Two struggling e-tailers have joined forces in the hopes of more profitably developing the online market for children's toys. Amazon.com Inc. and Toys “R” Us Inc. have entered a 10-year deal in which the two will launch an online store – it will be on amazon.com, but will carry both companies'brands.
Shoppers on toysrus.com will be directed to a toy section of amazon.com. Purchasers can use their Amazon accounts.
The merchandising aspect, including purchasing and inventory management, will be handled by Toys “R” Us. The Paramus, N.J.-based retailer has, of course, considerable expertise in that area. It was the first of the toy superstores and has dominated toy retailing for two decades. However, its toysrus.com e-commerce venture hasn't been successful, never seeming to grasp the complexities of electronic customer service and marketing. It also had serious technical problems on its web site last Christmas, as well as difficulty meeting delivery promises.
Amazon.com will handle customer service, order fulfillment and warehousing. The first big e-tailer, now struggling, never developed the necessary retailing skills when it expanded into the toys area. It has, for example, shown little expertise in forecasting and stocking up on hot-selling items in anticipation of the holiday season, the trickiest aspect of selling toys profitably. Last year, it took a $39 million writedown on unsold merchandise. Unlike books, with which it made its original Internet impact, toys cannot be returned to manufacturers for credit.
The companies'complicated new arrangement involves Amazon receiving a combination of fixed payments, per-unit payments and a percentage of sales. Toys R Us will sell its three distribution centers. And it will buy Amazon's current toy inventory. The new partners plan to launch a baby-products store on the Internet early next year.