retail analyst at Gomez Advisors. “We’re seeing the consumer re-evaluating where they shop online in terms of offline versus pure-plays.”

Target, Wal-Mart, Kmart’s BlueLight.com and Toysrus.com/Ama-zon.com are taking hold of the online toy sector. Amazon definitely helped itself by teaming with Toysrus.com because the entity is a combination of strong brand names, Ladd says.

Los Angeles-based eToys in January announced major changes in an effort to cut costs, following a mid-December announcement that it would not meet expected sales targets for the holiday season. The reality of the online business hit eToys hard as online traffic was flat for much of the year. Even with efforts to commercialize summer to generate more toy sales throughout the year, eToys relied on holiday shopping for much of its business.

The drop in revenue is causing the company to predict it will run out of cash by March if it does not secure a major investor, a financial restructuring, a merger or a buyer. Ladd says it may be too late for eToys to fix its problems; a partnership with an offline retailer is the most likely option. “They do have online experience with fulfillment and distribution as well as their investment in a usable web site,” Ladd says.

As of mid-January, eToys had laid off 700 of 1,000 eToys and BabyCenter employees. Half will work through March 31; the other half left Jan. 4. It also will close warehouse operations in City of Commerce, Calif., and Greensboro, N.C., by March. Operations will be consolidated in distribution centers in Ontario, Calif., and Blairs, Va.

EToys closed its U.K.-based web site Jan. 19, laying off 74. It ended plans to expand to foreign-language web sites.

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