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The New Game Plan for toysrus.com's Ex-CEO In a Q&A, Bob Moog talks about his old company and his new one -- AreYouGame.com As the holiday season approaches, few online retailers are gearing up as aggressively as toy sellers. In a crowded field that includes Amazon, eToys, Consolidated Stores' KBToys, and now Disney -- with its recent investment in Toysmart -- the battle for domination will be fierce. The only thing that's certain is that time is growing short for retailers that want to make a play. And for some, such as Toys 'R' Us, it will be hard to make up lost ground. In late August, Benchmark Capital, which had planned a $14 million investment in toysrus.com, broke off the deal. By Aug. 27, Toys 'R' Us CEO Robert Nakasone resigned. That followed by a month the resignation of Bob Moog, who had only recently been appointed CEO of toysrus.com. In this Business Week Online interview with reporter Stefani Eads, Moog talks about his decision to resign less than two months after taking the job. He also describes what he thinks it'll take to be a successful online toy retailer -- and he issues a surprising prediction on who'll be this year's winner. Q: Why did you resign your position as CEO of toysrus.com so soon after accepting it? A: [It has been reported] that I wanted to make prices more competitive online than in the retail stores but that [top executives at] Toys 'R' Us didn't agree because they feared cannibalization of the more established business offline. This was never the case. [Former Toys 'R' Us CEO Robert] Nakasone once said to me that "whatever business we're going to lose [as a result of online toy stores], we're going to lose regardless of toysrus.com. In fact, our job is to recapture it with our 'dot-com' business." Nakasone was willing to invest both time and money in the development of toysrus.com. His strategy was quite aggressive, as was mine. The difference was that my ideas about what the unique aspects of an online store should be weren't the best way for toysrus.com to go at this time. There were too many other issues the company needed to solve before it could focus on the details. Q: What problems are Toys 'R' Us facing as it heads into the online holiday shopping season? A: Of course, I'm not privy to strategy decisions since I left, and [the new toysrus.com CEO] John Barbour doesn't start his new job until August 31, but he has a lot of catching up to do. Toys 'R' Us had a couple of false starts with its online business. It started out as an addendum to the direct-mail department and then grew into a bigger project. But the decision to build a separate, full-fledged online business has always been held back by inter-company and intra-company issues. For example, I saw it as a fundamental setback that the company didn't have a presence already established on the West Coast when I started [Moog is based in California], while Toys 'R' Us thought that shouldn't affect the kind of job I should be doing. There was always the promise to set up some offices, but there are still no employees in California. Q: What are the characteristics of a successful online toy business? A: With any business online you have to have an integrated fulfillment and distribution system all in one place. You have to focus on the back end as much as on the front end, and finally, you have let people know you exist with a good marketing campaign, which is especially important when it comes to toys, since they're more seasonal than other products. When it comes to specifically selling toys on the Net, you have to first be able to manage your inventory -- selection is critical. Customer service is also a critical element because toys tend to be bought as gifts, especially online, which means that customers need to receive their purchases in a timely manner. Finally, it has always been my belief that you need to offer more than just price-competitive toys that are also sold by the competition. It's important to sell new and unique toys, even private-label products if possible. Q: How do you plan on doing this with [your new company], AreYouGame.com? A: The plan is to make AreYouGame.com the largest games and puzzles E-commerce site on the Web, while at the same time creating a community of people who integrate the store into the fabric of their everyday lives. We currently sell 1,000 different products and plan to increase this to 2,000 by Oct. 1. We're working with the AARP [American Association of Retired Persons] to create a channel targeted to senior citizens, and we're building a learning center where parents can find toys geared to develop critical thinking and deductive learning skills. We've also launched a personal shopper component of the site, where consumers can request a search for out-of-print games. We then go to flea markets, antique stores, and manufacturers to find them. So far, we've had about eight or nine requests. Customers can also sample different games on the site, and eventually AreYouGame will have its own line of products. The site has been up since November of last year, and in that time we've integrated the front-end and back-end systems and plan on moving the fulfillment and distribution to one center later this year. By the end of September, we should have about $8 million to $10 million in funding. About $5 million of this will be spent between now and Christmas on an aggressive marketing campaign. We expect about $5 million in sales this holiday season and $50 million to $75 million next year [during the holiday season]. Q: Why do think games will sell particularly well on the Net? A: It's difficult for people to find the games and puzzles they want at any particular time because games don't get much shelf space in retail stores, and they're usually only stocked during the fourth quarter. Toys 'R' Us only carries about 20% of all the titles on the market, and that's more than most toy retailers. On the Net, shelf space isn't an issue -- we can offer the selection and convenience consumers can't get elsewhere. Secondly, games extend beyond children to adults and senior citizens, and as I've already said, we plan on addressing these markets. Q: Many of the ideas you described for AreYouGame are the same ones you had for toysrus.com -- a learning channel, a site-branded product line, game demos. What, if anything, do you plan to do differently? A: Many of my ideas are the same because I've had them for a long time and believe they can work for a large retailer such as Toys 'R' Us as well as for a smaller, more niche-specific company such as AreYouGame. In many ways, though, I think they will work better for a smaller, more focused company because we can execute quicker. Toys 'R' Us was in a position where the best strategy was to follow the competition and push the hot items of the season such as Barbie, Furby, Pokemon. One thing that will be different is that we're creating almost a co-op situation with the independent game manufacturers by allowing them to invest in the company and choose the product lines they want to sell. Q: Who do you think will be the leader in online toy sales this holiday season. A: I think Amazon is going to surprise everybody because many people aren't thinking of it yet as a toy store. But I think it will emerge as the leader. EToys has a lot of new developments up its sleeve that we'll start to see in the next month or so, and they'll definitely be tough competition. I still think Toys 'R' Us will be in the top four sellers and will come out way ahead of Wal-Mart. But as for the winner, I think it's going to be Amazon. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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