Toys R Us Sues Amazon.com

The toy retailer claims the online giant violated the terms of an agreement signed in 2000.
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The online unit of

Toys R Us

(TOY)

has filed suit against

Amazon.com

(AMZN) - Get Report

, charging the e-commerce leader with violating the terms of their marketing agreement and claiming some $200 million in damages.

In a suit filed Friday in state Superior Court in Paterson, N.J., Toysrus.com, the toy retailer's online division, alleges that Amazon promised that it would be the exclusive vendor of toys, games and baby products on Amazon's Web site under a 10-year deal. But Toysrus.com charges that rival retailers are now offering some 4,000 products on Amazon in those categories.

Amazon hosts and handles fulfillment for the Toysrus.com and Babiesrus.com Web stores as part of the deal the companies signed in 2000.

"We expect Amazon.com to respect its contract with us and to support our position especially, since we pay a very high fee to maintain this exclusivity," said David J. Schwartz, Toys R Us' general counsel, in a statement. "We would be happy to compete with other vendors in these categories, but we are not willing to pay for exclusivity that we are not receiving."

Greg Ahearn, the general manager of Toysrus.com, estimated that since 2000, when his company struck its deal with Amazon, Toys R Us has paid Amazon about $200 million for its exclusivity rights. Through its suit, Toysrus.com is seeking to have Amazon repay that amount. Toysrus.com is asking the court to rule that Amazon is in violation of their agreement and is seeking to block Amazon from launching a new initiative that would allow any vendor to sell products in Amazon's games, toys and baby products areas.

Toysrus.com's charges are "without merit," said Amazon spokeswoman Patty Smith.

"We are relentlessly focused on increasing selection for customers consistent with our contractual commitments. Among other things, we believe we can have multiple sellers in the toy category, increase selection, and offer products that

Toysrus.com doesn't have," Smith said.

Smith declined to comment further.

Amazon's deal with Toys R Us was a breakthrough at the time. For Toys R Us, which had struggled with its online efforts to that point, the deal immediately catapulted it into the leading position in selling toys online.

Last year, the toy company's online division posted an operating loss of $18 million on $376 million in sales. Toysrus.com's sales represented just 3% of the revenue posted by its parent company. But while sales at the company's domestic bricks-and-mortar stores has slumped in the last two years, Toys R Us' online sales have grown by more than 10% in each of the last two years.

For Amazon, the deal represented one of the e-commerce company's first forays into hosting Web stores for other vendors. Amazon has since signed deals to host stores for

Circuit City

(CC) - Get Report

,

Target

(TGT) - Get Report

and

Borders

(BGP)

, among others.

For Amazon, such deals typically lead to higher profit-margin sales than it gets from products it sells directly.

Share of Toys R Us closed regular trading on Monday up 33 cents, or 2.2%, to $15.44, while Amazon.com's stock rose 46 cents, or 1.1%, to $41.63.