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Toys 'R' Us ... online
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April 27, 1999: 8:22 p.m. ET
Toy giant separates Web business in effort to better compete against eToys
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NEW YORK (CNNfn) - Toys "R" Us said Tuesday that it plans to turn its Internet unit into a separate subsidiary and move it to Silicon Valley, an effort aimed at bolstering the toy giant's online presence against fast-growing retailer eToys.
Toys "R" Us (TOY) said the new subsidiary will be backed by the California venture-capital firm Benchmark Capital, an early investor in virtual auctioneer eBay (EBAY). Toys "R" Us said it is spending $30 million to buy a distribution center in Memphis, Tenn., for the online unit, and investing $50 million in the Web site.
Toys "R" Us also is considering taking the online unit public on Wall Street.
CEO Robert Nakasone told The Moneyline News Hour with Lou Dobbs that Benchmark's past success helping start eBay and taking it public was a motivating factor. "We're winners. They're winners," he said.
The headquarters shift should position the online unit for further growth, he said. "We'll be out in Silicon Valley where the best talent is, technologically."
A planned public offering last week by eToys, which was expected to value the company at $1.5 billion, was postponed after the company announced an acquisition.
Toys "R" Us, based in Paramus, N.J., is the No. 2 toy retailer in the country, behind Wal-Mart. Its new Web facility will be able to handle annual orders of $1 billion, compared with 1998 revenue of $23.9 million for eToys, which sells only through the Internet.
"These initiatives underscore our commitment to market share leadership for the Toys "R" Us e-commerce business, and its critical importance to our overall future," Nakasone said.
He told Moneyline the company would also continue initiatives started last year to improve its stores. "We think if we make it a delight to go into our stores, our stock price will follow."
Company officials said that Toys "R" Us also has the strength of name recognition behind it and wants the online business to complement its 700-unit chain of U.S. toy stores.
Customers "can look at a product, see how it meets the needs of their child before they buy it," company spokeswoman Rebecca Caruso said.
Online toy sales are forecast to climb from $52 million this year to $555 million in 2002, according to research firm Jupiter Communications.
Toys "R" Us posted a net loss of $132 million in 1998 on revenue of $11.2 billion, after a $508 million restructuring charge.
Shares in Toys "R" Us closed up 1-1/4 at 23-1/16 in New York Tuesday.
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