Week of June 26, 2000
  Blockbuster Deal of the Week
   from Site Selection's exclusive New Plant database

Toysrus.com's Doubling of Work Force
Underscores Clicks-and-Mortar Model

Why, yes, Mr./Ms. Waitron, I will have some bricks with no clicks. More bricks, please. No, please, I mean a LOT more!

Yes, there's more evidence that the winners in the e-conomy's shakeout are going to be not only those who are strong in the clicks. A heck of a lot of it will also depend on who has the best value-adding bricks.

Exhibit A: Toys R Us is dramatically expanding it Internet business unit (www.toysrus.com) - doubling employment over the next 12 months. Toys R Us officials recently announced that the company is adding new offices in Fort Lee, N.J. (near the company's headquarters in Paramus), and in the San Francisco Bay Area. Together, the two projects will double the 300 employees currently on the staff of the online unit of Toys R Us.

The biggest expansion will be at the Fort Lee office, which will have room for 240 employees and will be open by August, the company said. As of this writing, Toysrus.com hadn't finalized its San Francisco lease. But company officials said that office will open by late summer.

The new jobs at Toysrus.com will primarily be in the areas of technical positions supporting the online network and in business development.

"We are aggressively recruiting top industry talent and expect to double our employee base within the next year," said Jonathan Foster, chief operating officer for Toysrus.com. "Having operations near Silicon Valley and Silicon Alley will base us in the heart of the world's top Internet business communities."

Many E-Tail Rivals Are Tanking

That's a scenario a long way from the e-conomy evolution that many analysts envisioned about a year ago. Toys R Us, you may recall, was supposed to be one of the sorely threatened "old-line" businesses - a term that these days roughly translates to mean "before the Internet became part of the world's DNA."

As it turns out, though, the old-line dogs had more tricks that most analysts originally imagined. And the young dot-com lions' lack of real estate assets - which most analysts initially saw as a key cost advantage - now often seem more like strategic holes that need to be filled.

Exhibit B: Toysmart.com. Despite being part of the powerful Disney empire, the online startup went kaput in late May. Toysmart.com shuttered its doors and announced that it was going out of business. There simply wasn't enough cash to go on, company officials explained. And real estate, after all, is a big-cash item, ranking as most companies' second-biggest expense.

Other online retailers that can't show any reasonable promise of near-term profit have run into a similar flinty-eyed skepticism among once-bitten, twice-shy investors. Which brings us to . . .

Exhibit C: EToys, which had come from nowhere to be Toysrus.com's main rival. But Etoys' stock price has taken on an eerie similarity to the final cruise of the Titanic, plunging from US$86 in October 1999 to under $7 in June.

Analyst: Clicks-and-Bricks Clique
Faces Less Investor Pressure

As those three cases suggest, there's a Darwinian shakeout afoot that's thinning the dot-com ranks.

"Today's environment definitely favors the clicks-and-bricks players like Toys R Us, who, unlike players like eToys, aren't under tremendous pressure to turn a profit very rapidly," said Margaret Whitfield, an analyst with Tucker Anthony Cleary Gull (www.tuckercleary.com). On the other hand, many traditional firms are facing their own mad scramble to cope with the other site of the physical-virtual equation.

Toysrus.com's Christmas Debacle

For Toys R Us, for example, the biggest void wasn't in the bricks; it was in the clicks. Last year, the company's Web site was so slammed that Toys R Us simply couldn't keep pace with online volume. Ignominiously, Toysrus.com was forced to send a Dec. 22 e-mail telling thousands of customers that Cyber-Santa wasn't going to get their gifts to them in time for Christmas. Predictably, many consumers voiced pointed outrage. (Presenting, obviously, a parental nightmare. What do you say, "Don't cry, little Billy Bob. It's just that Santa's server is down for a little while, honey, that's all.")

Avoiding a repeat of last year's online debacle is where Toysrus.com's work-force doubling fits in the big picture. Sure, there may be some 200 shopping days left. But Toys R Us knows it has to move now.

In fact, the work-force doubling for the Web-based business unit of Toys R Us comes after an 18-month spell in which the company pumped $200 million into its online arm, adding servers and staff.

That spending spree also included a marked increase in the company's distribution portfolio. Toysrus.com officials had determined that online demand was outrunning the unit's existing space. So in April Toysrus.com announced plans to triple its fulfillment capacity, to 1.9 million sq. ft. (171,000 sq. m.), by opening new distribution centers in California and Pennsylvania.

In short, it looks like Toysrus.com is playing about every available card - whether click or brick - to be armed and ready for the holiday season. Its worst nightmare would be a replay of last year's performance as the Grinch whose pale online potency delayed Christmas. And with e-commerce going through the roof, Toysrus.com is going to need an online Santa who's really muscled up in the off season.

©2000 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.