Toys 'R' Us says they beat Amazon
Toy merchant claims imminent ruling will let it end venture with Amazon and create its own Web site.
NEW YORK (CNNMoney.com) - Retailer Toys 'R' Us said Thursday that it has prevailed in its long-standing legal dispute with Amazon.com and that a verdict expected later in the day will allow it to dissolve a partnership with Amazon and set up its own Web site.
In 2004, Toys 'R' Us sued Amazon, alleging that Amazon violated exclusivity terms by allowing third parties to sell competing products through the Web site. Amazon subsequently countersued Toys 'R' Us, seeking to sever the partnership.
In a statement, Toys 'R' Us general counsel David Schwartz termed the verdict favorable to his company. "Our goal was to protect the Toys 'R' Us brand while continuing to provide a positive shopping experience for our online customers. This ruling allows us to do that," he said.
Jim Silver, a toy industry observer and editor of Toy Wishes magazine, viewed the verdict as advantageous to Toys 'R' Us.
"It allows Toys 'R' Us to build its own Web site again and start selling directly to its customers," Silver said.
"Toys 'R' Us struggled when it first launched its Web site in the 90's. It missed getting Christmas orders to people on time, orders were lost and there were massive delays," he said. "The difference today is that its become much easier to manage a retail Web site successfully. It makes sense for Toys 'R' Us to do it alone again and not share revenue with Amazon."
Meanwhile Amazon, he said, would probably need to look for another retail partner that sells toys. "Losing Toys 'R' Us hurts them because when you think of a pure toy brand, which brand first comes to mind? It's Toys 'R' Us," Silver said.
Chris Byrne, an independent toy industry analyst, agreed that the dissolution of the pact between the two companies presents a branding challenge for Amazon.
"I'm sure Amazon will want to continue to offer toys and seek out other arrangements to offer toys," said Byrne. "The biggest challenge for Amazon is the branding vacuum this creates. When consumers type toys on Amazon.com they're taken to Toysrus.com. It'll be difficult for Amazon to condition consumers to type 'toys' on Amazon and not see Toys 'R' Us there."
By walking away, some could argue that Toys 'R' Us will lose the advantage it has in leveraging Amazon's considerable expertise in understanding shopping behavior and building customer relationships.
Maybe, maybe not, said Byrne.
"Toys 'R' Us has had more than five years to build its own online infrastructure and improve its distribution systems," he said. "I think Amazon's customer expertise is more relevant for pushing products like books and records to adults customers. For younger customers and for kids in particular, I think it's not that necessary to understand individual shopping behavior."