[Vision2020] Re: Kay Bee Toys - Tell the whole story!

[Jeff Harkins]

Joe,

I am surprised that you would wander off to 
support a business organization that has devised 
a business plan to "suck dollars from the local 
community" and have no physical presence in the 
local community.  The fact is KBToys was not a 
superior business to WalMart - and it failed to 
meet the market test.  It is now reorganized, 
mostly as an LLC - which reduces tax consequences 
and provides some legal protection to shareholders.

Since WalMart also operates a web commerce 
division, it will be interesting to see if the 
Shaw Group can make a go of it.  Shaw has made a 
total commitment to e-commerce which will save 
them considerable dollars in infrastructure and 
it is possible that they can obtain enough market share to survive.



Here is a link to what ultimately was the 
downfall of Kay Bee Toys (this is a description 
of the class action lawsuit for unfair and/or 
deceptive pricing, 2002) against Kay Bee.

http://www.krislovlaw.com/cnotes_kbtoy.htm

Here is what ultimately happened to Kay Bee: 
(please pay attention to the italicized red print highlight)

D. E. SHAW AFFILIATE ACQUIRES ONLINE ASSETS OF KB TOYS
New Company to be Named eToys Direct, Inc.

New York, NY and Denver, CO. May 11, 2004 - The 
D. E. Shaw group announced today that one of its 
affiliates has completed the acquisition of the 
online assets of KB Toys, Inc. The acquired 
assets include the inventory, equipment, leases, 
and proprietary technology of KB Online Holdings 
LLC as well as eToys trademarks, URLs, and 
associated intellectual property. Former members 
of KB Online Holdings senior management, 
including Michael J. Wagner, supported the 
transaction and will hold a significant minority 
equity stake in the new company, eToys Direct, 
Inc., formed to own and operate the acquired 
assets. Mr. Wagner will be the CEO of eToys 
Direct, which will be headquartered in Denver.

eToys Direct, Inc. will own and operate the eToys 
Web site (www.etoys.com) and a 650,000 square 
foot state-of-the-art fulfillment facility in 
Blairs, Virginia, and will continue to operate 
the KBtoys.com Web site (www.kbtoys.com) under a 
long-term licensing agreement with KB Toys. eToys 
Direct will also continue to provide merchandise, 
order fulfillment, and customer service to other 
online and catalog retailers through its various retail alliances.

"We're excited at the prospect of growing the 
eToys Direct business, especially by expanding 
alliances with established online and catalog 
retailers," said Max Holmes, a managing director 
of D. E. Shaw & Co., L.P. and head of the firm's 
distressed securities group. "In addition, the 
acquisition will be an excellent complement to 
the online business of FAO Schwarz, which we acquired in January."

The sale price includes approximately $7.4 
million in cash plus a minimum royalty payment to 
KB Toys, Inc. of $500,000 per year for the next 
three years. In addition, a wholly owned 
subsidiary of D. E. Shaw Laminar Portfolios has 
agreed to provide a $20 million line of credit to 
eToys Direct. The acquisition was approved by 
Judge Joel B. Rosenthal of the U.S. Bankruptcy 
Court, District of Delaware on April 29, 2004.

eToys Direct, Inc. will operate as a subsidiary 
of D. E. Shaw Laminar Portfolios, L.L.C., whose 
activities include the deployment of capital in 
connection with the restructuring of companies 
with valuable assets that may currently be 
experiencing financial distress. D. E. Shaw 
Laminar Portfolios is a member of the D. E. Shaw 
group, a New York-based investment and technology 
development firm with approximately $8 billion in aggregate capital.



