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The conventional wisdom is that brick-and-mortar retail is doomed to die – very quickly, and very soon.
As is usually the case, the conventional wisdom is quite conventional…but not particularly wise.
Now to be clear – I am neither a Luddite nor an idiot. The mid-1990s moment the government wisely privatized the Internet – well, you didn’t have to be a brick-and-mortar mogul to realize the looming damage it would do to the retail sector.
But as with nearly everything that gets impaired – it almost always isn’t just natural causes that cause all the problems.
To wit: Behold the recently deceased Toys ‘R’ Us. Who certainly suffered from the tectonic shift to online sales. But that ain’t anywhere near the only reason they are no more.
Toys ‘R’ Us got royally screwed by online retail monster Amazon. And said screwing took place in the early 2000s…a crucial time in the evolutionary history of the Internet and Internet retail.
Richest-man-on-the-planet-Amazon-owner Jeff Bezos was more than a little dishonest and unlawful in his dealings with the toymaker in question.
In 2000 when the Internet and Amazon were in their relative infancy, titan Toys R Us cut with Amazon a deal to be the online retail platform’s sole toy seller. As drafted, the deal was a win-win.
Toys ‘R’ Us didn’t have to reinvent the wheel and learn the art and science of online retailing. Amazon had that covered.
And Amazon got to offer a huge brand name company and all the product they would not have to themselves sell.
But then…Amazon started violating the exclusive deal by offering toys from other retailers. So in 2004:
“Under the contract with Amazon, Toys ‘R’ Us agreed to pay $50 million a year for 10 years for the exclusivity provision, which had a few exceptions, as well as a percentage of Toys ‘R’ Us sales on the Amazon site.
“Since then, Amazon has shifted its business model away from such exclusive arrangements in favor of having multiple merchants offering the same products, often at different prices.”
But Amazon changing its business model doesn’t change its Toys ‘R’ Us contract.
“In a strongly worded 133-page judgment, New Jersey Chancery Court Judge Margaret Mary McVeigh ruled in 2006 that Amazon had breached the agreement and damaged Toys ‘R’ Us’ unique position and ability to plan or craft strategies.”
Judge McVeigh wasn’t at all pleased with Amazon:
“(S)he repeatedly complained about the ambiguous use of language in memorandums, contract agreements and discussions, concluding that ‘the language as drafted whether intentional or inartful gave Amazon the words to play the game their way.’”
Well that wasn’t very nice of Amazon. And here’s an interesting little wrinkle:
“Toys ‘R’ Us Inc. has won a lawsuit against Amazon.com Inc. that will allow the toy seller to set up its own Web site and end an agreement to sell products on Amazon’s site.”
Wait a second – did you get that? Toys ‘R’ Us’ Amazon deal was so exclusive – they were precluded from building their own website.
Get that? Toys ‘R’ Us had no website at all…until 2006. Talk about being late to the game.
By the time the toymaker began building its online presence, every single one of its competitors had about a decade head start on theirs.
In Internet time that is a geologic age.
Toys ‘R’ Us was a hulking, lumbering dinosaur entering an Internet world populated by upright mammals with opposable thumbs using tools.
And as incredibly fast as the Internet evolves, trying to catch up on a lost decade means you’ll almost certainly never catch up at all.
Flash forward twelve years – and Toys ‘R’ Us is no more.
If you’re looking for what was the first nail in Toys ‘R’ Us’ coffin, the lack of a website for a nearly decade was almost certainly it. And it was Amazon that demanded Toys ‘R’ Us have no website as a part of a deal to which Amazon did not themselves adhere.
It was dishonest Amazon that began sealing Toys ‘R’ Us’ fate.
[Originally Posted at RedState.com]