Toysmart.com Shuts Down, Lays Off 170

Toysmart.com, a privately held Internet merchant controlled by Walt Disney Co., shuttered its virtual doors Monday, becoming a casualty of the online retailing shakeout and underscoring Disney’s online travails.

The 2-year-old seller of educational toys had experienced a steep drop-off in online visitors as big, traditional retailers such as Toys R Us and Wal-Mart pushed their way into an already competitive field occupied by “dot-com” start-ups such as EToysand Amazon.com.

Toysmart, which for months ranked dead last among the major online toy sellers, fired 170 employees after ceasing sales Friday. For much of the day Monday the company’s Web site announced that the company was “closed this weekend for inventory.”

Calls to the two customer-service phone numbers listed on that page, as well as to the company’s headquarters in Waltham, Mass., were directed to a recording listing regular business hours.

Some analysts suggested that Disney may try to sell the company’s assets, or relaunch it as a business-to-business Web site serving toy retailers, manufacturers and suppliers.

Closing the site is another online black eye for Disney.

The Burbank-based media and entertainment giant said earlier this year that it would retool its limping Go.com network, which cost $500 million to build. That effort, itself a revamped version of Disney’s Buena Vista Internet Group and its Infoseek acquisition, will be refocused as a news and entertainment site after it failed to draw visitors away from all-purpose Web portals Yahoo Inc. and America Online Inc.

Disney acquired 60% of Toysmart last summer for an estimated $40 million to $50 million as part of its strategy to buy its way into the newest entertainment medium.

David Cooperstein, director of online retailing for Forrester Research in Cambridge, Mass., said Toysmart was laboring under two major problems: An investment partner such as Disney, unlike many venture capitalists, had little patience for continuing losses. And Toysmart faced a better-developed rival in SmarterKids.com, which also targeted the educational toy market.

“Toys are still hard to sell online,” Cooperstein said. “It’s a hard business to put online without having a brick-and-mortar connection.”

Toysmart recorded 205,000 unique visitors--the number of people who came to the site, counted once each--in April, placing it fifth among six Internet toy sellers, according to Media Metrix, a New York online research firm.

In December, in the heat of the first full-blown e-Christmas season, Toysmart logged 1.56 million unique visitors, contrasted with EToys’ 5.5 million and Toysrus.com’s 4.4 million.

Toysmart had been expanding its operations in recent months. In addition to increasing the number of items it sells to 70,000 from 20,000, Toysmart moved into a new warehouse and added new technology systems. The company grew from 20 employees to 200 earlier this year with sales up 1,000% over the 1998 season, Toysmart’s first. The privately held company does not report sales figures.

Toysmart.com reportedly spent $21 million on advertising in 1999, including print and broadcast ads that declared, “Click on your child’s potential.”