ETYS - going the way of PLRX?
washingtonpost.com
EToys Shopping For a Buyer
By David Streitfeld
Washington Post Staff Writer
Saturday, December 16, 2000 ; Page E01
SAN FRANCISCO, Dec. 15 –– EToys Inc., one of the biggest and widely considered one of the best Internet retailing sites, announced today that its holiday season is a full-fledged disaster and that it's putting itself up for sale.
The Los Angeles dot-com said that sales were running about half of what it had expected, and that it had hired the investment firm of Goldman Sachs & Co. to explore "strategic alternatives." Without fresh financing, eToys said it will run out of cash by March 31. An unspecified number of layoffs are planned as soon as the holidays are over.
While not completely unexpected, the news underlines the brutalities of e-commerce. Barely two years ago, the lean and smart Internet-born retailers were supposed to eat their slower and stupider off-line competition for lunch. Now they've turned out to be the feast themselves.
Etoys spokesman Gary Gerdemann ticked off some of the reasons for its hard times: "Retail is soft across the board, whether online or land-based. There's the slowing economy. High energy prices are weighing on people's minds. The presidential struggle was no small factor. When people are distracted and uncertain, it's never a good thing."
An established retailer such as Toys R Us could weather such a storm, but the debt-laden eToys was a leaky boat to begin with. To survive, it needed a great season. It had been projecting sales this quarter of $210 million to $240 million. Today, it said sales instead will be $130 million at most--only marginally higher than the $106.8 million it recorded in the same period last year.
Other numbers were even worse. Operating losses are expected to be between 55 percent and 65 percent of revenue, the company said, rather than the 22 percent to 28 percent it had previously estimated. Last year, its operating loss was 59 percent.
"EToys built their business in a different economy, one that gave them the leeway to build for the future," said Philip Sanderson, a venture capitalist with WaldenVC. "They made heavy investments upfront doing things like building a distribution center, so they could be in a dominant position downstream."
Now, in a market that sees no reason to support money-losing dot-coms, it probably won't get downstream, at least not as a stand-alone company. "EToys tried to become a dominant retailer overnight," said Sanderson. "But to build brand and loyalty takes years. That's still true, even with the Internet."
EToys' founder and chief executive, Toby Lenk, was unavailable for comment. He owns 7.1 million shares in the company, which made his net worth last year more than $600 million. Lenk is such a believer in his company that he reportedly bought even more shares on margin last winter--and then had to sell them last month after they plummeted in value and his broker wanted more collateral.
EToys closed today at $1.03, down three cents. The bad news was announced after the financial markets had closed.
To get rid of its excess inventory, eToys today plastered its home page with the announcement of a 75 percent-off "Holiday Super Sale." The site said orders made before Dec. 20 would still arrive by Christmas.
But would customers--many of whom may be somewhat leery of ordering gifts online in the first place--stay away from eToys once they hear about its financial status?
"I hope it doesn't discourage them," said Gerdemann. "Ninety-eight percent of orders get out of our warehouse in 48 hours or less. We're serving people in a splendid way."
© 2000 The Washington Post |
