eToys Fires Staff, Sets April Shutdown

Online retailer eToys, Inc. (Nasdaq: ETYS) said Monday it will lay off its remaining employees and wind down operations by the beginning of April, effectively closing the door on the company’s chance of survival.

Although eToys continues to work with Goldman Sachs to explore its options, with a sliver of a possibility that the company could be saved, eToys reiterated that it will run out of cash by the end of March. The directors said they do not believe that additional capital will be available to the company.

Los Angeles-based eToys said that it issued layoff notices to the 293 employees who were spared when 700 people were fired as part of a drastic cost-cutting move in early January. All of the remaining layoffs will take place by April 6th, the company said.

Long, Steady Fall

eToys has provided a steady stream of bad news since December, when it warned of a revenue shortfall, said it was burning its cash reserves much faster than anticipated, and promised job cuts to stem the tide.

The warnings came as eToys’ main competitor, a partnership between Toys ‘R’ Us and Amazon.com, surged ahead in the toy-selling category.

“We are disappointed that sales have not materialized to the degree we had expected,” eToys president and chief executive officer Toby Lenk said at the time.

Creditors Agree to Freeze

In January, the company shut down its European wing. Soon after, eToys laid off the 700 workers and shuttered its warehouse facilities in California and North Carolina. Since then, reports have surfaced that eToys has been unable to pay its bills.

The company said that it had won a reprieve from a group of creditors to extend an existing freeze on payments until February 15th, so that a payment program can be worked out. While the identities of those creditors have not been released, it is believed they include major toy manufacturers.

eToys said that a committee representing creditors will be working toward an out-of-court agreement designed to avoid a bankruptcy filing.

Delisting Inevitable

eToys also noted that it will probably be unable to meet the conditions for maintaining its listing on the Nasdaq Composite Stock Index. In theory, the company has until May to bring its share price above US$1.

eToys said “the company believes it is unlikely that it will be able to regain compliance with this requirement during this time period and that, by the end of this time period, its securities will be delisted.”

Ironically, eToys ranked high among Web shoppers in terms of online “importance” during the past holiday shopping season. A study by the NPD Group ranked eToys behind only Amazon, eBay, Barnesandnoble.com and JCPenney.com in that category.