Amazon countersuit seeks to end ToysRUs.com agreement
Amazon.com has answered the suit filed against it by partner ToysRUs.com earlier this month with a countersuit charging the online toy retailer with “chronic failure” to hold up its side of the 2000 agreement that assigned Toys R Us Inc.’s e-commerce operation to Amazon.com Inc. The complaint seeks to terminate the agreement and seeks damages in excess of $750 million.
The suit filed in Superior Court in New Jersey last month by ToysRUs.com, No. 23 in the Internet Retailer Top 300 Guide to online retailers, charged Amazon, No. 1 in the Internet Retailer Top 300 Guide, with violating contract terms that ToysRUs.com says give it exclusivity on Amazon.com for products it sells in the toys, games and baby categories. According to ToysRUs.com, more than 4,000 items it sells are also on offer at Amazon.com from competing retailers.
“We are not willing to pay for exclusivity that we are not receiving,” says David J. Schwartz, senior vice president and general counsel for Toys R Us. ToysRUs.com says it’s attempted to resolve the matter outside of the courts, including mediation.
While Amazon’s complaint cites a disagreement with ToysRUs.com over the definition of exclusivity, it calls that definition “clear and unambiguous” in the language of the agreement.
Less easy to resolve, states Amazon’s complaint, is how Amazon will weather what it says is ToyRUs.com’s failure to meet its contractual obligations. Those obligations include selecting for sale through Amazon.com the top 1,000 toys and top 500 baby products; and maintaining adequate stock of those top selling products. According to Amazon, ToysRUs.com has not offered a comprehensive selection of top-sellers on Amazon.com and during peak holiday buying weeks was out of stock on more than 20% of the top-sellers.
Charging that ToysRUs.com’s actions had thus damaged its business, Amazon’s complaint states it’s “critical” for it to recruit “other third-party sellers” in those categories prior to the upcoming holiday season and to expand its selection of toys, games, and baby products beyond those offered on Amazon by ToysRUs.com.
Hailed as a groundbreaker when it was struck in 2000, the agreement does not reflect how Amazon’s business model has changed since that time, says Carrie Johnson, retail analyst with Forrester Research Inc. “In 2000, Amazon’s strategy of listing as many products as possible on its site from as many partners as possible was not in place,” says Johnson. “Amazon now has two businesses that are in conflict with each other: the portal business that sells products through its site and the services business that runs e-commerce operations for other companies.”
Depending on exclusivity arrangements and whether the products are unique, other retailers using Amazon’s e-commerce platform may or may not find themselves facing similar competition in the sales arena. The Bombay Co., which recently signed on with Amazon as an e-commerce provider, likely would not find itself in competition with Amazon or Amazon’s partners on product sales because most of its products are unique to Bombay, Johnson says. Companies that sell commodities, however, are in a different situation.
“There are more options and probably cheaper options today for Toys R Us to run its site,” Johnson adds. “Though it would be painful, they could probably switch to another platform and find another fulfillment partner.”
Though the face-off comes at a time when most retailers already are deep into holiday plans, Jupiter Research Inc. retail analyst Patti Freeman Evans cautions that the outcome of the court filings still is undetermined. “I wouldn’t jump to any holiday disaster conclusions just yet,” she says. “There has been so much change in the four years since the agreement was put in place that it seems likely that this is a launch pad for a renegotiations agreement.”
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