Who started eToys, and what did it promise shoppers?
eToys, Inc. was founded in 1997 by Toby Lenk, who had been a corporate vice president at the Walt Disney Company before he left to sell toys over a modem. The site opened later that year from offices in Santa Monica, California.
The pitch was aimed at the parts of toy shopping people hated. No parking lot in December, no line at the register, no aisle where the one thing a kid asked for was sold out. Shoppers could sort by age, by price or by brand, which no physical store could do.
It worked well enough that eToys became the name investors reached for whenever they wanted an example of retail moving onto the web. By the 1999 holidays the company was spending heavily on television advertising and on warehouses it had to build from nothing, because unlike Toys R Us it owned no stores to ship from.
That was the trade eToys made. It carried no rent, no cashiers and no shelves. It also had no existing distribution network, and toys are bulky, seasonal and cheap per box, which is close to the worst possible cargo for a company learning to ship.
How did a toy site pass Toys R Us on the stock market?
eToys sold shares to the public at $20 each and started trading on Nasdaq on May 20, 1999. The offering raised about $166 million.
The stock never traded anywhere near $20. It opened well above the offering price, ran into the mid 80s during the session and closed its first day near $76, roughly 280 percent above where the underwriters had priced it.
At that close the market valued eToys at about $7.8 billion. Toys R Us, the largest toy retailer in the country, was worth about $5.6 billion the same week.
The gap between the two valuations and the two businesses was not subtle. In the fiscal year that ended March 31, 2000, eToys reported revenue of $151.0 million. Toys R Us was selling billions of dollars of toys a year out of real buildings. Investors were paying for the second company on the assumption that it would turn into the first.
The loss line explained the risk they were taking. eToys lost $189.6 million in that same fiscal year, more than it collected in sales.
What was Toywar, and why did it embarrass eToys?
A European art group called etoy had registered etoy.com in 1995, two years before eToys opened its store. In late 1999 eToys sued, arguing that shoppers would confuse the two names.
A Los Angeles court granted a preliminary injunction in November 1999 and ordered etoy off the address, with penalties of up to $10,000 a day if the artists kept using it. The timing could not have been worse for the retailer, because the order landed in the middle of the holiday shopping season.
etoy answered by turning the lawsuit into an artwork. Toywar was a browser-based campaign that signed up thousands of players to flood eToys with email, tie up its website and argue the case in public while the company was trying to sell Christmas presents.
etoy described the project as "not about hunting stupid little pixel monsters: it is about the destruction of Internet brands and valuable domain names," in its own account of the campaign in 1999.
eToys dropped the suit in January 2000 and agreed to cover up to $40,000 of etoy's legal costs. The artists kept the address, and etoy.com is still theirs.
What happened during the Christmas of 2000?
The 2000 holiday season was the one that finished the company. eToys had built and staffed for a Christmas far bigger than the one it got, and by January 2001 it was telling investors it was running out of money.
The cuts came fast. eToys closed its European operations in January 2001 and eliminated about 700 jobs in the United States, roughly 70 percent of its workforce.
The stock went with it. Shares that had closed near $76 on their first day in 1999 were trading at 9 cents by early 2001, and Nasdaq halted them before removing the company from the exchange.
Two things had changed underneath eToys while it was raising and spending. Amazon had widened its catalog into toys, and Toys R Us had given up on building a rival site by itself and teamed with Amazon instead. eToys was suddenly the third choice in a two-horse category.
The dot-com crash did the rest. Money that had been free in 1999 was gone by 2001, and a retailer losing nine figures a year had no way to raise more of it. Pets.com hit the same wall in the same stretch of months.
What did the bankruptcy leave behind?
eToys filed for Chapter 11 in the United States Bankruptcy Court in Wilmington, Delaware on March 7, 2001, and shut the website the next day. The filing listed $416.9 million in assets against $285 million in debts as of December 31, 2000.
The site left a short notice for anyone who arrived after the doors closed. It was no longer taking orders but would fill the ones already placed, and it signed off with a line that read like a store clerk waving from an empty aisle: "It's been our sincere pleasure serving you."
Operations ended entirely in April 2001. What was left got sold off in pieces, which is how a company the market had priced at $7.8 billion came apart into line items on a bankruptcy docket.
The brand and the address went to KB Holdings, parent of the mall chain KB Toys, at a bankruptcy auction in May 2001 for about $3.35 million. The market had valued the same company at $7.8 billion two years earlier.
Where did the eToys name end up?
KB Toys reopened eToys.com as an online store, and the address kept changing hands as its operators did. By the mid 2000s the site was run by eToys Direct, which became part of a company called The Parent Company.
The Parent Company filed for Chapter 11 on December 22, 2008, which put eToys.com on the auction block for the second time in seven years.
Toys R Us bought it in February 2009, together with BabyUniverse.com and ePregnancy.com, for a reported $2.15 million. The chain eToys had briefly passed on the stock market ended up owning the eToys name for less than KB Holdings had paid in 2001.
That is where it sits in 2026. Toys R Us still holds the eToys.com address and there is no eToys store behind it. The name is an asset on a shelf rather than a shop, kept for the same reason big retailers keep dead brands: it costs almost nothing to hold, and something to lose.
Frequently Asked Questions
Is eToys still in business?
No. eToys, Inc. filed for Chapter 11 bankruptcy on March 7, 2001, closed eToys.com the following day and ended operations that April. A later company reopened the eToys.com address as an online toy store, but that business went through bankruptcy too, in December 2008, and no eToys store has operated since.
Who owns eToys.com now?
Toys R Us has owned the eToys.com address since February 2009, when it bought the name out of The Parent Company's bankruptcy for a reported $2.15 million. Before that the name belonged to KB Holdings, which took it at the original eToys bankruptcy auction in May 2001 for about $3.35 million.
How much was eToys worth at its peak?
eToys was worth about $7.8 billion at the close of its first day of trading on May 20, 1999, when the stock finished near $76 after being priced at $20. That was more than Toys R Us, the largest toy retailer in the country, which was valued at about $5.6 billion at the time.