Companies that vanished: eToys.com goes up fast, crashes hard

When it was launched in 1997 out of then-noted start-up incubator Idealab!, eToys was hyped as the next big thing, the new paradigm if you would, of the retail toy industry. And indeed since it had the competitive advantage of being the first to market, it easily attracted venture capital money. After a successful first Christmas season (relatively-speaking, that is; 1998 is considered the first year e-tailers racked up sales of any significance), it became the darling of the media and technorati. It went public in 1999 and saw its stock price triple, reaching a high of $85 in October of that year, giving it a market cap greater than the then 50-year-old market leader, Toys-R-Us.

The company poured money into inventory and infrastructure. Although the company didn't see as hefty sales as it would have liked its first few Christmas seasons, it's main rival, Toys-R-Us, saw a much bigger flop in its first forays into online retailing.

eToys also saw the bright future of content -- and in particular, parenting content. It bought BabyCenter.com in 1999, with the aim of tapping into that site's huge online community of parents.

There were some high-profile gaffes of its own, however. That same year, after being savaged in the press and online, eToys backed away from its lawsuit against the European artists' site of almost the same name (etoy, all in lowercase). It had sued the art group for its domain name, although the group had held it for years.

But like so many high-flying internet start-ups, eToys was blindsided by realities of retail. It bought much more inventory than it moved. In 2000 it spent some $72 million on advertising and marketing, trying to drum up customers, and although its online sales were growing, they weren't enough to address its tremendous debt. Christmas sales in 2000 were only $120 million, far less than the $210 million it had forcecast. It was hemorrhaging money at that point, and in 2001 it sold Babycenter to Johnson & Johnson (NYSE: JNJ) for a mere $10 million.

When its arch rival Toys-R-Us hooked up with mighty Amazon.com (NASDAQ: AMZN) the writing was on the wall. eToys filed for bankruptcy in March of 2001, citing debt of $247 million.

eToys went dark, but went live again in October, 2001 as a subsidiary of KB Toys. Today, eToys Direct, as it is now called, is owned by hedge fund D.E. Shaw, as part of (aptly-named) Parent Company, a content and e-commerce umbrella group focusing on the parenting market.

Let us know in the comments what you miss about eToys. And be sure to check out other Companies That Have Vanished.