Nothing left in kitty for virtual toyshop

PALO ALTO - The internet retailer Toysmart.com abruptly closed its doors this week and says it is going out of business after burning through most of its cash and being unable to raise more.

The company - majority-owned by Walt Disney - said it would seek a buyer for the business but could not continue operations.

Chief executive David Lord said all but a handful of the company's 170 employees had been laid off and if it could not find a buyer, it would liquidate.

Mr Lord, who had sought to carve an online niche in the educational toys category, said Toysmart fell victim to fierce competition from other online stores, as well as a growing wariness among investors toward online retailers.

A last-minute financing deal being negotiated with an outside investor fell though last week and Disney chose not to put any more money into the business, Mr Lord said.

Disney declined to comment on the matter, other than to issue a brief statement saying the online toy-retailing industry was "an incredibly strong business that has some really strong players."

It said that after reviewing all its options, it had decided that closing the site altogether was the best course.

Toysmart had competed with a number of higher-profile online-toy stores, including eToys and Toys R Us.

Even these market leaders appeared to be having trouble turning a profit and running efficient websites.

Toy retailing - one of the first consumer markets to move online - has emerged as one of the toughest businesses, crowded with multiple stores that had rapidly burned through capital in an effort to build brand awareness.

Because of the state of the market, analysts wondered whether Toysmart would find a buyer, even at a bargain-basement price.

"The internet cannot support all these toy stores," said David Cooperstein, an analyst with Forrester Research.

"When companies are spending multiples of their revenues, rather than a percentage of their revenues, on marketing, there is something wrong with that."

Earlier this month, another online-toy store, RedRocket.com, owned by Viacom, also closed its doors.

Toysmart, which was founded in 1997, never disclosed the amount of funding it had received, although sources said it was about $US45 million ($99.35 million) in cash, plus other considerations.

Mr Lord said the site had had about 260,000 shoppers and had won some of the best reviews for customer service. - REUTERS


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