Tuesday November 16 4:21 PM ET

## Toysrus.com's Web Site Overwhelmed

By RACHEL BECK AP Business Writer

NEW YORK (AP) - Toysrus.com was betting big on this Christmas. The Internet division of the giant toy retailer had spent the last few months shaking off old ghosts and seemed in great shape heading into November.

But Toysrus.com may be a victim of its own success.

Its Web site has been overwhelmed by the number of people trying to get onto it. That's forced the online toystore to put a limit on how many people can visit the site at a given time to prevent it from crashing.

So some shoppers can't get in - despite their repeated tries. In the competitive world of online retailing, analysts warn that Toyrus.com could be driving customers away for good and sending sales to its rivals.

``Consumers want to shop at a place that is reliable, and Toysrus.com doesn't have much time left to prove they are reliable,'' said Mike May, an analyst at the Internet research firm Jupiter Communications.

The company's latest crisis is the first real setback for the new chief executive, John Barbour. A toy industry veteran, he showed up three months ago to take over the struggling online store.

When he arrived, things were nothing short of gloomy. The Web site was slow and uninviting. The company had just lost its financial backing from a hot venture capital firm. Its chief executive had suddenly quit after just a few months on the job.

So the overhaul began. Barbour and his team toiled away to improve Toysrus.com. They redesigned the site - making it easier to navigate and more pleasant to look at with brighter colors and flashier graphics. They expanded the product offerings, including some exclusive goods that shoppers couldn't find anywhere else.

They added staff to the customer service center and upgraded the site's servers, which were intended to ensure that the site would remain up-and-running.

Toysrus.com signed some key marketing deals, aligning with online giants like America Online and Yahoo!. They also expanded their advertising, including some radio spots that targeted parents in the morning when they drive their kids to school or go to work.

The subsidiary also began promoting its Web site's link to the Toys R Us stores, reminding shoppers that they could buy online and return to the physical stores - something most of their online competitors can't do.

They also began to use the stores to drive shoppers to the Web. A promotion at 20 stores offering $10 off any purchase online generated more than 13,000 new customers in August alone.

And it all worked. Toysrus.com saw a huge increase in the number of people visiting their site. From June to October, traffic was up 270 percent, and even with last week's troubles, there was a 10-fold increase in traffic.

One happy customer is Robert Sponaugle of Atco, N.J. While he bought two defective Furby dolls from the Web site (which wasn't Toysrus.com's fault), Toysrus.com eventually got him a working doll and also sent him a $50 gift certificate for his troubles.

``They paid attention to me and remedied the situation, and they threw in something extra, which they didn't need to do,'' he said.

Now, the company is racing to add more server power so that its Web site runs consistently. It is also scaling back some of its advertising to slow traffic to the site.

``It is a mixed emotion in that ... our business is way beyond anything we would have planned for, but the negative is there are customers who are finding it difficult to get onto the site,'' Barbour said.

Still, analysts warn that consumers won't tolerate being shut out again - especially in the week of Thanksgiving or the last week of November when demand to get into the site will likely be at its highest for the year.

``I think Toysrus.com is well on its way to being a great site, and still can be a major player this Christmas,'' said Seema Williams, an analyst at the Internet consulting firm Forrester Research. ``But they need to iron out all of these problems before they can be anything.''

It's been a bumpy road for Toysrus.com since the company first started selling toys online in June 1998 on a site that was dull and slow.

At the same time, online rival eToys was building itself up fast and gaining momentum. After only a year in business, it was the market leader by Christmas 1998, wooing shoppers with its appealing site and wider array of merchandise.

Sales at eToys topped $30 million in 1998, more than three times that at Toysrus.com, according to analysts.

Last April, Toys R Us announced an aggressive overhaul of its Internet division. Besides improving the way the site looked, the company also planned to add new features, such as e-mail reminders to let shoppers know when an item was back in stock.

Toy industry veteran Robert Moog was tapped to be the CEO and Benchmark Capital of Menlo Park, Calif., the Silicon Valley venture capital firm that helped bankroll such Internet successes as the online auction house eBay, was to partner with Toys R Us in the new venture.

Eventually, Toys R Us planned to sell stock in Toysrus.com to the public.

By summer, however, the grand plans for Toysrus.com began to crumble - just months away from the start of the all-important holiday season. Moog quit for undisclosed reasons and the partnership with Benchmark was called off. The public stock offering never happened.

A distribution center was built and the site redesigned, but it still lacked the content and ease of many of its rivals.

While Toysrus.com limped along, more competition came into the marketplace, including Internet superstore Amazon.com, which launched a toy store on its well-known Web site in July. And eToys continued to grow, expanding into all types of children's products - from books to software.

In August, Barbour was brought in to turn Toysrus.com around. He had been a divisional executive at Hasbro, with successful and fast-growing brands like OddzOn (think Koosh balls), Cap Candy and Sound Bites under his belt.

Wall Street applauded the appointment, believing that Barbour had the marketing savvy and leadership ability to revive the struggling Internet unit.

Few doubt that Toysrus.com will eventually find its way under Barbour. Analysts are quick to note that it is still tied to one of the best names in the toy business today - the Toys R Us stores. That gives it automatic advertising and buying power that few of its rivals come close to competing with.

Before the Web site glitch, analysts expected sales to rise as high as $75 million this year and $200 million in 2000.

This week, however, Toysrus.com is focused on keeping the site running. Without that, its warehouse full of inventory won't do more than

ollect dust this Christmas.

Preserved here on Mystic Fortress' server to avoid a bad link in the furture.
Article is quoted from Yahoo News and is not edited in any way.
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