eToys incorporated in November 1996, co-founded by CEO Toby Lenk, COO Frank Han and Idealab founder Bill Gross. eToys began operations on the Web a year later in October 1997, and closed its doors in the fourth quarter of 2001.

eToys as a Web retailer, offered a broad array of children's products consisting of toys, video games, software, videos, and music. It carried an inventory of well over 9,500 SKUs and 750 brands. It offered its customers well-known traditional brands such as Mattel, Hasbro, and Leggo, as well as specialty brands like Brio, Playmobil, and Learning Curve.

eToys believed the Web provided them with a natural advantage because consumers were dissatisfied with buying toys in the traditional brick and mortar environment. The old "bricks" based shopping experience was time consuming, inconvenient, and unpleasant. Factors like product selection, store layout, indifferent customer service, and shopping with children, all, contributed to the dissatisfaction. The eToys management believed the Web retail environment, "clicks" provided the perfect antidote.

Why eToys failed?

eToys symbolized the high hopes of e-commerce, boasting top-notch management and ample cash. It also ranked as a top toy site. But the trailblazing start-up was badly bruised by shipping problems in Christmas 1999, which might have kept consumers away.

eToys failed to forecast demand, and they were overreacted and overstocked products, which quickly became obsolete. They lacked customer knowledge and production knowledge, although the top management team consisted of top experienced Disney executives.

eToys failed to appreciate the fact that theirs was a new service to the customers. Management must carefully handle both the front and the back-end of their businesses efficiently and effectively. Too much attention was paid to the front-end where the Web-based technology was "fantastic" but not enough attention was paid to the back-end delivery and order-fulfillment side, which was part of the less conventional business.

Related Links: