Online, the Toy Sellers Aren’t Playing Around
The scramble to sell toys online during the upcoming holiday season is being likened to a Gold Rush. Fueled by proceeds from initial public stock offerings and augmented by the deep pockets of their brick-and-mortar parents, online retailers are spending frantically to stake marketing claims to the nation’s $27.2-billion toy chest.
KBkids.com is pouring $43 million into advertising during the fourth quarter, easily outpacing what brick-and-mortar cousin KB Toys will spend. EToys is spending $20 million, nearly equal to its revenue from last year’s holiday season.
“The litmus test is, ‘How much can you spend,’ ” said Scott Galloway, founder and chief executive of Prophet Brand Strategy, a San Francisco-based consulting firm. “There’s a land grab going on and the opportunity is huge.”
The toy retailing business is being reshaped this holiday season by the same online forces that in 1997 changed how books and music are sold.
“Shopping online is becoming mainstream,” said Jaleh Bisharat, vice president of marketing at Amazon.com, which now sells toys online. “It’s not going to be limited to the wired cousin in college--it’s going to extend to grandmothers and soccer moms.”
Online retailers are assembling increasingly sophisticated Web sites that incorporate gift registries, search engines that offer gift ideas for kids of all ages and free gift wrapping and shipping. Online coupon offers are on the rise, and Web sites are crowing about exclusive toy offerings.
As they begin the daunting task of building brand awareness, online retailers are turning the advertising reins over to executives who have honed their marketing skills at such consumer powerhouses as Walt Disney Co., PepsiCo Inc., Hasbro Inc. and Celestial Seasonings.
EToys clearly hopes to use its first-to-market position to remain atop the online toy pile.
“It’s getting close to the point where EToys could be said to have ‘Amazoned’ the competition,” said Eric Johnson, a marketing professor at the Amos Tuck School of Business at Dartmouth College. “It’s not a done deal yet, but we could know by January if they’re going to be able to seal it.”
Online competition, though, has been growing faster than the Pokemon empire. In August, for example, Disney upped the ante by paying $45-million for a controlling stake in Toysmart.com, a Waltham, Mass.-based company--which then poured $20 million into its ad campaign.
Turning to Niche Marketing
Competitors also are gravitating toward niches that exist in the real world. SmarterKids.com, for example, emphasizes educational toys, and Westlake Village-based Rightstart.com targets the market for infants and younger children, as does its brick-and-mortar stores.
Traditional toy retailers, though late to the Internet, are waking from their slumber. During October, traffic at KBkids.com rose by 246% over the previous month, and Toysrus.com’s count swelled by 121%, according to Internet market research firm Nielsen/NetRatings.
“EToys seems to be very successful at what it is doing, and they’re doing a very fine job in every sense of the word, but the battle is not over,” said Kurt Barnard, publisher of Barnard’s Weekly Retail Marketing Report. Online toy sales will swell to $230 million this holiday season, up from just $43 million in 1998, according to Lincoln, Mass.-based Gomez Advisors. This toy story will grow in importance because online sales of toys will mushroom to $1.6 billion in 2003, according to New York-based Jupiter Communications.
That’s a heady figure, but it’s only about 5% of what Americans spend on toys every year.
“Everyone is looking forward five Christmases when they’ll be able to really harvest something big,” said Mike Massaro, chief operating officer of Goldberg Moser & O’Neill, a San Francisco-based ad agency that is handling KBkids.com’s online ad campaign.
If music and book sales are any indication, toy store operators that have been taking tentative Internet steps will have to become serious about selling online. As online competitors use low prices to woo consumers, the toy retailing industry’s tight profit margins will be squeezed even harder.
Online leaders are hoping to use this holiday season to build market share. The holiday season is important because 53% of all toy sales occur during the fourth quarter. But industry insiders say this is not a winner-take-all contest. The next few weeks will serve as a preliminary elimination round for online competitors with limited budgets, bad business plans and weak management.
Once the Christmas trees are set out on the curb, those online retailers left standing will have to get through the toy industry’s nine-month slow season. And they’ll be facing an even more competitive season next year when Wal-Mart, the nation’s leading toy retailer, fulfills its promise to launch a powerful new Web site.
A Clamor for Consumers’ Attention
The online toy industry’s ad blitz is part of an unprecedented wave of advertising from e-commerce, online and Internet companies. Spending in the category rose to $438.6 million during the second quarter, up from $123.5 million a year earlier, according to Competitive Media Reporting.
And now, with online toy retailers turning up the seasonal ad volume, it’s getting harder for all competitors to be heard.
Online toy retailers haven’t opted for a cookie-cutter approach to advertising, even though most ads are clearly aimed at mothers, the ones who buy most of the toys. A survey by Port Washington, N.Y.-based NPD Group suggests that a strong majority of those planning to buy toys online this year are women.
Demographics clearly are driving advertising from such companies as EToys. The image being presented is of a company that cares about its customers--especially moms. In one spot, created by San Francisco-based Publicis & Hal Riney, a pregnant woman turns to EToys for a gift to calm the fears of a daughter who is worried about losing her place in the family. As the spot closes, mom cuddles with her daughter to read “Za-Za’s Baby Brother.”
“Last year, the advertising appropriately was focused on the concept of buying toys online,” said Janine Bousquette, EToys’ senior vice president of marketing. “Now that they understand that, it’s important for us to take the next step and really establish what the EToys brand stands for.”
