eToys to File for Bankruptcy, Stock Worthless
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Monday February 26 9:16 PM ET
By Andrea Orr PALO ALTO, Calif. (Reuters) - The Internet toy store eToys Inc reached the end of its game on Monday when it said it could not climb out from under a pile of debt and would shut its Web site and file for bankruptcy protection. The news was just the final nail in the coffin for the company, which went into a long downward spiral after its make-or-break Christmas season turned out to be a disaster, and has in recent weeks been laying off most of its employees. But until Monday, eToys, a pioneer in online retailing, had held out some hope that it might be able to sell its business on the cheap and return something to its creditors. Instead, it said that after exploring all its options, it had not been able to find any interested buyers. Although it did not provide an estimate on the value of its assets, including some unsold inventory and an almost brand new warehouse, eToys said it expects its debts of $274 million are "substantially'' higher. Perhaps the only people getting worse news than eToys' creditors were its shareholders. The company said its stock was ''worthless.'' Shares of eToys were halted before the announcement, but even then had been selling for just pennies a share. At their height in 1999, eToys shares were worth more than $80. "Certainly the climate we faced remained extremely harsh, and in this climate a buyer did not emerge,'' said a grim Ken Ross, eToys' spokesman. Other eToys executives were unavailable to comment and Ross said he preferred not to speculate on how a company that had entered the Internet business with many big advantages and had attracted millions of mostly happy customers, could end up worthless. Built A Better Mousetrap "The entire management team put their hearts and souls into this,'' said Ross. "While we're disappointed, we're very proud of the many great things we've achieved. We built a better mousetrap and had exceedingly good customer service.'' eToys, which was launched in 1998 as entrepreneurs were racing to apply the Amazon.com Inc virtual book store model to other industries, secured close to $50 million in private funding before raising an additional $166 million in a stock offering in 1999. As recently as a year ago, even after it stumbled through its first big Christmas season and failed to ship all its orders on time, eToys was the assumed winner in the online toy market. Critics of other brick-and-mortar companies like Toys-R-Us said eToys' first mover advantage on the Internet would be hard to beat, and that its initial failings on the customer service front could be easily corrected with a little cash. A lot of cash, as it turned out. Ironically, it was that commitment to superior service that helped seal the eToys' fate. Determined to have a blockbuster Christmas 2000, the company poured money into a state-of-the-art warehouse, gambling that sales would double from 1999 and the investment would pay for itself. But even before the Christmas season was over, eToys realized it was in trouble. Although its site was one of the most popular online stores over the holidays, its third quarter sales of $131 million fell far short of the more than $200 million it had bet on. As eToys prepared to wind down its operations on Monday it was looking a lot like so many other failed Internet companies that had built popular services but grossly miscalculated the costs of running the business.
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