As Amazon.com and Toys "R" Us form a new online brand, what are the implications for eRetailing?

Amazon.com, based on its size and years in the business, has more experience in eRetailing than any other company. Toys "R" Us certainly knows how to buy and merchandise toys. What would happen if you were to combine the best experience of both companies into a new Internet online brand? That's a question that can be answered by observing the new  startup from Amazon.com and Toysrus.com.

Leading online retailer Amazon.com and Toysrus.com  announced a strategic alliance to create a co-branded toy and video games store.

Expected to launch in Fall 2000, the new online store will combine the strengths of the two eRetailers' existing stores. Amazon.com and Toysrus.com have also agreed to launch a co-branded baby products store, in the first half of 2001.

The two companies have entered into a strategic alliance under which each company will assume responsibility for specific aspects of the toy and video games and baby products stores. Toysrus.com, in collaboration with its majority shareholder, Toys ``R'' Us, Inc., will identify, buy and manage inventory; Amazon.com will handle site development, order fulfillment, and customer service, housing both Toysrus.com's and its own inventory in Amazon.com's U.S. distribution centers. The agreement also allows for global expansion of the arrangement.

Exact terms of the 10-year agreement were not disclosed by either company, but it was stated that Amazon.com will be compensated through a combination of periodic fixed payments, per unit payments and single-digit percentage of revenue. Amazon.com will also receive warrants entitling it to acquire 5 percent of Toysrus.com. All parties, including Toys ``R'' Us, Inc., will market the co-branded store to their respective customers.

Read more about this deal in our eRetail Strategy report.

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Is this a winning combination or just a ploy to boost flagging share prices? How should eToys retaliate? Why was Toys R Us unable to succeed on its own given its huge brand identity in the toy market? What does this mean for Amazon.com? Has Amazon.com lost its way or is it beating a new path for others to follow?......click here!

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 8/10/00 Source: Toys "R" Us / Amazon.com release