How e Toys Could Have Made It The functions of managerial accounting include planning, decision-making, controlling, and evaluation. To make good decisions, managers must constantly adapt to technological changes, changes in the organization’s needs, and new approaches to other functional areas of business — marketing, production, finance, organizational behavior, and corporate strategy. Planning is the setting of goals and developing strategies and tactics to achieve them. Controlling is concerned with achieving the goals and evaluating performance. The success of an organization lies heavily on the shoulders of those making these decisions.
Toby Lenk, founder of e Toys, is responsible for controlling the success of e Toys. e Toys is one of the most known names on the Net; however, a famous name doesn’t turn a profit. e Toys is in trouble and many of the decisions Toby Lenk made throughout its life may have contributed to its demise. When planning to launch e Toys, Lenk considered a niche market focusing on educational toys.
Instead, Lenk wanted to compete in the mass market, namely with Toys ‘R’ Us. Lenk’s company would not be able to compete on prices because the profit margins were already low and the mass-market competitors were able to buy in large volumes. He believed that customer service and convenience alone would give him a strategic advantage. To promote the company, Lenk spent lavishly to build the company’s global presence and brand. For example, he spent two-thirds of e Toys’ advertising budget, about $72 million, on TV spots. In order for e Toys to break-even, the company would have to hit $750 million in annual sales.
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Lenk also wished to capture a larger share of the market. Hoping to accomplish this, Lenk made the decision to buy the online baby-supply retailer Baby Center. He further added party supplies, hobbies, specialty toys, and planned to add e Toys private-label merchandise and clothes. However, due heavily to the marketing strategy Lenk pursued, consumers viewed the brand as specializing only in toys. Toby Lenk faced other decisions as well. Top executives of Toys ‘R’ Us wished to meet with Lenk to discuss how the two companies could team up and play to each others’s trengths.
e Toys has a sophisticated site and an illustrious distribution facility while Toys ‘R’ Us has a large inventory and the ability to buy in volume. However, Lenk was unwilling to share in revenues with Toys ‘R’ Us and believed he could make e Toys successful without an online partner. The decisions Toby Lenk made concerning the welfare of e Toys are just some of the responsibilities of managerial accountants. As a result of Lenk’s decisions, e Toys may go bankrupt.
e Toys fell short of estimated sales, repeatedly. In January 2001, e Toys laid off 700 employees, shut down two warehouses, and closed its British operation. On February 5, e Toys announced it would shut down and lay off its remaining 293 employees on April 6. Managerial accounting decisions can make or break a company. Consider Lenk’s decision to become a mass-marketer instead of pursuing the niche option.
e Toys was a company with a single product category competing against mass marketers such as Toys ‘R’ Us and Wal-Mart. As a niche marketer, e Toys may have been profitable. In addition, Lenk could have focused on revenue building rather than brand building. To build sales, Lenk could have given consumers incentives to buy from the site instead of costly TV ads. Also, consider Lenk’s decision not to team with Toys ‘R’ Us.
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Lenk could have re-evaluated where his decisions were taking the company and rethought his strategies for e Toys’ future. After Lenk’s refusal to negotiate, Toys ‘R’ Us teamed with Amazon. com. It is estimated that Toys rus. com pulled in $150 million during the holiday quarter and Amazon took a cut of $37-$52 million. That revenue could have possibly belonged to e Toys.
The cooperation between the two companies may have given e Toys a better image as well as increased revenues. Toby Lenk’s decisions should have ensured efficient and cost-effective use of all resources, people, technology, and dollars. Now, Lenk may no longer have time to find an alternative to bankruptcy. Many analysts believe that large retailers may be interested in some of e Toys’ assets but not in buying the whole company. In addition, e Toys’ cash reserves are low making it difficult to find a merger candidate.
Consequently, this may be the end of e Toys. Since the print of this article, e Toys closed its doors and announced on February 26, 2001, its intention to file for bankruptcy. ReferencesDominiak, Geraldine F. , and Joseph G. Louder back III. Managerial Accounting.
Cincinnati: South-Western College Publishing, 1997. Weintraub, Arlene. ‘How e Toys Could Have Made It.’ Business Week, 09 February 2001, sec. Daily Briefing, p. 1-5.
