Toys ‘R’ Us paid $200 million for the right to be the exclusive distributor of toys, games and baby products on Amazon.com – but is now trying to recover that money, alleging Amazon violated terms of the agreement.
Instead of exclusivity, Toys ‘R’ Us faced growing competition within Amazon from rival retailers, according to a lawsuit filed yesterday in New Jersey Superior Court. As of March 2004, retailers other than Toys ‘R’ Us were selling 4,000 products in the toy, games and baby categories on Amazon’s site, the suit contends.
In addition, countless other products in the categories that were supposed to be exclusive to Toys ‘R’ Us were being sold by third parties through links on Amazon’s site, the suit said.
Toys ‘R’ Us is seeking either unspecified damages or the invalidation of the agreement and the return of the $200 million it has paid Amazon since the 10-year deal was signed on August 9, 2000.
In a statement, Amazon said the allegations are without merit.
“We believe we can have multiple sellers in the toy category, increase selection and offer products that Toys ‘R’ Us doesn’t have,” the Seattle-based company said.
Toys ‘R’ Us also is asking for a restraining order to prevent Amazon from rolling out a new technology – called one-to-one graphical interface – that the retailer said will further breach the agreement by allowing a wider array of merchants to offer products for sale on the Web site.
The brawl with Amazon comes as Toys ‘R’ Us continues to struggle in the face of increased competition from Wal-Mart and other discount stores, which are wooing customers with lower prices.
Toys ‘R’ Us has tried to differentiate itself from the discounters by striking deals with toy manufacturers, which agree to sell certain products only in Toys ‘R’ Us stores.
Last week, Toys ‘R’ Us reported that its first-quarter losses had widened to $28 million from $26 million in the same period a year ago. Sales at stores open at least a year fell 5.6 percent in the quarter.
Amazon, meanwhile, has continued to broaden its reach by adding new product categories like apparel and jewelry.
Toys ‘R’ Us said Amazon benefited from its alliance with the retailer, which controlled inventories, identified hot new products and sourced them through its own relationships with manufacturers.