Toysmart goes out of business

By Linda Rosencrance, Computer World |  Business

TOYSMART.COM IN WALTHAM, Mass., has shut is virtual doors, the victim of more well-known online toy retailers such as Toysrus.com and Walmart.com.

A self-described seller of "good toys," the company has closed its corporate headquarters, which also housed its bricks-and-mortar retail store. The company sold some 75,000 products, including educational toys and games.

With the announcement of its demise Monday, Toysmart, which was owned by owned by The Walt Disney Co., became the second online toy store owned by an entertainment company to go out of business this month. On May 5, New York-based Viacom shut down its online toy store, RedRocket.com. Burbank, Calif.-based Disney had purchased 60 percent of Toysmart.com last August.

Last week, Denver-based KBkids.com said it had laid off 45 employees and its CEO Srikant Srinivasan had been fired.

Analysts said that Toysmart.com did not do anything wrong, but that it had run up against online toy retailers with a more established customer base.

In a statement issued Monday, Toysmart.com CEO David Lord said month-long negotiations to reorganize the business failed last week, and the company officially ceased operations at midnight, May 19. Lord said Toysmart.com had retained management consultations, The Recovery Group, in Boston, to try and sell the company.

"[W]hile a plan to fund the company's activities . . . was actively under way, negotiations collapsed at the last minute," Lord said in the statement.

He said the company's 170 employees, based in its Waltham headquarters and Worcester, Mass.-based distribution center, were laid off Friday. He added that orders placed through midnight Friday, May 19, would be filled.

Seema Williams, an analyst at Forrester Research, in Cambridge, Mass., said Toysmart.com did not do anything really wrong, but it was in a crowded market and suffered from strong competition from such established toy retailers as Wal-Mart Stores, Toys R Us, Amazon.com, and eToys.

"Toysmart had a tough time attracting customers, even though they did a lot of advertising," Williams said.

Forrester analyst David Cooperstein agreed that Toysmart.com fell victim to the competitive toy business as well as a corporate investor unwilling to take unnecessary risks.

"I think [Disney] decided to cut its losses before they invested in another round of consumer marketing," Cooperstein said.

Alan Alper, an analyst at Gomez Advisors, in Lincoln, Mass., said, "The toy industry is a tough place to make a living, and Toysmart.com thought Disney was going to be its salvation.

"Disney decided, though, that [selling educational toys] was not a business it wanted to be in," Alper added.

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