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Toys International Hopes to Rattle German Toy Shops: Spotlight
Frankfurt, Nov. 2 (Bloomberg) -- Toys International Inc. hopes low prices will rattle German toy shops in the same way Wal- Mart Stores Inc. shook up the country's supermarkets.
The San Marcos, California-based company, which plans to list shares on Germany's SMAX index this month, will use the proceeds from the share sale to finance its German language online toy shop that started Oct. 20. Chief Executive Richard Brady is counting on his 27 years in the business of selling dolls, games and puzzles to reshape the German toy industry.
''We'll force some small German toy shops out of business. That's sad for them, but good for us,'' Brady said in an interview. He compares his strategy to that of Wal-Mart, the world's biggest retailer, whose arrival two years ago have German food retailers reeling to cut prices and seek alliances.
Brady founded PlayCo. Toys & Entertainment Corp. in 1974 and set up the Toys International concept last year. Next year, the company starts selling online in the U.S., and sees sales from the online business matching sales from shops by 2003.
In fiscal 1998, ended March 31 1999, the company posted net income of 1.9 million deutsche marks ($1.02 million) on sales of 44.7 million marks. For fiscal 1999, the company sees net income of 2.8 million marks on sales of 91.9 million marks.
Brady believes the combination of his 25 stores in the U.S. and the virtual shop in Germany will bring success not only in selling the children's favorite Furbys and Pokemons, but in luring investors to its stock as well. The company will give details of its share sale at a Nov. 8 press conference.
Cheap Furbys
While parents have to fork out 99 deutsche marks ($53.16) for a Furby in most German shops, the furry, talking animal with big eyes can be bought for 79 marks on Toys' Internet page.
After the share sale, PlayCo will still hold some 58.4 percent of the shares. Concord Effekten AG is managing the share sale for the toy retailer and will take a small stake in it.
The price of Toys' stock will be ''very decent'', and ''between 10 and 15 euros per share,'' said Concord's Markus Saller. ''We believe the valuation should be higher.''
If the shares sell at 15 euros apiece, the offering would value the company at about 10.7 times earnings. Beate Uhse AG, a sex shop retailer that's selling its products over the Internet, is trading at about 20 times earnings. Buecher.de, a German Internet bookshop whose shares have fallen 57 percent since they were sold to the public in July, trades at 26 times earnings.
Toys International is selling 20 percent of the company in its initial offering and plans a secondary listing on the Nasdaq ''in the course of next year.'' To help raise its profile and draw German investors to its share sale, Toys plans a direct mailing in November to some 4.5 million German households.
'Webjumbo'
The company will also promote its shares on the Internet site of ConSors AG, a German online broker that sold shares in April, and has set aside some $1.3 million for promotion in the six weeks before the IPO. Its ''webjumbo'' -- a red elephant with green dots -- will be splashed all over German magazines as well.
Some analysts are skeptical that children will be as eager as parents about ordering cut-price toys from the Internet because delivery times will be longer.
''If you tell your kid it'll get a cheap Furby from Asia in six week's time, that won't really amaze him, will it,'' said Robert Willis, an analyst at SG Securities in London. ''Kids want to roam around in a toy shop,'' he added.
Toys buys toys directly from Asian manufacturers, instead of going through German wholesalers, which most German toys retailers do. Being essentially a mail-order company, Willis said the main factor is whether Toys manages to deliver fast enough.
To create brand identification, the U.S. company plans to open a flagship store in Germany, possibly in Nuremberg. Brady's counting on Germany's restricted opening hours -- stores open to 8 p.m. weekdays and 4 p.m. Saturdays -- to make web shopping attractive.
Spinning Barbies
''We can't but win in Germany,'' Brady said. ''With the hopeless German opening hours and the sky-high petrol prices, parents will be just all too happy shopping on the net. It gives us a great competitive advantage.''
He expect sales of $700,000 from the Internet site in December, to total $1 million by the end of the year. To catch people without an Internet connection, Toys will place some 100 virtual toy vending machines on public places next year. The kiosks sport spinning Barbies and a slot to swipe a credit card.
Toys International's largest competitor in the U.S. is Toys ''R'' Us Inc., the second-largest U.S. toy seller. Toys ''R'' Us this week signed an agreement with America Online Inc. to sell the retailer's toys and baby goods on AOL's Internet site.
Nov/02/1999 10:55
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