CEO: Partnership Hurt Toysmart

Computerworld - Palm Desert, Calif.

Bad timing and a poor choice of partners are what ultimately killed Toysmart.com Inc., not so long ago a darling in the crowded and highly competitive online toy market.

"It seemed like we had it all," said Toysmart CEO David Lord, ticking off a list of once-shining assets during a highly emotional keynote presentation at last week's Computerworld Premier 100 IT Leaders conference here.

Those assets included an enviable partnership with The Walt Disney Co., the indisputable king of the U.S. family consumer market; a spanking-new 126,000-square-foot fulfillment center; and a top-notch Internet development team that built from scratch a state-of-the-art Web site that was ranked in the top 40 by both Nielsen Corp. and MediaMetrix.

But it still wasn't enough.

On Friday, May 19, Disney, which last August invested more than $50 million and took a 60% stake in the Waltham, Mass.-based toy retailer, pulled the plug on it all, leaving 200 employees out of jobs. The company's inventory and physical assets, including a fully integrated Web site infrastructure, is on the auction block, and both Lord and CIO John Puckett are visibly and abjectly heartsick.

"Everything we poured our hearts into for the past three and one-half years is gone," Lord said.

The biggest lessons learned, according to both executives, are first, that you must choose your partners wisely, and second, that it's all about timing.

"I think timing killed us," Lord said. "We could have gotten an IPO and have been secure (financially) if timing hadn't killed us." For example, Lord said, Disney and Toysmart - which went online in 1997, after spinning off from The Holt Co., a maker of educational products whose CIO was Lord - agreed to their partnership in May 1999. But it wasn't until August that Disney announced the deal and Toysmart saw any money.

"We couldn't get product because we didn't have the cash yet, and we had to delay our marketing spending, which meant losing our chance to convert customers in the pre-Christmas buying season," Lord said.

Disney officials didn't return calls by press time.

Culture Clash

There also was a major culture clash with Disney, which languished far longer over business decisions and operated much more bureaucratically than its faster and nimbler dot-com partner.

Case in point: It took Disney until January 2000 - after the end of the crucial holiday retail season - to approve the sale of Disney books on Toysmart.com, which was supposed to be its official online bookseller. Disney baby items didn't