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A Toy Success Story

Several years ago, Srikant Srinivasan, who was jogging with his friends, almost collapsed because he refused to admit that he could not keep pace with the others.

"He is intense and brilliant," says Mohan Sawhney, head of the department of e-commerce and technology at Northwestern University's J L Kellogg Graduate School of Management, who has known Srinivasan for almost 15 years, and who recently remembered the incident.

"His downside is that he is very impatient and keeps looking for the next mountain to conquer before he has climbed the current one. If he doesn't trip over his own ambition, he will go far," Sawhney says.

Another long time friend and ex-IIT colleague, Ashutosh Roy, CEO, Egain, says, " In college he was brilliant in a quirky way. But seriously, he is very sharp, smart, stubborn and self-driven."

Srinivasan, 34, might have nearly collapsed while jogging but as a business leader, he is flying high. The firms founded by him in the last two years have received extensive media attention.

A landmark study of e-commerce, Click-here Commerce, conducted by Shelley Taylor and Associates, recently evaluated 50 online stores (30 American and 20 European) representing a cross-industry sample. Coming in the top five were CDNow, Barnes and Noble, BrainPlay.com, Land's end and Blockbuster.

Srinivasan founded BrainPlay.com, an e-commerce site that specializes in children's products about two years ago. BrainPlay.com also received the second highest reach percentage among e-sites that specialize in children's products.

Trailing only etoys.com, two-year-old BrainPlay raced past well established names like Toysrus.com, Borders.com, 800flowers.com, LLBean.com and Mattel's Barbie.com

In July this year, Consolidated Stores Corp that operates 2,504 stores in all 50 states and Puerto Rico and sells K B Toys joined with Denver-based BrainPlay.com to create KBKids.com The KB Toys chain is the No.2 toy retailer in the US behind Toys 'R' Us.

And Srinivasan was named CEO of KBKids.

This unique partnership ensures the coming together of the Internet and e-commerce expertise of an established e-tailer with the marketing strength, merchandizing power and wide distribution network of one of the largest "bricks-and-mortar" toy retailers.

A visitor to KBKids.com is struck by the clean, intuitive interface of the site. Other compelling features are the popular collectibles and "community" features. Part of the expanded offering includes the KBKids.com 'Collectors Corner', a growing and evolving portion of the web site that will soon offer the visitors the ability to submit and display their personal collections.

The site also offers the opportunity to pre-order Sega Dreamcast, which is expected to be one of the hottest selling toys through the Christmas season. Through a special agreement with Sega, KBKids.com has the right to pre-sell the game console on its website.

Srinivasan came to the United States about 10 years ago with a BS in electrical engineering from IIT, Delhi, to do an MBA at the Wharton School.

He has worked with McKinsey and Company, and served as a general manager at USWest/MediaOne's Interactive Services Division, where he led the development of Internet-based e-commerce services.

Srinivasan spoke at length on the phone from his Denver office to Shanthi Shankarkumar this week.

Let us start from the beginning. When did you come to America? Where are you from?

I came here about 10 years ago. I lived mostly in Delhi, Bombay and Calcutta. I went to school and college in Delhi. My parents are from Tamil Nadu, but I've not lived there much. I was born in Ranipet. I went to IIT, Delhi. I came here to do an MBA at Wharton School.

So you came here for higher studies?

When I was in my final year in IIT, I was trying to figure out where to get management education. I decided I wanted to get an MBA. The choice at that time was either some schools here, of which Wharton was one, and some other schools back in India like IIM, Ahmedabad or Calcutta.

The schools in India were more driven to getting students straight from college and I thought business education was something you do better after you get some experience and the business schools here seemed to be better suited for that.

When you came here you had already worked in India?

I had worked for a year at Tata industries in Bombay in a management development program. They put me in different companies. I was in Tata Industries, Telco, Nelco, on different projects -- from strategic planning to sales....

How would you describe the journey so far?

It has been a fun ride and a lot of new experiences. Coming to America was new, working as a consultant as a 25 year old, was interesting when all the other guys were much older and experienced. And then being in US West where I found myself fortunately being in the position of leading several different businesses. And then starting this company was probably the most interesting of all.

