Toys "R" Us > Amazon

Have you ever used Amazon.com to order something online? What do you think of the site? Do you think of it as an amazon of greatness…or a poor excuse of a business without any morals?

Just two weeks ago I read a case study about Toys R Us and Amazon’s awful so-called strategic partnership in 2000. I must say, after reading that, I have never hated a company so much!

To catch you up on what I’m talking about here’s some brief history. The two retailers signed a 10-year strategic partnership to leverage each other’s customer base and assets and competencies. Around the time of the dot-com bubble craziness, the agreement between the two was Toys R Us would be the “exclusive” provider of baby product and toys for Amazon. Their objective was to increase sales and drive more traffic to their website. Toys R Us was ballsy enough to get rid of their domain name and sold all of their toys and baby products through Amazon. Sounds like a dream partnership right? Exactly, it would only work out perfectly in a dream, especially with the way the rest of the story unfolds.

So anyway, there seemed to be a huge misunderstanding of the word “exclusive,” after Amazon realized Toys R Us did not have very broad product selection. Even though Amazon knew they would be going against their agreement and Toys R Us would be infuriated, they went ahead and offered links to other stores and brands. Toys R Us consulted Amazon and said they were not staying true to the pact and changes needed to be made. To shut Toys R Us up, Amazon said they would make some changes only if Toys R Us improved their inventory and had a greater variety of products for people to select from. Amazon’s objective was to become a one-stop-shop online retailer. They wanted to dominate the market and have people go to their site for everything they needed. Amazon apparently thought by “exclusive,” Toys R Us meant they would be the exclusive suppliers of the specific brands they were selling. But everyone in their right mind knows that Amazon didn’t need a dictionary or three brain cells to figure out what Toys R Us meant by the word EXCLUSIVE.

When Amazon started linking to other toy and baby product sellers, they were creating direct competition for Toys R Us and everything went down hill from there. Long story short, Toys R Us won the lawsuit and resorted back to its independent online retail store.

I have learned there are three main reasons companies enter strategic partnerships.

• Value Enhancement Opportunities such as leveraging customer base
• Skills and Resource Gap and leveraging each other’s competencies
• Environmental Turbulence-helping you adjust in foreign countries, familiarize people with your brand…etc.

  

Words of greatness:

Think of strategic business partnerships as your ideal relationship with prince charming

• IF IT SOUNDS TOO GOOD TO BE TRUE, IT PROBABLY IS
• Be selective when it comes to deciding who you want to partner with
• Learn about the companies core values, goals, and motives
• Be extra cautious when entering an extremely long partnership. 10 years is like in eternity in business years. It’s like dog years, so much happens in 1 year. The economy changes, businesses develop new ideas and grow!
• Be careful when entering into a strategic partnership with a company that does the same thing you do! Ex: pairing up with another relailer…that can only lead you to trouble, unless you two are selling completely different things. But still, it pays to be extremely careful because they can easily steal your strategy and even worst, take business from you!
• When signing an agreement, make sure you both have a clear understanding on what you want out of the relationship remember---COMMUNICATION IS KEY!
• Just like in your relationship- If one of you is much wealthier than the other one, it would only make sense to sign a prenuptial agreement. I know, I know, it’s not the most romantic thing. But hey! It’s a crazy world and you never know what’s going to happen. Same goes in with business relationships…have everything written down clearly (make sure you have a SMART lawyer present when this all takes place).