With Toys ‘R’ Us Gone, Amazon Opens Its Own Kid-Focused Stores

With the fallout from its messy divorce with Toys “R” Us still reverberating around the Internet, Amazon.com on Thursday launched replacements for what was one of the most popular departments in its virtual mega-store.

Amazon, which handled online sales for toysrus.com for about five years before the two agreed to part ways in March, announced two new retail categories, “the toy store” and “the baby store.”

Big Money Makers

The launches are likely timed to give the sites a chance to become familiar to Amazon shoppers well before the holiday season; both companies will be waiting with bated breath to see where toy shoppers go. If they follow Toys “R” Us, Amazon could take a significant hit to its sales and profits.

Amazon said the new storefronts actually represent an increase in the number of child and baby items available on Amazon.

“We are incredibly proud of our new Toy and Baby stores,” said CEO Jeff Bezos. “We’ve never been able to offer our customers this much selection. … We think this is a winning combination.”

Amazon said purchases from the toy and baby stores would be eligible for both of its free shipping promotions, including free shipping on orders of more than US$25 and the Amazon Prime service, which offers paid subscribers free shipping on all purchases. The sites will also feature Amazon-style content, including editorial reviews and consumer feedback.

Replacement Parts

Amazon noted that child-related items are also available elsewhere on its site, including through partnerships with discount retailer Target, eToys and the Discovery Channel Store. It also said it would populate the new categories with top brand names as well as hard-to-find and specialty items.

The new launches come four months after Toys “R” Us won the right in court to dissolve its relationship with Amazon. The two had signed what was believed to be a 10-year agreement for Amazon to manage the online operations of the toy retailer. That deal came about early in 2000, not long after the toy seller suffered a disastrous holiday season during 1999, with scores of orders not reaching consumers in time for Christmas.

The deal was also believed to reflect pricing consistent with the dot-com boom era, however, and it was widely known that Toys “R” Us had been pushing for new terms. Eventually, it went to court to win the right to end the partnership.

Toys “R” Us has since announced that GSI Commerce, a provider of online retail solutions, would manage its Web sales going forward. Amazon has said it would consider appealing the court’s decision, though the practical effects of such an appeal would likely be limited to possible monetary damages for Amazon.

Category Killer?

The Toys “R” Us deal is not the only one that didn’t work out for Amazon, which also cut ties with electronics retailer Circuit City after about four years.

While the toy business is not an especially profitable one — margins in the industry have been squeezed by the arrival of Wal-Mart, Target and other massive discounters — toy sales likely helped drive other purchases on the Amazon site, noted Forrester Research analyst Carrie Johnson.

“Amazon made its name on convenience, and being able to buy many different things in one place is an example of convenience,” Johnson told the E-Commerce Times. “Amazon no doubt had a plan in place to replace the toys category quickly if the partnership was to end.”

For Amazon, the changes reflect the continuing evolution of the e-tailer. The company earlier this year purchased a fashion apparel site to beef up its clothes selection and more recently launched grocery sales, though it is selling only non-perishable items at this time.

“The product mix continues to evolve and grow,” Johnson said.

The toys and games category was actually one of the few online retail categories that saw sales decline during the holiday season of 2005. Sales in the category fell 9 percent to $2.2 billion, according to the eHoliday report from Nielsen//NetRatings and Goldman Sachs.

Still, Prudential Equity analyst Mark Rowen estimated that Toys “R” Us added $100 million in sales for Amazon, with the profit from the partnership likely making up 10 percent of the e-tailer’s total earnings. “That represents significant sales to make up elsewhere,” he said.

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