UPDATE: EToys.co.uk packs up its toy chest

Yet another US e-tailer is packing up and going home.

EToys announced Wednesday it will shut down its UK subsidiary after 19 January, as a cost-cutting measure.

The Silicon Valley-based parent issued a warning in December that sales had fallen far short of expectations and that it had been forced to explore a merger, asset sale or other restructuring. It said at the time it had enough money to continue trading till the end of March.

EToys.co.uk itself has fared better than its parent, reaching number one in the UK online toy market and hitting all its sales targets. "In spite of the fact that we had a good Christmas, and have performed very well, we're a very small part of the overall picture," said an eToys.co.uk spokesman. "The priority has to be to build the US business."

Sales will continue until the 19th and the UK site is starting off the year with a half-price sale to liquidate its existing inventory. The company says it is planning to keep a handful of its 74 staff on after the site stops operating to wind up operations in an orderly manner.

EToys isn't the only casualty in the financial downturn currently hitting Internet companies. Organisations such as eToys could once have counted on being able to raise funds from the public or private equity markets until they reached profitability, but are now being forced to cut costs or merge with rivals.

In November, US financial news site TheStreet also shut down its successful UK operation to cut costs after less than a year of operation. Other UK casualties include flamboyant sports e-tailer boo.com and natural health site clickmango. Cooperative buying site Letsbuyit.com announced this week it is seeking deferment of its debt payments.

EToys says it is leaving open the possibility of reopening a UK site if financial conditions improve. "We have built a strong brand in this country, and a strong and loyal customer base," said the eToys spokesman. "We've proved there is an opportunity here for a service like eToys, but in the current environment there isn't the capital to get it to scale. Pure-play Internet companies are built around economies of scale."

On the UK site Wednesday eToys ran an image of Bob the Builder, the popular children's character, with the caption: "Can we fix it? No we can't!" The company says its closing sale will end 5pm on 19 January.

Find out how the Internet is revolutionising the economy at the E-commerce Special.

Have your say instantly, and see what others have said. Click on the --TalkBack button and go to the ZDNet News forum.

Let the editors know what you think in the Mailroom. And read other letters.