When it comes to being an Internet-based category killer, many hear the call but few are chosen. One of the latter is eToys (www.etoys.com), which a year ago entered the business of selling toys over the Internet and now pretty much runs the show. eToys doesn’t reveal numbers but Forrester Research Inc., Cambridge, MA, estimates overall 1998 online sales for toys and hobbies at $21 million, going up to $71 million by 2001.
eToys, based in Santa Monica, CA, with warehouse and fulfillment operations in Union City, CA, launched in October 1997. Its founders are CEO Toby Lenk, a former corporate vice president at Walt Disney Co., and chairman Bill Gross, who last year sold his children’s software company, Knowledge Adventure, to CUC International (now Cendant Corp.) for an estimated $100 million.
In June, the online toy market got more crowded when Toys ‘R’ Us, Paramus, NJ, launched an e-commerce site (www.toysrus.com). Now eToys is in the position bookseller Amazon.com was in when Barnes & Noble came online. eToys wants the place on the Web that Toys ‘R’ Us has on land. eToys was nervous enough about the development to put out a press release saying it wasn’t nervous about it, but there are several indications that, like Amazon, it will maintain its exalted status. Toys ‘R’ Us, new to online marketing, has hit tough times in its land-based business, cutting inventory and watching its market share drop to about 20% from 25% four years ago. And published reports show that parents may be shying away from large toy sellers.
Phil Polishook, eToys’ vice president of marketing, believes his company has other advantages. “It’s nice to be small and nimble,” he says. “We’ve locked up a lot of good advertising space. We feel good about our market position.” Still, he admits, Toys ‘R’ Us will be “a tough competitor” and may jack up the prices for advertising. eToys will begin its first offline campaign this fall, in print, co-ops and inserts and possibly TV.
Another distinction, Polishook says, is that while both companies sell toys from major manufacturers, only eToys offers specialty toys. So in addition to the biggies like Mattel, Fisher-Price and Hasbro, eToys has less-known brands like Brio and Learning Curve. (It also carries software from Broderbund, Disney and others, and children’s books.)
eToys started out with 1,000 items and will probably have over 10,000 by year-end. Polishook, who was eToys’ third employee, came to the company from Disney, where he was responsible for promoting The Disney Store Online. Prior to that he handled circulation for Sports Illustrated and Fortune at Time Inc.
In March 1998, eToys bought for an undisclosed amount one of its rivals, Toys.com, owned by Web Magic Inc., gaining Toys.com’s Web site address (www.toys.com), inventory and customer database. Polishook says two reasons for the buy were to focus on Toys ‘R’ Us and to get the Web site address. The deal also gave eToys Toys.com’s distribution agreement with Yahoo, which includes the Merchant Spotlight on the Yahoo! Visa Shopping Guide’s toys page-some choice real estate. It has distribution deals with almost all the major portals, including a two-year, $3 million pact with America Online.
eToys has affiliation agreements with 250 sites that link to eToys in exchange for 25% of any products sold-probably the highest percentage any online merchant offers. But Polishook says it’s well worth it and still a cheaper cost per order than paying up front for advertising. “It’s great to be able to pay on the back end with no risk,” he says. The site, with about 600,000 visitors per month, has an enviable demographic: 70% female (unusually high for the Web), 25% with graduate degrees and average household income of $70,000. Polishook says he hopes to drive that down to get more mainstream customers.
He attributes the company’s success to its managers: CEO Lenk was in strategic planning at Disney, COO Frank Han ran online banking at Union Bank of California and vice president of merchandising Jane Saltzman was at Macy’s and then Imaginarium, a specialty toy chain. “We got off to a good start with a good strategy,” Polishook says. “We’ve been lucky with our timing. And we have a good story to tell so we get a lot of press-we’re about kids, and toys are fun.”
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