Amazon.com’s new ad campaign from FCB Worldwide in San Francisco, which appears on network TV and in such publications as Good Housekeeping and Ladies’ Home Journal, clearly has mom in its sights. Amazon’s Bisharat describes the ads, which use a ‘60s-era variety show format to sing the company’s praises, as “family friendly.”
“We want to break through the commercial clutter in a way that’s comfortable and familiar to first-time online shoppers, to the soccer moms,” Bisharat said.
Two of Amazon.com’s five network television ads deal solely with toys--one measure of how important the company views the holiday season competition.
Amazon.com customers who have purchased books, compact discs and other items online are being sent coupons good for 10% discounts on toys purchased at Amazon.com. The company also is creating online contests, including one in which toys designed by kids will be manufactured and then sold online.
The brick-and-mortar toy companies aren’t sitting idly by. Executives at the online operations of KB Toys and Toys R Us say they’re not going to make the same mistakes that book retailers made as Amazon.com moved swiftly to dominate online sales. Both major toy chains are trumpeting the fact that they’re active on the Internet as well as in the real world. Both claim they will use their superior buying power to drive prices down. And they are using commercials to let customers know that gifts purchased online can be returned at their thousands of stores nationwide.
KBkids.com clearly is the younger sibling in Columbus, Ohio-based Consolidated Stores Corp.’s toy business. But KBkids.com Marketing Vice President Cecilia Atkinson notes that, of the two toy retailing operations, her business “has the only significant TV presence this year.”
“One reason we’re pushing as hard as we are is because we’re less likely to take market share away from KB toy stores than a big-box competitor,” Atkinson said, alluding to Toys R Us and Wal-Mart. “If people are shopping in a mall, they’ll be able to shop at KB. If they want to shop from the comfort of their own home, that’s what we’re here for.”
Consolidated markets the KBkids.com site in its stores, and advertising for the Web site tells consumers that they can return or exchange toys at KB’s stores--an advantage that traditional retailers believe they have over the purely online competitors.
KBkids.com’s own ads play heavily upon the 60-year heritage of the 1,400-unit KB Toys chain. The ads also feature such familiar brands as Lego and Sega. And KBkids.com crows that its Web site offers exclusive toys with such brand names as Hot Wheels, Toy Story 2 and Teletubbies.
“We’re trying to make a strong, emotional connection with our customers,” Atkinson said. “To quickly communicate that amid all the clutter . . . we’re showing that we offer all the hot toys, the great name brands that kids demand.”
Familiar Names Have an Advantage
Toys R Us clearly stumbled earlier this year with its online efforts. An executive who had agreed to run Toysrus.com unexpectedly backed away earlier this year, and a venture capital firm pulled out of a planned joint venture. Earlier this month, Toysrus.com was overwhelmed after the company advertised the site in a “Big Toy Book” newspaper insert delivered to 62 million households.
Despite the toy giant’s missteps, many newcomers to the Internet still are placing their trust in the retailer’s familiar name.
“When I talked to my mom about online shopping, she said, ‘EToys who?’ ” says NPD Group retail analyst Pam Smith. “She said, ‘I can buy at Wal-Mart or Toys R Us if I want to go online.’ And I think there are lots of consumers like my mom out there.”
Former Hasbro executive John Barbour, who in August took over as Toysrus.com’s president and chief executive, acknowledges that his company was late to the online party. But he’s betting that the subsidiary will be around for the long haul.
Holiday Season Will Be Real Test
Barbour believes that Internet-only toy sellers will run into inventory problems this holiday season, but that Toysrus.com will benefit from the buying power of its parent company. “It’s about how many hot products--the things kids want--you’ve got in stock,” he said. “And we’ve got more hot stuff than any of these other players.”
Toys R Us won’t divulge its advertising budget. The company is running ads produced by Leo Burnett, and the online address is included in ads run by the brick-and-mortar chain. The dollar value of the combined ads “will be significantly ahead of anyone else in the market,” Barbour said.
As the toy-selling season shifts into high gear, competitors also are keeping a wary eye on Wal-Mart, which last year snatched the crown away from Toys R Us as the nation’s largest toy retailer. Wal-Mart won’t unveil its new Web site until next year.
This holiday season undoubtedly will “show us the strengths and weaknesses of the different business models,” KBkids.com’s Atkinson said. “But none of the big guns are going to just walk away from this business.”
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Top Online Toy Stores
Research firm Media Metrix tracks so-called unique visitors to top toy-related Web sites. Unique visitors are the users of a site counted one time, even though they might make multiple visits. Amazon.com’s toy store had not opened in September, the month this information was collected. Estimated number of unique visitors, in millions:
Ty.com
EToys.com : 1.9
SmarterKids.com: 1.3
Disney.com: 1.1
Toysrus.com: 0.6
BeanieBabyOfficialClub.com: 0.5
KBkids.com: 0.5
Lego.com: 0.4
HasbroInteractive.com: 0.3
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A Surge in Shoppers
Advertising for online toy stores intensified after Halloween. Audience measurement service Nielsen/NetRatings says the toy category showed the biggest percentage increase in online
visitors between Oct. 3 and Nov. 7, thanks in part to the ad blitz.
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Unique visitors* % change from Category week of Nov. 7 week of Oct. 3 Toys 1,807,032 101.6% Malls 1,238,746 71.4 Electronics 538,268 48.1 Comparison shopping 290,774 37.4 Apparel 866,423 35.9 Books/music/video 5,068,535 33.1 Software 2,557,640 24.0 Gifts 313,962 19.3 Auctions 4,331,398 1.6 Hardware 888,907 --7.0
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*Visitors who are counted once, even if they visited multiple times.
