eToys To Cease European Operations

Troubled toy e-tailer eToys (Nasdaq: ETYS) announced Wednesday that it is shutting down its European operations as of January 19th because of the “disappointing recent performance of the company as a whole” and poor market conditions.

The move comes despite the company’s status as the No. 1 toy e-tailer in Europe. eToys Europe marketing director James Bidwell told the E-Commerce Times that the company’s European holiday sales revenue was double that of the previous year, but that eToys Europe was “wholly reliant on the U.S. for funding.”

Although eToys Europe’s 74 employees were “very sad” when they were notified late in December that the company was going out of business, Bidwell said that they were not taken by surprise. After eToys’ announcement on December 15th that the company would miss its revenue estimates for its third quarter, eToys Europe employees “thought that something might happen.”

Unhappy New Year

eToys did not officially announce the closing of eToys.co.uk until Wednesday, but a notice on the site thanks visitors for shopping at eToys Europe, saying that “eToys’ Grand Closing Down Sale” began on December 29th and that all items were being marked down by at least 50 percent.

Bidwell confirmed that the company began selling off its merchandise late last month and said that they waited to make the official announcement until “people were back in operation” after the Christmas holiday.

Dragged Down

eToys vice president of international Ruben Rodriguez said that “current market conditions have left us no other options” except to close the European site. The company said last month it would have net sales of US$120 million to $130 million for the quarter, well below the $210 million to $240 million the company had forecast in September.

At the time, eToys said it had enough cash to stay afloat through the end of March, and that it retained investment bank Goldman Sachs to explore strategic alternatives, including “a merger, asset sale, investment in the company or another comparable transaction.”

eToys was trading at 19 cents Wednesday morning, down 14.29 percent from its previous close of 22 cents. The stock has traded as high as $85 in the past 18 months.

Trouble in Toyland

Despite being an early leader and retaining the No. 2 ranking in the U.S. online toy space, eToys has struggled to keep the cash flowing. In May, Goldman Sachs analyst Anthony Noto cited eToys as one of several dot-com companies in danger of running out of cash by the end of 2000. The company raised $100 million in cash through a stock sale a few weeks later.

eToys is also having trouble competing with the dynamic duo of Amazon and Toys ‘R’ Us, which linked forces in August to offer a co-branded Web site. The latest numbers from Nielsen//NetRatings show that during the holiday shopping season, the Amazon/Toys ‘R’ Us joint venture saw 123 million visitors, more than five times the traffic of eToys.

The online toy market has already proven fatal for other e-tailers, even those with deep pockets and big-name investors. Toysmart.com, which enjoyed the backing of the Walt Disney Co., folded in May. Weeks later, Toytime.com gave up just nine months after launching behind a marketing barrage.