Irwin Toy at 75
To understand the history of Irwin Toy is to look a paradox straight in the eye. While it is Canada’s oldest and most storied toy company, to use that term’s most basic definition-a company that makes toys-wouldn’t fully describe how Irwin has operated for most of its 75-year history. Though belonging to an industry dominated by corporate ownership, where the majors swallow their smaller brethren like Smarties, Irwin has remained fiercely independent-and, until this spring, was still run by the family from which it takes its name. Despite the contradictions-or maybe because of them-Irwin has managed to survive, even as both friend and foe were forecasting its imminent downfall.
Since patriarch Sam Irwin founded the company in the mid-1920s, Irwin has weathered a depression, several recessions, a nasty family feud, and the vagaries of an increasingly fickle toy-buying public.
‘Irwin is a cat. It has always landed on its feet,’ says Ben Varadi, VP of product development at Toronto-based Spin Master Toy. ‘I think that it’s incredible that they’ve made it this far,’ he adds.
If resilience is the quality that has defined Irwin to date, it should put the company in good stead as it prepares for the challenges ahead. With new, well-heeled owners outlining an ambitious growth strategy-the centerpiece of which calls for aggressively signing master toy licenses for entertainment properties-Irwin will need it.
Even during good times in the toy biz (which these clearly aren’t), the growth-through-licensing formula has proven risky for many toycos-and it’s likely more treacherous now, given that retailers have less faith in the ability of entertainment properties to drive toy sales. The new owners will doubtless be counting on the improvisational skills that the Irwin name has become synonymous with since its inception.
Originally an importer and distributor of clothing and dry goods, Irwin Specialty launched out of Sam and Beatrice Irwin’s house in 1926. Early on, Irwin gravitated towards toys, which began to assume greater importance to the company’s bottom line. By the early `50s, the company had relocated to a warehouse in Toronto’s west end and was concentrating exclusively on the toy category.
Narrowing its focus would pay off for the company, which Sam’s two sons Macdonald and Arnold were now running. Over the next 40 years, generations of Canadian kids would come to identify the Irwin name with hit toys, even though, in many cases, Irwin didn’t have a hand in creating them.
Back in the early `20s, selling toys in Canada was, in some ways, a trickier business than it is today, says Peter Irwin, senior VP of international sales and one of two members of the family still at the company. Canada was a large but sparsely populated country, which made it difficult for domestic toy companies to cover their marketing and developmental costs selling to the Canadian market alone.
Similarly, large and small U.S. toycos were reluctant to set up shop in the Great White North because the consumer base wasn’t large enough to justify the expense. The only viable way U.S. and other foreign companies could get their toys into the Canadian marketplace was to find a middleman. That’s where Irwin came in.
Although it would eventually nurture a successful doll business of its own, historically, the bulk of Irwin’s profits came from distributing and marketing other companies’ toys.
Staggering as it may be to our imaginations, between 1950 and the late `80s, if Canadian kids had a toy, it likely came in an Irwin box or had the company’s name stickered somewhere on it.
‘As a distributor, Irwin was the cornerstone for any company that wanted to come into Canada. Kenner, Tyco, Wham-O, Bandai-they were all distributed by us at one time,’ says Richard Albert, Irwin’s marketing manager. The company’s ubiquity in the Canadian toy business cemented its icon status with kids and the trade alike, says Spin Master’s Varadi. ‘As a kid growing up in Canada in the 1970s, Irwin was Star Wars, it was Rubik’s Cube, it was Fris-Bee. It was everything.’
As business models go, distributing toys worked exceedingly well for Irwin. Between 1948 and 1969, the company averaged 15% to 20% annual revenue increases, and in `69, the fraternal co-CEOs Macdonald and Arnold decided to take the company, which they had renamed Irwin Toy, public. Always blessed with a flair for the eccentric, Irwin would regularly invite kids to its shareholders meetings and give out free toys.
While it may seem disingenuous to champion a company that created fewer hit toys than it distributed, Irwin’s expertise as a company should not be underestimated, says Albert, who worked at toyco Canada Games before joining Irwin in `99. ‘As a former competitor, I used to marvel at Irwin’s ability to manage down a property or line that it was carrying and have whatever was coming up next right behind it,’ he says. It was a quality that would prove extremely useful to the company as the toy industry became increasingly more precarious to navigate.
Inherently, Irwin knew that many of the companies it distributed product for-called associates-would reach a certain sales volume pitch where it would become financially beneficial for them to open an office in Canada. And they did. Whether it was Sega, Atari or Bandai, companies flew the Irwin coop often, but the toyco adjusted, thanks to its antennae for finding the next hot toy.
