News Analysis: More Grief in Land as EToys Pulls Plug on UK Operation ; Traditional High-Street Gains Strength as Warnings of Further Carnage Abound for Online Retailers

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ANOTHER DAY, another implosion. Yesterday it was the turn of eToys, the US online toy and games retailer, which announced it was packing up its toy chest in Europe. EToys will cease trading in the UK on 19 January with the loss of 74 jobs. The unseasonal greeting comes just a week after Christmas.

Etoys said that the UK business had traded well since its launch 15 months ago and had enjoyed a particularly strong Christmas quarter. However, it has fallen victim to a collapse in sales at its US parent.

The American business, which is quoted on Nasdaq, issued a calamitous trading statement two weeks ago, saying that sales in the all-important Christmas period would be half previous forecasts. It also appointed Goldman Sachs to examine its strategic options, including a possible sale. The UK operation in London and Swindon will close, along with a small distribution centre in Belgium. Total losses have not been disclosed but are thought to be less than pounds 10m. A decision on dramatic cost-cutting in the US operation will be made later this month.

Etoys UK was attempting to put a brave face on its demise yesterday. Its website was offering a closing down sale with all goods at half price. A picture of children's favourite Bob the Builder was accompanied by the message: "Can we fix it? No we can't."

The retrenchment at eToys comes just a few days after, another e-tailer, filed for protection against its creditors. Other recent collapses include Shipdesk, an online shipping broker which went into liquidation last month before it had even launched its website. E-commerce experts say that the fall-out will continue as losses mount and access to fresh funding is closed off.

"There is more carnage to come," said Mike Honor, an analyst at Forrester Research. "The pure plays are facing a funding crisis while the traditional retailers can afford to subidise their online operations for quite some time."

Forrester forecasts that, by 2005, 88 per cent of all online retail spending in Europe will be accounted for by traditional retailers rather than the upstarts. Last May, PricewaterhouseCoopers predicted that the majority of listed UK internet companies could run out of cash within 15 months, with a quarter of them predicted to run out within six months.

What went wrong at eToys? According to Ruben Rodriguez, head of eToys' international business, it was a question of negative sentiment in the capital markets and problems at its parent in the United States. …