Toys ‘R’ Us Drops the Ball Again

For the second time in a month, Toys “R” Us Inc. has dropped the ball in its attempt to ramp up its e-commerce presence before the holiday shopping blitz.

This week, when the Paramus, New Jersey-based toy giant announced that it had severed its much-touted partnership with Benchmark Capital, some analysts just shook their heads. Toys declined to go into the details as to why the deal crashed and burned. Some speculate that the Silicon Valley venture capital firm felt Toys would have insisted upon applying its brick-and-mortar mindset to its e-commerce-marketing foray.

This turn of events comes only a month after Robert Moog — recruited in May to be Toys’ Internet guru — decided to pack it in. Some say that the former founder of University Games, Inc. abandoned Toys’ cyberproject after the company brass rebuffed his suggestion to heavily discount toys it offered online. Moog said the action was necessary in order to compete with eToys Inc. and Amazon.com. Management apparently feared that such a discount plan would undercut its network of 700 franchises throughout the country.

Sending Out Mixed Signals

Now, while other e-marketers are racing to carve out their stakes on the Web before the Christmas shopping season begins, Toys once again finds itself back at the starting line. Earlier this year, the company pumped $30 million into a warehouse it bought in Memphis, Tennessee to support its online business. It also announced plans to pour $50 million into its online operation.

All of these contradictory activities have left observers with the impression that Toys is at war with itself. It simply can’t decide what it wants to do.

As Toys persists in fighting with itself, its chief rival, e-Toys, plans to sell about $117 million over the Internet this year and boasts a stock market valuation of about $5.2 billion (US$), compared to Toys’ $3.9 billion.

It’s Time To Cut Bait

Toys’ Internet problems come a year after being replaced as the number one toy retailer by Wal-Mart Stores Inc.. In addition, the trend toward educational toy stores is taking a large bite out of the company’s revenue.

While the good news for Toys is that it is still not too late for its online fortunes to reverse themselves, the window of opportunity is closing rapidly. If Toys is serious about becoming an e-commerce player, it can only succeed by taking action contrary to all its brick-and-mortar instincts. It must divide itself into two separate entities immediately — and then give autonomy to each.

The bad news for Toys is that the odds of this happening are about the same as a comet smashing into the Earth this afternoon.

What do you think? Let’s talk about it.