Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
(Page 2 of 3)
Getting back to basics also means gone are the days when online toy retailers pumped money into huge marketing campaigns. Consumer acquisition costs are too high for most online retailers and the toy set say they are concentrating on their current customer base to drive sales. KBkids.com will spend less on marketing and will focus mainly on getting customers who shop in the offline stores to make their first online purchases by giving $10 web coupons to store shoppers. “People coming to our 1,300 stores are toy buyers who probably shop online for other things,” says Wagner, noting that enticing existing customers to shop online could mean getting repeat customers. He adds that KBkids.com also will promote the site in its usual newspaper advertising circulars.
SmarterKids.com says it is doing more direct response marketing with existing customers rather than spend millions on TV ads which do not pay a return. “We did a small-scale TV ad test last year with spots in eight cities and we confirmed that it’s an ineffective way to acquire new customers,” says Noyes.
Even though Amazon plans to advertise on television in the fourth quarter targeting toy-shopping moms, Van der Meulen and other toy retailers say the old standby for online veterans is word of mouth advertising, which is extremely valuable because it’s based on someone’s positive shopping experience. And with the new Toys R Us co-branding deal, Amazon.com also has the benefit of being associated one of the best-known toy retailer names.
Although SmarterKids.com has forgone costly brand advertising to acquire new customers, the company is developing its existing customer relationships just in time for the Q4 shopping season. SmarterKids.com rolled out a shipping rewards program for its frequent shoppers in late July in response to data gathered through surveys and focus groups. The site is offering customers who make cumulative purchases in 2000 of $150 or more free standard domestic shipping on any additional orders of $25 or more through Dec. 31. Customers don’t have to enroll and they can track points via the “my account” feature on the site. “Our most loyal customers said they preferred it over other possible programs like merchandise credits or frequent flier miles,” says Noyes.
Although SmarterKids.com is launching the rewards program to coincide with holiday shopping, clearly this is a move to encourage customers to shop on the site year-round. And enticing customers to think about the site in July as well as in November is key to an online toy retailer’s success. Noyes says the program makes for loyal customers who will spread the word about the site and bring the site more business.
Online pure-play eToys made a push to sell toys in other seasons by promoting toys for summer. An $8 million television campaign promoted its summer store, with such products as snow cone machines, stargazing equipment, a musical hopscotch game and 38 styles of swimming pools. While eToys will not reveal the success of the summer ad campaign, other online toy retailers are taking the same approach.
Amazon.com, a pioneer in online personalization for shoppers, plans to use email reminders for birthdays, Easter, Halloween, summer sporting activities, and other potential toy-buying times of year, says Van der Meulen.
Niching the niche
Targeting a niche market to maintain an online presence also is a viable way to maintain a business outside the fourth quarter. SmarterKids.com, which Forrester’s PowerRankings ranked second behind mammoth Amazon.com, takes the approach that education is a year-round event. “We don’t think of Christmas as an event but as a continual phase,” says Noyes. SmarterKids, whose site not only sells educational toys online but also provides educational information about toys, is adding more personalization enhancements to help parents determine which toys fit their child’s education level and ability. “Education is a year-round thing,” says Noyes. “And the content we deliver, along with the way we are able to suggest toys to parents based on their child’s abilities, is only available on the web.”
Developing their niches further, SmarterKids.com and eToys are touting back-to-school supplies on their sites. Smarterkids.com, which sells educational toys based on childrens’ ages and parents’ preferences, is featuring school supplies for preschool through grade nine. The on-staff teachers also created Back-To-School Essentials Kits and Fun Kits, containing grade-appropriate tools for school, which cost 25-30% less than purchasing the individual items. EToy’s Back-To-School Shop offers 750 school products and grade-based learning tips for the school year. Parents can shop by grade or category. The store also has a “What’s Hot in the Schoolyard” section, where parents can learn about popular toy items.
The new co-branded Toysrus.com/Amazon.com site also is exploiting online segmentation. The online toy mecca is launching its new toy web site in September and will launch Babiesrus.com in January. Analysts say Babiesrus.com customers will naturally migrate to the Toysrus.com/Amazon.com site as their children grow. And the addition of sporting goods adds yet another niche for consumers looking for one-stop shopping. And it has the added benefit of attracting customers to the site at times other than the holidays.
Taking steps to insulate online businesses by adding niches is key for toy retailers because selling toys is a business with thin margins. Add the pressures of impressing investors with actual sales and revenue and the prospect of folding seem realistic. But analysts suggest that online toy merchants have more options. Adding revenue opportunities means not only selling more toys by having a great web site, but aligning with other merchant categories to expand coverage and provide more products.
Liz Leonard, analyst at Gomez Advisors, suggests that toy e-retailers add private-label products like toy bins to make extra money. And some retailers are listening. Etoys confirmed earlier this summer that it plans to increase sales by providing 500 private label goods by Christmas, including eToys toy chests and furniture.