U.S. Toy Company Opens German Web Site, Plans IPO

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FRANKFURT - Toys International.com, a San Diego-based retail and Web merchant, launched a German Web site on Oct. 20 and plans an IPO of the German subsidiary on Nov. 19.

"After just a week online we began to receive new orders from satisfied first time buyers, and the orders were up from an average 80 Deutschmarks ($44.40) to DM 200 ($150)," said Klaus Goez, director of European development.

"Sales are already going up 25 percent a each day," company President Richard Brady said, "even though our advertising campaign hasn't been fully implemented yet." He plans to invest DM 2 million ($1.2 million) in marketing and promotion during the Christmas shopping season.

"We're already running radio spots," Goez said. "We have put off-the-page ads with phone number and site address in a broad array of print publications.

"We're not only out to attract kids but to get the message to the parents who do the actual buying. It's kind of a pincer strategy."

T-Online is Deutsche Telekom's ISP and eVITA is the German post office's Internet shopping mall that has been in business for six months. It sends out mailings to clients and Toys International.com was prominently featured in the September issue just prior to the launch, Goez said.

The drive behind the initial sales success is price. "Nobody undersells us. We have the best prices on the Internet in Germany. Look at another home page selling toys. On average our prices are 30 percent lower.

"We have almost 10,000 items in our network. They were all bought since July in Europe and they're all brand items from Parker, Mattel, Lego and other market leaders. We sell a German monopoly set for DM29.95 where retail is DM49.95."

The price differential is important given the relatively limited budget kids have for buying toys.

Goez insists low prices are not based on the "loss leader" principle. The German operation gets volume discounts from pooling purchases with the parent company which runs 25 mega toy stores in the US.

Another reason Toys International.com can charge less is due to what Goez calls "the weakness in the German retail trade." He cited one co-op of 500 small and medium-sized toy stores where the co-op buys for all of them and a gentlemen's agreement keeps stores from underselling each other.

"That's why German retailers have an unnaturally high price level and we can underbid them without any loss." He expects Web merchants and Wal-Mart, which is becoming a German giant, to trigger a toy store shakeout.

Toys International.com buy most of its product directly, Goez said, although some came from a wholesaler who has 25,000 different items in his European warehouse.

Plans also call for marrying the Internet site to a retail operation in the expectation that stores will drive customers online. Talks are underway to buy a first retail outlet with more to follow as the web business grows.

The company decided to enter the German market last July when it concluded a "one stop shop" deal with Deutsche Post. The German post office handles warehousing, payments, delivery, returns and all other logistics including a service center.

The IPO will launch on the Frankfurt stock exchange and is designed to help finance the company's European growth. ToysInternatioanl.com plans to open four additional European sites next year, one reason the warehouse is in Benelux within easy reach of everywhere.

The offering is being underwritten by a German bank, Concord Effekten AG, located in Frankfurt.

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