News > Technology off-line
May 22, 2000: 6:36 p.m. ET

Internet toy retailer ceases operations; buckles under growing competition
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NEW YORK (CNNfn) -, the Walt Disney Co.-owned Internet toy retailer, has ceased operations, according to news reports Monday.

David Lord, chief executive officer of the privately held, based in Waltham, Mass., confirmed Monday that the company is ceasing operations.

"In the past month, the company had been involved in an aggressive effort to reorganize its business and focus on programs that would best meet the needs of its investors, shareholders and partners," Lord said in a written statement. "While a plan to fund the company's activities as a business-to-business operation was actively underway, negotiations collapsed at the last minute. When negotiations broke down, the board determined to cease operations and is now seeking to sell the company."

A message on the company's Web site Monday informed visitors that the company was no longer taking orders, but that it would fulfill orders for those who bought items through midnight on Friday, May 19. has hired Boston-based management consultant, The Recovery Group, to handle the sale.

A spokeswoman for Disney, which owns 60 percent of the site, could not be reached for comment Monday.

The 170 company employees are expected to lose their jobs, according to Michael May, an analyst with e-commerce research firm Jupiter Communications based in New York.

Toysmart is among the first of the big-name toy retailers to fall victim to the shakeout forecast by analysts of many Internet retailers that bring in high revenue but at little or no profit.

Pressured by competition from other online toy retailers such as and, privately held failed to build a unique brand that would keep parents coming back, said Heather Dougherty, an analyst with e-commerce research firm Jupiter Communications.

"They failed to differentiate themselves in this market - going up against that is using customization," Dougherty said. Then there's also ZainyBrainy, which has an Internet presence. Toysmart failed to compete against any of those."

graphicUnlike a company such as, Toysmart failed to bring something unique, such as customized shopping. The company also bowed under pressure from giants, etoys and, which all have wider toy selections.

Disney had invested $20 million in last year and pledged to provide another $25 million in Web and outside marketing campaigns.

Disney took over three of the five seats on Toysmart's board of directors, but Toysmart retained control of its site.

Dougherty said another online toy retailers in trouble is, the Web site for bricks and mortar retailer KB Toys. Top-level management shakeups that gutted a third of its staff combined with the heated competition has left the operation vulnerable. Dougherty said she believes the company is likely to seek a traditional retail partner.

Shares of Disney slipped 3/16 to close at 40-7/8 on the New York Stock Exchange Monday. Back to top


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