How did you get into e-commerce?

Prior to starting this business, I was a general manager at US West's Interactive services group, where I was running a group building e-commerce services. So the Internet was by itself not new to me. But I realized, the heck, I didn't have to be doing it for someone else, I could be doing it for myself. And e-commerce was a big enough thing to get into and see what we could do ourselves.

Why toys?

That is a long story. As a company we started first in software. Probably the biggest reason was, I became a dad myself and realized that buying for children is a very difficult thing to do. As a consumer it is hard to find what product is good or bad.

It is hard to get a lot of information on customer service. I don't know if you've gone to a Toys 'R' Us store. It's a painful process; it's overwhelming. It is not very information-intensive.

You don't get much customer service. And also you don't have much time. As a parent, especially in America, people are running fast and they don't have the time. When you got something that you care about so deeply like what you want to get your kid, add to it the time restraints and lack of information and customer service, it makes for a very poor experience. So I thought we could surely do better.

How did you manage funding?

Initially, a few hundred thousands came from friends, colleagues and a couple of ex-bosses I'd worked with over the years. Then I went to venture capitalists. And I also had a second round at end of last year and beginning this year. So the venture capital, both rounds and the initial seed round from individuals all added up to $ 9.5 million. The last round was through Consolidated Stores K*B Toys -- which came to $ 80 million.

Brainplay.com was ranked among the top 5 e-commerce sites and No.2 in toy e-mail sites. What do you offer that the others don't have?

We have substantial amount of value added content in the form of thousands of product reviews, hundreds of feature articles on a wide range of subjects related to kids, as well as community features where people write to each other. And write about products you see. We also have, after we started the relationship with K*B Toys, a broader selection of hot products. We have a very easy-to-use user interface.

Toys R Us also has articles for parents and similar community features. So how are you different?

Toys R Us have thinner and narrower subject matter; we are much broader and deeper in the subject matter we cover. It is sort of like saying some mom and pop newspaper in Neyveli, say... How is it different from< EM>The Hindu?

They both do the same thing but The Hindu is deeper. Our writers have written for some of the top publications in America, so it is quality writing. Then the actual quality of user interface is also different. Another big thing is the collectibles on the web site, if you are a collector of something like Barbie dolls, Lego products, WWF action figures, or Star Wars and Star Trek products. There are number of things where the manufacturers come up with this limited edition product where only a certain number get sold and then, over time, they increase in value. We sell those products.

How are you making return policies easier? According to analysts, e-commerce sites have not done enough as offline retailers to make returns easier. In a survey in which Internet shoppers ranked their top 12 sources of dissatisfaction with e-commerce sites, the fifth greatest concern was returning merchandise. Forty per cent of those surveyed said they would buy more online if they could return items easily.

What have you done in this regard?

I agree with the analysts. We have a satisfaction guarantee. If you don't like something ( you can return it), no questions asked, within 15 days.

What are your thoughts on the future of e-commerce as it applies to toys?

I think it is very bright. I explained earlier about how difficult the process is today. That makes for very strong reasons why people like to shop online. Because the existing alternatives are not so strong there is a lot of incentive to shop online.

Projections are extremely bullish about how much of the sales are going to go to e-commerce. In just in the toy space it is likely to go up to 30 billion dollars in a few years overall. Even if anything between 10 and 20 per cent comes online that is a pretty substantial business.

Do you think at times you are competing with your own retail outlets?

Yes and no. It's also worth bearing in mind that K*B Toy stores are primarily mall-based as opposed to Toys 'R' Us that are big-box destination retailers. We think people will still go to mall because it offers a broad experience. They'll go to watch movies and maybe eat, and by the way, drop by K*B Toy store.

It is a convenience and an impulse driven purchase. We think they are likely to be less hurt by this than a destination retailer, where you have to get into the car to go to a toy store. To make that choice, you might as well say, let me go down to the den, switch on the computer and make a choice online.

So we think Toys 'R' Us is more likely to be hit by this. How much of the online business are they're going to get against us and the others? You've been reading about the difficulties they're been having online.

