|
So what's keeping that grin on Lenk's face? For one thing, Lenk says eToys will be profitable earlier than he thought -- by 2001. His optimism is driven by a three-part strategy now firmly in place: establishing eToys' own fulfillment system, advertising aggressively, and diversifying product offerings to avoid the severe seasonal peaks and valleys that plague the toy industry. "Now we're just bringing in the goods," he says. Lenk hopes it all works that easily. Last year, eToys outsourced some of its fulfillment to Fingerhut, a move Lenk now says he regrets. He would add little about the fiasco, which resulted in a million Christmas gifts arriving on Dec. 26, other than the wry observation: "When you outsource, it's supposed to be cheaper." "ALL THINGS TO KIDS." Now eToys has a new, in-house distribution system with warehouses on both coasts. In addition to the original San Francisco warehouse, the company has opened a second facility in Blairs, Va. Orders are reaching customers on time, says Lenk, who adds that packing errors are at an all-time low. As each order is packed, a computer calculates what it should weigh based on its packing slip and compares this figure to the actual weight on the scale. If something seems amiss, the order is inspected and repacked. Since the Blairs warehouse has been in use, eToys has reduced costs as a percentage of sales by four points, says Lenk. It's more important than ever that Lenk fix eToys' delivery woes. The Toys 'R' Us deal with Amazon.com gives his rival top placement on one of the busiest sites on the Web, as well as access to Amazon's best-of-the-business back-end operations. Still, Lenk brushes off the threat. "Toys are ranked second from the bottom on a long list of things people go to Amazon to buy," he points out. eToys has the dominant market share, even without the rebates and free shipping offered by Toys 'R' Us to lure customers, he adds. To keep it that way, Lenk wants to make sure eToys stays on the minds of potential customers. He expects to spend the same amount on advertising as last year -- $26 million for the holiday-season quarter -- and perhaps even boost the ad budget a little. But the big plan is to evade the seasonality of the toy industry by diversifying eToys' into kid-related areas, such as baby products and hobbies. "The big idea is really eKids, not eToys," he explains. To chip away at customer-acquisition costs, "we need to be all things to kids." Despite last year's rough road, analysts say Lenk's projections aren't all that far-fetched. Still, "eToys has itself quite a challenge," acknowledges Lehman Brothers analyst Holly Becker. Profitability by next year may be possible, she says, though not at the same level of sales originally predicted. That way, Lenk can keep smiling. By Jeanette Brown |
