Toys R Us Warns Customers Orders May Not Beat Santa

Toys R Us warned some customers this week that the toys they ordered online might not arrive under the tree by Christmas, even if they placed their orders weeks ago when the company was guaranteeing delivery.

The problem is one of the highest-profile breakdowns in Internet retailing this season, though it is widely anticipated that other Web-site stores are being similarly overwhelmed by the unexpected sales volume that inundated Toys R Us.

The embarrassing misstep came as a blow to Toysrus.com’s attempts to revive sagging sales and establish an online presence against significant competitors such as EToys and KBKids.com.

In an e-mail Tuesday night to what the company called a “very small percentage of customers,” Web site Chief Executive John Barbour wrote that the overwhelming popularity of Toysrus.com caught the company off guard and wreaked havoc with its plans.

The New Jersey-based chain told customers they would receive a $100 gift certificate, good either online or in its stores, if the promised items don’t arrive on time. The company also said customers could cancel orders--and keep the toys if they were already en route.

Some of the stalled orders could have been placed as early as November, the company said--well before the company’s guaranteed-by-Christmas cutoff date of Dec. 9, or Dec. 14 for express mail. In some cases, the items have still not left the company’s Memphis, Tenn., warehouse or were shipped late enough to make a Christmas delivery dicey.

Toysrus.com isn’t alone among e-tailers who are disappointing customers. Frustrated shoppers across the Web have encountered technical glitches while shopping, Web sites that crash and long-ago orders that still haven’t arrived, turning even calm gift-givers into nail-biters.

But most of the problems have come in small doses, analysts said, making Toysrus.com unique for the scope of its biggest failing. The firm’s disclosure, coming just days before the holiday, raised questions about why it did tell customers about its problems sooner.

“I haven’t heard of any other company being this bad off,” said David Cooperstein, director of consumer e-commerce research at Forrester, a Boston-based market research firm. “Fulfillment is something you should know about earlier, and they knew they were having problems earlier than . . . days before the holiday.”

The first cracks in the Toysrus.com Web site began showing in the first days of November. The site, run as an independent company owned by the parent of the Toys R Us retail stores, began shutting out would-be customers drawn to the online store’s coupons.

Toysrus.com caved as customer traffic increased ten-fold, to what Nielsen/NetRatings pegs at 683,305 visitors. But improvements had the site up and chugging soon after, able to support 1.64 million visitors in the days following Thanksgiving, Nielsen/NetRatings said.

KBKids.com, however, also had site-crash issues with just more than 715,000 visitors, as did scores of other retailers who found themselves unprepared for the electronic onslaught. In comparison, Internet-only seller Amazon.com chugged along with 4.46 million visitors.

But when it came time to get packages out, the biggest toy players--for the most part--have or will deliver as promised, say the companies and those who watch them.

Toys R Us would not elaborate on the specific reasons for its delivery problems or the number of customers affected. “ ‘May’ is the operative word,” said Marta Levison, a company spokeswoman. “There’s a chance they still could get there.”

Toys R Us was facing flat or falling sales in its retail stores and top management changes just before the crucial fourth quarter. It isn’t clear what financial impact the shipping snafu or the $100 goodwill coupons will have. The stock dropped 72 cents to $13.50 by the close of trading Wednesday on the New York Stock Exchange.

“Clearly it’s going to create a public relations black eye, and how they make this up to the customers is going to be very telling and have a great impact on their public perception,” said toy industry analyst David Leibowitz of Burnham Securities Inc. in New York.

The biggest online toy merchants were hesitant to take pleasure in their competitor’s pain, but they assured that, other than a few slight problems, their customers will receive toys as promised.

“I would never say that there hasn’t been a stray here and there, but overwhelmingly, we are meeting the commitments to our customers,” Amazon spokesman Bill Curry said.

Last year, Amazon shipped more than 7.5 million packages leading up to the holiday--and that was before Amazon built up its current distribution space and added toys, tools and electronics to its mix, Curry said.

Amazon.com, best known for its books, operates seven distribution centers totaling more than 3 million square feet. It continued accepting express orders through Wednesday night--and said it was confident it could deliver on that promise.

Toysrus.com said its 500,000-square-foot Memphis warehouse had originally been thought capable of processing the demand--but found itself the victim of its own success.

KBKids.com and EToys said that in spite of a few problems, most of their orders were sent on schedule.