Here is how eToys tells the story:


The eToys Direct, Inc. Story

eToys Direct, Inc. began in the early days of 
online shopping as a tiny start-up called 
Brainplay.com. Our early success caught the 
attention of some big retailers. In 1999, we 
formed a joint venture with Consolidated Stores, 
Inc., then the parent company of KB Toys. We 
launched the new KBtoys.com web site in June of 
1999, and our staff worked non-stop to get it 
ready for the holiday rush. That year, Media 
Metrix, Inc. ranked KBtoys.com the 12th-most 
visited site during the season. And the Wall 
Street Journal named us the best overall toy retailer.

The online retailing landscape changed 
dramatically during the next year. In 2001, we 
acquired most of the assets of our former 
competitor, eToys, including its high-tech 
warehouse. Since that time, we have used the 
Blairs, Virginia facility as our primary fulfillment center.

In 2002, we partnered with Sears Roebuck & Co. 
and Kmart, merchandising and fulfilling toys and 
video games featured on sears.com, in the Sears 
Wish Book® and on Kmart.com. In 2003, we expanded 
our relationship with Sears, designing and 
producing the Wish Book® as part of a licensing 
agreement, and providing catalog customer 
support. QVC.com joined our growing list of 
partners in 2003, and we launched a co-branded toy department on Buy.com.

We separated from KB Toys, Inc. in May of 2004, 
after our management successfully bid for our 
company's assets. The following month, eToys 
Direct, Inc. acquired most of the assets of the 
My Twinn Doll Company and launched the new My 
Twinn web site in September of 2004. That same 
year, we added Amazon.com, FAO Schwarz, 
Macys.com, Circuitcity.com and SmartBargains.com 
to our growing list of partners.

In 2005, the company acquired Silvestri, Inc., 
which specializes in wholesale giftware, 
collectibles, accessories and home décor. A 
wholly owned subsidiary of eToys Direct, Inc., 
Silvestri is based in Beverly, Massachusetts.

eToys Direct, Inc. owns and operates the eToys 
and My Twinn web sites, owns Silvestri, Inc. and 
operates KBtoys.com under a long-term licensing 
agreement. We look forward to providing our 
customers and our current and future partners' 
customers with an incredible selection of toys, 
video games, custom dolls and wholesale gifts, an 
outstanding shopping experience, fast, friendly 
customer service and speedy order fulfillment as eToys Direct, Inc.


At 07:36 AM 1/27/2006, you wrote:

