Amazon, Toys ‘R’ Us take gloves off for holidays

updated 8:57 p.m. ET Oct. 5, 2006

NEW YORK - Amazon.com and Toysrus.com — partners in the online toy world since 2000 — have become staunch rivals this holiday season, battling for consumers’ share of dollars for toys.

The two severed ties following a ruling in March from a New Jersey superior court judge who found that Amazon.com breached a deal to give Toys "R" Us Inc. exclusive rights to supply some toy products as a third-party vendor on Amazon.com. The company is appealing the court decision in an effort to reinstate the online retailing pact, though officials declined to comment on the status.

For now, both are armed with an expanded number of toys and new services in an effort to drive shoppers to their sites this holiday season.

Toysrus.com, which teamed up with Amazon.com a year after its disastrous 1999 holiday season — when some customers got their toys delivered after Dec. 25 — is making sure not to repeat that logistical nightmare. The company, which launched an independent web site July 1, teamed up with logistics expert Excel and e-commerce expert GSI Commerce Inc. in May to bolster its toysrus.com and babiesrus.com sites. It opened a new fulfillment center in Groveport, Ohio, in September.

These two rivals will also have stiff competition from online auction house eBay Inc., as well as target.com and walmart.com, both of which are expected to be aggressive with discounting.

“It’s going to be a very interesting battle to watch,” said Heather Dougherty, senior analyst at Nielsen/NetRatings Inc., an Internet research company.

This is only good news for shoppers, who will have expanded assortment and services. Toy makers also expect to see their online toy business expand at a time when the toy industry is struggling with stagnant growth.

Roger Schiffman, CEO of Zizzle LLC, believes that the two separate sites will give a 20 percent to 30 percent boost to his company’s online sales.

“All of a sudden, it is like adding more online stores,” he said.

According to NPD Group Inc., a market research group in Port Washington, N.Y., sales of traditional toys have averaged a 2.9 percent decline from the January-August period, even as makers are trying to come up with new electronic toys that excite children who are growing out of toys faster.

Sales of traditional toys, which exclude video games and game consoles, fell 4 percent to $21.3 billion in 2005, from $22.1 billion in 2004, according to NPD.

But online sales of traditional toys surged 32 percent in 2005 compared to the year-ago period, according to comScore Networks, an Internet research company. NPD estimates that online toy sales account for about 6 percent of total toy sales.

Toysrus.com is angling to take a big share in cyberspace by offering for the first time gift cards and expanding its merchandise to include children’s books and DVDs, services that were prohibited under the previous partnership. It also is offering more toy exclusives this year, something that Amazon.com does not have. Exclusives include micro preschool scooter from Huffy and a nativity scene and Hanukkah set, both from Fisher-Price’s Little People brand.

Toysrus.com also relaunched its site with an improved search engine and bigger and brighter pictures of the toys, using technology specifically for that category, according to CEO and Chairman Jerry Storch. The former vice chairman of Target Stores Inc. joined Toys "R" Us in February, following the company’s move to go private last year. Customers can also personalize the site by age and brand, he said.

“It’s very exciting to be independent,” Storch said. “What’s important is that we compete on authority... We are not selling...tires or toothpaste. It is all about the toys.”

Toys "R" Us declined to comment on how many toys it will feature online for the holiday season but said it will have more than what it had on Amazon.com.

Amazon.com currently features about 120,000 different traditional toys, about five times the number of toys it offered right before its partnership ended, according to Jennifer Arthur, senior manager for toys and babies products. It has also doubled the number of third-party sites to 80 and expanded its toy business with its merchant partners like discounter Target.

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