Online toy seller gets capital infusion, enjoys strong sales.

Four months ago, the Internet start-up eToys was little more than an intriguing but untested concept: that shoppers would prefer buying toys on the World Wide Web to the chaos of shopping in crowded brick-and-mortar retailers like Toys R Us.

Now, with its crucial first holiday shopping season complete, the eToys concept appears to have lived up to its promise.

Although the privately held company refused to disclose actual sales, Chief Executive Toby Lenk said holiday-season sales soared 80 percent over initial projections.

The Santa Monica-based retailer's performance was robust enough to capture the attention of a trio of venture capital firms - Torrance-based Dynafund Ventures, New York-based Moore Capital Management and the venture capital arm of the giant Silicon Valley chipmaker Intel Corp. - each of which invested about $1 million in the Internet retailer late last month.

"E-commerce is something we believe is taking off now," said Tony Hung, vice president of Dynafund, who engineered the $3 million placement on the strength of eToys' fourth-quarter performance. "The toy market is pretty large. If eToys can get out there, build a name for itself, and get even a small piece of the pie, it could be pretty profitable."

Lenk said eToys will use the infusion of funds to finance a marketing campaign to attract new customers. He also plans to redesign the firm's Web site and boost the number of boys offered to more than 5,000, as eToys gears up for an even larger holiday season in 1998.

The eToys Web site (www.etoys.com) features a catalog and photographs of about 1,000 toys from 50 major manufacturers, as well as an array of links to other information - including product reviews from parenting magazines, comments from other parents and kids and a listing of "hot" items to help consumers determine exactly what it is youngsters covet.

At the peak of the holiday season, the site was attracting about 30,000 visitors a day, according to Lenk.

But eToys was by no means the only online retailer to exceed expectations during the holidays.

Americans spent $1.1 billion shopping on the Web between Thanksgiving and the new year. compared to just $300 million the year before, according to Jupiter Communications, a New York consulting firm.

Overall, online sales totaled 52.6 billion in 1997, compared to $700 million spent in 1996, Jupiter Communications estimates.

Perhaps even more significantly, the categories of goods consumers purchased online underwent a dramatic change in 1997, said Wendy Brown, vice president of electronic commerce for America Online Inc., where electronic commerce doubled to $150 million in December compared to the same period in 1996.

While the bulk of online consumers traditionally have used the Internet to shop for computer hardware, software and other gadgets, 1997 was the year that e-commerce moved beyond computer techies.

"This was the year that mass-market consumers began buying mainstream products online," Brown said.

Rather than computers, AOL's retail sales in 1997 were led by such categories as apparel, books, home decor, home electronics - and toys.

And the bulk of those sales came through eToys, Brown said, which advertised heavily on AOL's shopping channel and Web site. The company also built its customer base by purchasing ads on the Internet search engines Yahoo, Excite and Lycos.

Having weathered its first holiday season, eToys now faces the challenge of building a year-round business. The nation's toy retailers generate as much as 60 percent of their approximately $25 billion in annual sales during the Christmas season, according to industry analysts.

"We've got to demonstrate we can draw people to the site in the off-season," said Lenk.

He plans to do that by shifting the site's focus from Christmas and Hanukkah to another often stress-inducing event for parents - birthdays.