Toysrus.com To Expand Operations

Just days after Disney-backed online toy retailer Toysmart.com shut its virtual doors for good, Toysrus.com announced Monday that it plans to double its staff and expand operations over the next year.

Still smarting from a rough-and-tumble holiday season marred by late deliveries and subsequent lawsuits from disappointed consumers, Toysrus.com nevertheless continues to broaden its enterprise.

Many of Toysrus.com’s new positions will be in business and technical development. The operation reportedly has 300 employees, including those in its Memphis, Tennessee distribution center. Most of the new hires will be based in the company’s New Jersey office, which has a capacity for 240 people, and the rest will work out of its San Francisco area offices.

Stronger Infrastructure

In April, Toysrus.com unveiled plans to open two new fulfillment centers, with CEO Jonathan Foster saying, “Our number one priority in 2000 is to strengthen our infrastructure. Last year, we learned some valuable lessons.”

Those lessons, now well documented, came the hard way. Even with its 500,000 square-foot Memphis distribution center, the company was unable to keep up with demand.

Executives acknowledged that the site accepted orders for one day too many during last year’s holiday season, leaving anxious gift buyers empty handed. Following that debacle, the company faced a class action lawsuit filed on behalf of disgruntled consumers.

Finances Appear Solid

The reason Toysrus.com is now able to expand may have much to do with new infusions of cash that came its way earlier this year when Japanese venture capital firm Softbank Capital Partners decided to take a $57 million (US$) minority interest.

Softbank’s vote of confidence was followed by minor investments in the site from The Blackstone Group, KKR & Co. and Evercore Partners.

The windfall did not come soon enough to bolster Q4 earnings for parent company Toys “R” Us, which fell 27 percent because of exorbitant costs associated with the Web site.

The Toysrus.com site did about $50 million in sales last year, compared with the parent company’s total of $11 billion. The Web site’s sales for Q1 of this year were $10.6 million. Some analysts are predicting up to $1.2 billion in sales for the online toy industry this year.

Competitors Falling Away

The online toy industry has already proved to be a highly competitive, cut-throat business. Just last month, KBkids.com fired almost one-third of its staff, just after its chief executive officer resigned.

In April, RedRocket, the Nickelodeon-backed toy retailer, shut down its operation. Even Toysrus.com’s pure play competitor — eToys — has been struggling to keep its corporate head above water, with its stock trading as low as $6 after flying high at $86.