The other part is where is that online business going to come from? From someone's retail. The assumption is that people are not going to suddenly buy more toys than last year, that there is going to be a shift from some other channel, from retail to online.

The shift is going to come more from destination dealers than from shopping mall retailers like KB Toys, which are relatively small.

What do you think about convergence? About online and offline retailing uniting?

We obviously think it is real. I just bet my company on it! I went out and converged with a store. We think that's the right place to be, that is the way this industry will evolve. There are challenges to it. Any time you bring in two organizations together there will be challenges.

I can safely say as long as you have the right level of commitment from both companies and the commitment come from management and financial commitment, you can find your way around all the issues and we are living proof of it.

What are the advantages of buying online versus any retail outlet?

Fundamentally it is good pricing, convenience and selection and increased information so it all makes for a better experience.

Who are your major competitors? How do you plan to deal with them?

Amazon and etoys. We've talked about the store network and how it helps us both as a marketing vehicle as well as a customer service point, also for return and exchange and we have tremendous buying clout through KB Toys.

It is a two-billion dollar business. That enables us to offer lower costs and access to hot products that are otherwise hard to get hold off. The merchandising expertise that comes from having KB Toys, there are 30 people who have done nothing but buy toys for the 10 plus years. They really understand the business.

The brand is important because the average person still looks at it. KB has established a level of trust. They have been around for 70 years, which is helpful when people want to buy online.

So e-commerce will not cannibalize brick and mortar stores?

When the movies came on, we didn't stop listening to the radio; when the VCR came along, we didn't stop going to the movies; and when the Internet came along we did not stop watching television, so there is a tendency to coexist.

The toy industry is a huge industry, of that online is a very small piece today, so there are more and more people shifting on line. What we're getting is not necessarily more people because the industry is growing, it is more people buying online because they are not buying offline. So it is a shift rather than an expansion of the pie.

What advances in technology do you foresee that will make e-commerce more widespread in the general population?

First, expansion of the Internet and its availability around the world. Just building the Internet and having access to the Internet. My parents who live in Bombay have access to the Internet but it is slower than what I have and it costs more.

When you advance more, the costs come down, the bandwidths will increase. Some people say that we as an industry are instant on constraint. I agree with that. If you have to use the Internet, especially at home, you have to go to the computer and switch it on and log on. But now with VSNL and cable, it is always on. So it is much easier.

So when you are thinking I want to buy a toy, between you thinking that and actually doing it , it will be 30 seconds. Whereas if you had to switch it on and dial up and all that stuff, it must be five minutes plus. Within individual web sites, you have personalization technology so we can keep track of what you've done and bought on the web site and make better recommendations.

What are some of your goals?

Our goal is to become the leading e-tailer.

Are you planning to go public?

Yes, probably early next year.

Do you think e-commerce will become a big thing in India too?

I don't see why not. If the fundamentals are in place infrastructure has to be there, computer penetration has to be higher, access has to be cheap enough and services need to be on top to be available. You have seen a lot of that come together here quickly.

My sense is infrastructure is coming into place and enabling tools and technology are already here and they can be used there. But the services need to start happening, like Rediff On The NeT and other web sites have to gain attraction in the form of visitors.

How do you buy toys for your daughter?

I buy both online and offline, but more and more online.

How would you summarize the reasons for your success?

Ah, boy! Imagination, hard work, drive, luck -- hard work mostly.

If you had been in India would you have been as successful?

That's a good question. I do think in this country -- I can't speak for India since I have been out of the country for 10 years and I can only go by what it used to be then -- there is lot to speak for the way the industry is structured here. You get access to capital more easily here if you have a good idea, have a good track record and good people with you.

You spend far less time working through government, red tape, bureaucratic b******* and you really put all your energies in winning in the market place, which is where it should really be. Especially people from IIT.

There are a lot of people who have done very well. Then there is infrastructure here to help businesses to start, whether they are in legal services, advertising, venture capital, banking, public relations or advertising firms. There is nothing that can't be done there, but the environment is more fertile here.

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