Toysrus.com earns title of cyber world's biggest toy store

Toysrus.com has come a long way since it debuted during the waning days of the dot-com boom. And unlike many e-commerce sites that emerged in an era when the Internet was supposed to take over the retail world, the company is still around and it's making money.

Or at least it's turning a profit during the busiest time of the year. The online division of Toys "R" Us reached a major milestone in the fourth quarter of 2002 when it made its first quarterly profit and

repeated that effort during the holiday season last year. Now, the company is on the brink of another milestone: turning a full-year profit in 2004.

"That's been our stated goal and it hasn't changed," said Greg Ahearn, vp of marketing and business development at Toysrus.com. "We're still in May right now and there's a lot of game left, but we're optimistic that we'll get to profitability this year."

Ahearn said sales trends at the e-commerce site follow those of its parent company, with the bulk of sales coming during the fourth quarter. Those trends are also mirrored in separate divisions like Babiesrus.com, which gets more year-round business than toysrus.com

"They very closely follow the trends we see at our regular stores," said Ahearn. "The baby business is pretty steady and not as cyclical as things like toys and video games, and that shows in the sales."

Toys "R" Us opened its online division in 1998 as an experiment in e-commerce. Sales grew slowly then took off during the holiday season of 1999 when online shoppers rang up $39 million in sales. That was good news for the company, except for one thing: It wasn't prepared to handle that kind of volume and failed to make good on its promise to have all deliveries to customers in time for Christmas.

The late shipment fiasco was a humbling experience but it also proved to be a valuable one. In early 2001, Toys "R" Us officials took steps to prevent further mishaps by signing a 10 year-deal with e-commerce pioneer Amazon.com. The deal provided Toys "R" Us with a fulfillment partner that could handle its growing sales and gave it a banner on Amazon's well-traveled Web site.

Since then, the days of Christmas gifts arriving after Dec. 25 have disappeared. "We have a ridiculously high percentage now, where something like 99.9% of our shipments arrive on time," said Ahearn.

The Amazon partnership also allowed Toysrus.com to open new specialty areas such as Babiesrus.com in May 2001 and Imaginarium.com in July 2001. Its most recent addition came last September when it entered the online sporting goods business with Sportsrus.com.

"[Sporting goods] is a category we've been in for a long time, but this allows us take it to another level" said Ahearn. "We're really happy with it so far."

Overall sales at Toysrus.com have grown steadily the past few years, hitting $180 million in 2000 to $277 million in 2001 and $340 million in 2002. Sales in 2003 continued their steady climb and increased 10.6% to $376 million.

But even though Toysrus.com has posted double-digit increases in sales the past four years, it hasn't produced profits. The company managed to turn a profit in the fourth quarter of 2002 when it registered $3 million in net income and increased that to $4 million during the holiday season last year.

Now, the goal is to increase its year-round sales to the point where it can produce a profit for the full year in 2004. Toysrus.com reported a loss of $37 million in 2002 but narrowed that to $18 million in 2003, which puts in on track to at least hit the breakeven point this year.

Whether toysrus.com can reach that goal probably won't be known until early next year when its holiday sales are complete. Last year, fourth quarter sales of $194 million accounted for more than half its sales for the entire year. "So we really won't know for sure until the fourth quarter is complete," said Ahearn. During the first quarter of this year, Toysrus.com posted a $4 million loss that was less than half of the $8 million it lost during the same period in 2003.

Another testament to the success of Toysrus.com was the recent promotion of its long-time president Ray Arthur. In April, Toys "R" Us appointed Arthur as its new cfo, citing his accomplishments at the helm at Toysrus.com as a key reason for the promotion. Arthur had been president since 2000 and was a driving force behind its partnership with Amazon.

TOYSRUS.COM

CORPORATE HEADQUARTERS: Wayne, N.J.

TOTAL ANNUAL REVENUE: $376 million

AVERAGE MONTHLY TOTAL SITE VISITS: 7.7 million

NO. OF RELATED ONLINE BRANDS: 5 *

* Includes: Babiesrus.com; Imaginarium.com; RZone Online; Personalizedbyrus.com; and Sportsrus.com. Source: Company Reports.