eToys.com

eToys.com's 2001 bankruptcy ended a company that had briefly been worth more than Toys 'R' Us despite having a fraction of the revenue. The online toy retailer had raised $166 million in its IPO, reaching a $7.7 billion market cap, then collapsed when the dot-com bubble burst and its business model proved unsustainable. The mechanism failure was IPO valuation creating death spiral. eToys went public too early, at a valuation that demanded growth the company couldn't deliver profitably. To justify the stock price, eToys had to spend heavily on customer acquisition, logistics infrastructure, and holiday inventory. Each expenditure consumed cash without creating sustainable margin advantage. eToys also faced the toys-specific challenge of extreme seasonality. The company had to build infrastructure and inventory for the holiday quarter, then maintain that infrastructure during slow periods. Toys 'R' Us and other physical retailers could flex labor; eToys had fixed technology and warehouse costs. The company's 1999 holiday logistics failure—orders arriving after Christmas—damaged the brand just when it needed customer loyalty most. eToys' assets were eventually purchased by KB Toys, which itself later went bankrupt. The toy e-commerce concept eventually succeeded through Amazon's broader infrastructure.