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Amazon/TRU split may help U.S. toycos

The recent court ruling ordering Toys 'R' Us and Amazon.com's divorce could very well be a blessing for the U.S. toy retail market as a whole. Neither company has wasted any time setting up separate, independent on-line toy and baby shops since the falling-out.
August 1, 2006

The recent court ruling ordering Toys ‘R’ Us and Amazon.com‘s divorce could very well be a blessing for the U.S. toy retail market as a whole. Neither company has wasted any time setting up separate, independent on-line toy and baby shops since the falling-out.

The two companies joined forces in August 2000, after signing an exclusive agreement to sell toy and infant products under the toysrus.com banner. However, the Paramus, New Jersey-based toy retailer filed suit against Amazon in May 2004, contending the e-tailer had breached the terms of exclusivity. TRU prevailed in the legal battle last March and the court mandated it split with Amazon by June 30th, 2006.

When the ruling came down, Amazon and TRU execs went straight to work and both launched new toy and baby sites on July 1st. Jennifer Arthur, Amazon’s senior manager for toys and babies says the Washington-based giant that brought in US$8.4-billion in sales in 2005 now offers twice as many kids product SKUs through amazon.com/toys and amazon.com/baby sites than it did under the TRU exclusive. The range covers 17 toy and 12 infant categories, and at press time, licensed toys from hit summer movies like Cars and Superman Returns were top sellers on the site.

The newfound independence has also given Amazon the opportunity to forge partnerships with different retailers. The e-tailer currently has deals with Target, Discovery Toys and eToys Direct, as well as Baby Universe. Major toycos are also affiliated with the new sites, including Mattel, Hasbro, Lego, Mega Brands.

Toycos and industry analysts agree the separation opens up new opportunities in a market characterized by very narrow retail channels. ‘Let’s be honest, the internet isn’t driving toy sales these days,’ Herb Mitschele, VP of licensing and international business development at Playmates, says. However, he says on-line retail is still an important channel and getting Playmates’ products featured on another e-tail site will increase brand exposure, if not drive sales.

According to data from industry researcher The NPD Group, on-line retailers accounted for 6% of total U.S. traditional toy sales in 2005, up about a half a percent from the previous year. NPD industry analyst Anita Frazier projects the figure will grow again this year. There are a number of on-line toy retailers operating in the U.S. market already, but she says there’s definitely room for another one. ‘Like traditional bricks-and-mortar retailers, on-line retailers have their unique brand images,’ she says. ‘If they were all carbon copies of one another, that wouldn’t work – but I don’t believe that’s happening.’

Even though her new stores are still in startup mode, Arthur says she is busy looking for new products and retail partnerships. She invites toy and baby merch vendors looking to pair up with Amazon to contact her at jarthur@amazon.com to talk business.

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