>Gary,
>
>You asked for an example where an inferior 
>business beat out a superior one and I gave one. 
>You might analyze why KB Toys is no longer in 
>Moscow differently than I would but the main 
>point is that they are not here any longer and 
>the average person has fewer choices because of 
>that. What the example proves is that the free 
>market does not always lead to the best 
>businesses and the most choices. That claim is nothing but a rhetorical slogan.
>--
>Joe Campbell
>
>---- "g. crabtree" wrote:
>
>=============
>Joe, Excellent try but short of the mark I'm 
>afraid. Stand alone toy stores are struggling 
>everywhere for a variety of reasons, not the 
>least of them being the internet. Perhaps we 
>should argue against E- commerce? Almost all of 
>the complaints that you make would apply, plus 
>no local jobs, no local taxes, and all money 
>made goes out of the area. Moscow does not have 
>a population large enough to effectively support 
>a toy store. KB toys was undergoing a certain 
>amount of financial disorganization at the time 
>the local store closed. The latest trends in 
>toys tends toward computer/video games which are 
>heavily marketed at other retail outlets such as 
>Circuit City, Hastings, Costco, Shopko etc. And 
>last but not least, the fact that you are using 
>a subjective, anecdotal example. If it were 
>valid then I would think that Hodgins would have 
>been toast long ago. Wal Mart sells all the 
>products that they do, (prescriptions, OTC 
>remedies, toys, sundries ) and yet they still 
>exist. Might this be attributed to superior 
>service, good product selection (toys) and an 
>over all commitment to their customers?
>
>I am rather fond of Moscow also. We already have 
>a Wal Mart and I'm fairly sure that it isn't 
>killing us. Plucking out of thin air numbers 
>like 98% 2% and attaching them to a poison pill arguments is pure sophistry.
>
>Try agin?
>Gary
>----- Original Message -----
>From: joekc at adelphia.net
>To: g. crabtree
>Cc: Andreas Schou ; vision2020 at moscow.com
>Sent: Friday, January 27, 2006 5:24 AM
>Subject: Wal-Mart - was Doug Jones Says It Clearly
>
>
>Gary,
>
>I didn't think Mr. Schou's analogy blew but here 
>is a real world example of an inferior business 
>beating out a superior competitor. The mall used 
>to have a toy store: Kay-Be Toys, or something 
>like that. I went there frequently when my son 
>was younger and my wife let me spoil him more. 
>Wal-Mart drove Kay-Bee Toys out of business. 
>Kay-Be Toys had a far superior selection of toys 
>and was by any set of standards a better toy 
>store than Wal-Mart. (Neither are as good as 
>Hodgins Drug Store but that's another issue.) 
>What happened was that kids go to toy stores 
>with their parents but parents buy other things 
>besides toys, things that are not sold at Kay-Be 
>Toys. In short, Wal-Mart offers low-cost and 
>convenience. That is it. It is 'superior' to 
>other stores for these two reasons only. But 
>that is enough to drive out some businesses. 
>Once those businsesses leave, the folks in 
>Moscow will have fewer choices, not more choices.
>
>You note that "many communities that are 
>co-existing with the worlds largest retailer to 
>the betterment of its residents." But many are 
>not. It was noted in Tom Trail's post that two 
>communities like ours were "sucked dry" after a 
>Super Wal-Mart moved in. For the sake of 
>argument suppose that 98 communities like ours 
>were not sucked dry. Would you take a pill that 
>had only a 2% chance of killing you if you 
>didn't need it and you were getting along fine 
>without it? I don't think so. I love Moscow and 
>low-cost and convenience are not enough reason for me to risk sucking it dry.
>
>
>--
>Joe Campbell
>
>
>
>---- "g. crabtree" wrote:
>
>=============
>Mr. Schou, Your analogy blows. It seems clear to me that you have very
>little understanding of how an 'all in" bet works but rather than educate
>you on the finer points of poker allow me to propose an analogy of my own. A
>player comes to the game and bluffs outrageously each and every hand. Soon,
>his fellow gamblers see him for what he is and call him. His weak hands are
>revealed, his resources dwindle and very soon he is out of the game.
>
>This appears to be the tactic of the common garden variety wal-mart
>opponent. Exclaim loudly how WM will be the ruination of civilization and
>will bring about the heat death of the universe and so on. When folks see
>that there are many communities that are co-existing with the worlds largest
>retailer to the betterment of its residents our protester is revealed as at
>best, wrong and at worst, a dupe.
>
>Getting back to the original heart of the discussion, hows about some real
>world examples of inferior business' beating out superior competitors. I'll
>be waiting, watching the pages of my calendar flit by.
>
>gc
>
>
>----- Original Message -----
>From: "Andreas Schou"
>To: "g. crabtree"
>Cc: ;
>Sent: Thursday, January 26, 2006 4:48 PM
>Subject: Re: [Vision2020] Doug Jones Says It Clearly
>
>
> >You are right about my confidence in a free market. Perhaps you could give
> >me a few examples where an inferior business beat out a superior one.
>
>Let me use a poker analogy. If I had a trillion dollars, played poker
>for a living, and won every poker game I played by going "all in" on
>every hand, would I be the best poker player that ever lived? Hint:
>no, I would not.
>
>This is Wal*Mart's business model: saturate the market, make
>monopsonic agreements with suppliers, and run as thin a margin as
>possible in new stores until all the other business goes under. Is
>this a good business strategy? Yes. Does it contribute to market
>efficiency -- which is generally how a "superior business" is
>understood to work? No. It does not.
>
>-- ACS
>
>
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