Toy R Us filed a lawsuit against Amazon.com over violating the agreement that gave Toy R Us company the right to sell its toys and games exclusively. The center of this case revolved around exclusivity since Toys R Us argued that the agreement gave it the right to be the sole third-party toy retailer on Amazon.com. If the company fails to sell a specific toy on the site, Amazon.com has the right to offer the toy itself, subject to Toys R Us privilege to subsequently recapture the toy and advertise it (Griswold, 2022). Contrarily, Amazon.com countered these claims and argued that the company had the right to have other sellers on board and collectible toys. According to the online retail company, the contract with Toys R Us demanded the company to pay $50 million annually for ten years for the exclusivity provision. However, the offer had few exceptions and a significant percentage of toys the company has to sell on the Amazon site. Amazon.com argued that it had the right to sell the rejected toys or sell them through a third party, an argument hotly contested by Toys R Us. Hence, the heart of the parties’ disagreement revolved around the exclusivity of selling toys and other baby products.
Upon listening to the case and the relevant witnesses, the court found that Amazon’s actions breached the agreement by allowing third parties to sell toys on the site. As a result, the judge ordered the termination of the contract, although he did not accord the company any form of monetary compensation. Upon seeking an appeal on the ruling, the appellate court affirmed the previous judgment but demanded the payment of $93 million plus interest to Toys R Us by Amazon. I support the decision by the appellate court to award some monetary benefits to the affected company since the breaching of the contract by the company affected its business processes and profitability.
Advantages and Disadvantages of the Business Agreement on Exclusivity
Amazon.com should have explored many advantages and disadvantages before entering the business agreement with Toys R Us. Specifically, the company should have considered benefits like a more extensive customer base, outstanding sales, increased customer satisfaction rates, and enhanced global outreach that it was likely to gain due to the business agreement with Toys R Us. Besides, the engagement in this contract should have led Amazon.com to consider advantages such as speedy services and financial benefits that the company was likely to get if both companies adhered to the agreed terms. Similarly, Amazon.com should have considered numerous disadvantages before signing the agreement with the partner companies. One of the primary challenges the company must have analyzed is the implications of locking out other third parties selling toys from trading on the Amazon site. Amazon.com should have acknowledged the changing times and circumstances in the business world, which would mean that the agreement would remain unsustainable in some areas. According to Laska et al. (2018), business agreements promote business and their performance but also lead to issues like product placement requirements. The lack of consideration of these disadvantages made the agreement with Toy R Us unrealistic, which made Amazon.com pay millions in compensation.
I believe the decision by Amazon.com agreed with Toy R Us based on their interpretation of exclusivity. Toy R Us interpreted exclusivity as the individual right to trade goods in the baby and toys section. Contrarily, Amazon.com understood exclusivity as only applicable to the baby products and toys that Toys R Us was selling. Based on their understanding, this gave Amazon the right to sell all the other unavailable products at Toys R Us. Evidently, the decision by Amazon.com emerged due to a misunderstanding of the term exclusivity used within the agreement.
Settlement Recommendations
Other than seeking litigation measures, Amazon.com and Toy R Us should have engaged in a negotiation process to handle all the disagreements that might have emerged from the business agreement. Specifically, the companies should have discussed and added economic value to their relationship, protected their vulnerabilities, and safeguarded the two companies against different risks. Lopez-Fresno et al. (2018) define negotiation as a communication process between two or more parties aiming to promote shared interests and minimize differences by reaching an agreement based on diverse needs and approaches. Amazon.com and Toy R Us should have entered into a negotiation process since the two depended on each other, and both accrued numerous benefits from the virtual association. They would have engaged in proposals and counterproposals with the primary objective of reaching a mutual agreement. Some of the main advantages of negotiations that the two parties might have enjoyed include attaining lasting and quality solutions, maintaining a positive image to the consumers, developing better relationships, and preventing future problems (Jing et al., 2021). Amazon.com and Toy R Us would have come to a legally binding agreement if they had deliberated on the contents of the contracts to ensure that every party meets the assigned obligations and rights.
Memorandum
To: Amazon.com top management
From:___________________________
Date: September 21, 2022
Subject: Retaining the Current form of Zappos Company
Recent technological advances have shifted from traditional business methods to more digitized approaches. As a result of this development, businesses today depend on websites to enhance brand awareness and showcase their brand to prospective consumers. Amazon.com is one of the global giants with innovative and outstanding websites that merge design with content and generate exceptional consumer experiences. Similarly, Zappos, a recently purchased company, has a quality and attractive website that serves consumers well. Besides using quality and clear images, Zappo’s website is well-designed, highly functional, easy to use, readily accessible, and offers fresh and quality content. The website has also accrued immense traffic and has optimized features for search and the social web, which makes it easy for consumers to share content about the company and its respective products. Hence, by comparison, Amazon.com and Zappos have quality websites, which are significant in creating brand awareness and attracting the target market.
Although the company recently purchased Zappos, I would urge the top management to keep the company’s website in its current form. As it is, the company exceeded its expectations in terms of sales and annual revenues for over a decade before Amazon.com purchased it. Its performance and revenue generation prove that Amazon.com does not need to subsume the company to make it perform better. As it is, Amazon.com should not fold Zappos into its website but let the recently purchased company operate independently based on its record performance. Besides, the company has quality websites with massive traffic, enabling it to handle and manage its broad customer base. Hence, letting the company operate in its current form is a sure way to maintain the brand image and attract new consumers.
References
Griswold, A. (2022). A dot-com era deal with Amazon marked the beginning of the end for toys R us. Quartz. Web.
Jing, Y., Shao, K., Sun, C., & Wang, Y. (2021). The Star Wars Negotiation: Is It a Perfect Business Negotiation? In 2021 International Conference on Economic Development and Business Culture (ICEDBC 2021) (pp. 236-239). Atlantis Press.
Laska, M. N., Sindberg, L. S., Ayala, G. X., D’Angelo, H., Horton, L. A., Ribisl, K. M.,… & Gittelsohn, J. (2018). Agreements between small food store retailers and their suppliers: Incentivizing unhealthy foods and beverages in four urban settings. Food Policy, 79, 324-330. Web.
Lopez-Fresno, P., Savolainen, T., & Miranda, S. (2018). Role of Trust in integrative negotiations. Electronic journal of knowledge management, 16(1), pp13-22.