Online toy retailers in restructuring

By Linda Rosencrance
Computerworld, 05/23/00

London-based Boo.com, which collapsed yesterday just six months after it began selling clothes via the Internet, isn't the only online retailer that has run into problems this month.

Denver-based KBkids.com Inc., the online arm of Consolidated Stores Corp.'s KB Toys division, confirmed that it laid off 45 people last week and fired CEO Srikant Srinivasan. Toysmart.com, another online toy retailer, also is in the middle of a restructuring, according to a spokeswoman at the Waltham, Mass.-based unit of The Walt Disney Co.

Michael Wagner, chief financial officer at KBkids.com, said the layoffs stemmed from the company's failure to go public earlier this year. More workers were hired in January in anticipation of an initial stock offering, Wagner said. But when that was canceled, the workers were laid off to conserve cash, he added.

While Wagner acknowledged that Srinivasan was fired by the company's board of managers, he said he didn't know the reason for the move. Last June, KB Toys and BrainPlay.com - an Internet venture founded by Srinivasan - formed a partnership to create KBkids.com.

At Toysmart.com, spokeswoman Anne Sawyer confirmed that the company is in the midst of a restructuring and plans to release a statement about the changes next week.

Analysts said they're not surprised by what's happening with the online toy retailers.

"I think this is a (reflection) of the ongoing consolidation of the marketplace," said Alan Alper, an analyst at Gomez Advisors in Lincoln, Mass. "Investors are getting reticent to put more money in, so companies have to focus on starting to become more profitable."

Alper agreed that part of KBkids.com's problem stemmed from its inability to execute an initial public offering of its stock, but he said there's more to it than just that. The company "had some Web site issues during the holiday season," Alper said. And it has had trouble blending the cultures of KB Toys and BrainPlay.com, he added.

Greg Girard, an analyst at AMR Research Inc. in Boston, said the online toy market is just too crowded for every company to survive. Girard also said many of the online toy stores don't offer tried-and-true brands to potential shoppers.

"And any toy store that hires employees in January should have its head examined," Girard said. "The toy market (peaks) in the fourth quarter. (In the first quarter,) the market for toys goes south."