Goodbye, Geoffrey the Giraffe. Hello, opportunity. It didn't take long for Amazon.com (NASDAQ:AMZN) to get back on its feet after Toys "R" Us severed its ties with the leading online retailer.
The relationship had been rocky. After botching the 1999 holiday season with bad press over belated deliveries, Toys "R" Us had little choice but to team up with a proven player like Amazon to rinse clean its Ebenezer Scrooge reputation in cyberspace.
It worked ... for a few years, anyway.
Unfortunately for Toys "R" Us, Amazon sensed a greater opportunity in enabling third-party retailers with virtual storefronts to set up shop, and it wasn't long before mom-and-pop outfits selling playthings became tenants in Amazon's ever-growing marketplace.
Toys "R" Us didn't like that. It successfully argued that the move violated the exclusivity terms of its 10-year pact with Amazon. And it moved on. The Toys "R" Us and Babies "R" Us names are now gone from the list of Amazon partners -- names that include Target (NYSE:TGT) and Office Depot (NYSE:ODP).
Yesterday, Amazon moved in.
Ho-ho, Bezos
Amazon's own toy and baby stores work. The company can stock tens of thousands of different playthings, and enhance its offerings by cherry-picking items from other sources like eToys and Babystyle, without upsetting any delicate balances.
Amazon now has a little more control over its destiny, too, and that's a good thing. It's able to incorporate its popular Super Saver subsidized shipping and its $79-per-year Amazon Prime membership service into the new stores. This might prove to be the catalyst for a return to the company's market-share-chomping ways.
Over the 2005 holiday season, Amazon wasn't at its best. The company's North American sales grew by 21% during the seasonally potent period, but that fell short of the 24% clip that market research ComScore estimated for overall online sales growth.
Toys are a major part of the gift-giving process. Hopefully, Amazon will seize this opportunity to make its own store deck the halls for the 2006 holiday season.
The board game behind the board game
Selling toys online isn't easy. Just ask anyone who bought shares of eToys during the dot-com bubble. Kids are impulsive and too "hands-on" for the Internet to provide instant gratification. Parents are also thriftier these days. A few years ago, Wal-Mart (NYSE:WMT) lapped Toys "R" Us to become the country's leading seller of toys. Since then, premium retailers such as FAO Schwartz, Zany Brainy, and KB Toys have turned to either bankruptcy or closures on a grand scale.
That's not a very pretty backdrop as Amazon enters the picture, but things don't have to stay that way. I never understood why the ToysRUs.com storefront never seemed to engage or evolve. In the real world, it seems as if we write about Toys "R" Us resorting to desperate makeovers every few years in an attempt to stay relevant. Why wasn't its online store following suit?
I'm not suggesting that Amazon has the creative wherewithal to make an online toy store work, either. I've never been a big fan of how Amazon homogenizes its categories. I know that's how Wal-Mart does it, but I think Amazon is giving up more in personality than it's gaining in familiarity with cookie-cutter templates that leave the beauty store looking a whole lot like the hardware store.
Amazon can learn some lessons from its cyberspace neighbors. If you're going to open up a jewelry store, make it more of an interactive experience, the way Blue Nile (NASDAQ:NILE) does. If you're aiming for a high-end gift shop, kick the tires over at Red Envelope (NASDAQ:REDE) until you stumble upon something magnetic and sticky.
When it comes to toys, Amazon needs to make its store appeal to both parents and kids. Grown-ups can get the vanilla gateway if they want, but kids will want a more exploratory adventure. I hope Amazon's next acquisition will address this void, because it needs to think small if it wants to appeal to the pint-sized set.
Pricing will also be an issue. Amazon can't do much about that. Thanks a lot, Wal-Mart! Now it just needs to make sure that both its new toy store and its baby-supplies shop for expecting parents can relate to their respective audiences, delivering more than just what's stocked in the warehouse.
The game's afoot, Amazon. Play to win, and by that, I mean play creatively.
Yes, the Fool has been known to heart an online retailer or two. Amazon is an active recommendation in the Stock Advisor newsletter service. Blue Nile was singled out two years ago to Rule Breakers subscribers, and is also a Motley Fool Hidden Gems recommendation. Wal-Mart is an Inside Value pick.
Longtime Fool contributor Rick Munarriz has been shopping online for about as long as Amazon.com has been in business. He does not own shares in any of the companies mentioned in this story. T he Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