‘I don’t know how many times the industry said, `Well, I guess that’s it for Irwin now,” says Larry Pucknell, toy buyer for Tru-Serve, a Winnipeg-based retailer operating 600 hardware and convenience chains across the country. But the company was always able to replace its losses with something of equal value.
However, two key developments in the mid-1980s were making it harder for Irwin to continually bounce back. The introduction of the North American Free Trade Agreement lowered tariffs between Canada and the U.S., making it cheaper for U.S. companies to set up offices in Canada, says Peter Irwin.
Additionally, Hasbro and Mattel had begun to buy up toycos, many of which were Irwin associates. In 1986, Hasbro bought Kenner, which produced popular lines like Easy Bake Ovens and Star Wars. At the time, Kenner reportedly made up one-third, or US$17 million, of Irwin’s revenues. In the coming years, other major associates like Fisher-Price and Tyco would also get bought out or would go direct.
‘We had lost some pretty significant agreements that represented a lot of revenue,’ says Peter Irwin. The writing was on the wall. For Irwin to survive, it would have to change its business plan from that of distributor to a full-fledged toy company.
Irwin expands into the U.S. and pursues entertainment licensing
A key part of Irwin’s strategy to transform itself into a company that created and distributed toys meant finding product that it could sell in Canada and abroad. The U.S. market, with its huge population of consumers, beckoned.
In 1992, the company opened a sales office in Boca Raton, Florida. While close to 95% of Irwin’s revenues were historically derived from product it distributed in Canada, Irwin had produced toys of its own, including the tabletop sports game Rod Hockey and the Oopsie Daisy doll. Initially, Irwin distributed these and other toys for which it held North American distribution rights, such as the board game Frustration.
Though Irwin’s entry in the U.S. was successful early on, it didn’t last. By 1995, the market for expensive dolls had gone south. ‘We were stuck with some high-priced dolls and got eaten alive,’ says Peter Irwin. The division would continue to bleed money for the next three years.
Lacking a G.I. Joe or Barbie in its portfolio, the company knew it needed to find well-known brands that it could market internationally. Following the conventional wisdom of the day, says Peter Irwin, the company decided to create toys tied to entertainment properties.
In February `98, Irwin signed its first master toy deal with FUNimation for anime property Dragon Ball Z. At the time, it was a risky move. Pokémon and the anime revolution had not yet fully penetrated the North American kids market. And though extremely popular in its native country Japan, Dragon Ball Z was virtually unknown on this continent. In fact, Bandai had just decided not to renew its North American toy deal with FUNimation, which would soon secure broadcast placement for the show on Cartoon Network.
Although FUNimation was in negotiations with several other toycos, Irwin stuck out from the pack, remembers Gen Fukunaga, president of the Fort Worth, Texas-based company. ‘Irwin had the vision that Dragon Ball Z was going to be a big property. Other people thought it had potential, but they weren’t willing to commit to it to the same extent,’ says Fukinaga.
That Irwin’s expertise lay within toy distribution in the Canadian market didn’t concern Fukinaga. ‘Irwin had a lot of its own non-licensed toys, so we felt sure that it knew how to make, sell and market toys. Plus, Irwin had done well distributing Sailor Moon toys-based on another anime property,’ he says.
Dragon Ball Z proved to be the tonic that Irwin needed to revive its slumping U.S. division. In 2000, Dragon Ball Z toys generated US$26 million. Whereas Irwin had no presence in the U.S. just seven years ago, last year, the U.S. division provided 50% of the company’s US$88 million revenues-five times as much as it was generating in `95. Based on its success with Dragon Ball Z, Irwin hunted for more licensing deals, inking agreements for other Sailor Moon products (DIC Entertainment), Reboot (Mainframe Entertainment) and Caillou (Cinar) over the next few years.
In addition to securing licenses, Irwin decided to leverage its newfound brand equity internationally by opening an Australian distribution center called Irwin Pacific in 1997. A joint-venture with Sydney-based Dorcey Investments, Irwin Pacific distributes Irwin-developed product, as well as the toys of other companies, in the Australian market. (For other international territories, Irwin currently licenses companies to distribute its product.) In its first two years of operation, Irwin Pacific lost money, pulling in US$3.1 million and US$5.2 million respectively. But the company expects to turn a profit this year, says Peter Irwin, who projects sales to hit the US$6.7-million mark.
By the late `90s, things were looking up and Irwin was once again able to bob and weave against the blows the toy industry dealt. Ironically, it was at this point of relative market stability that internal strife would nearly fell the company for good.
The Irwins Exit Irwin Toy
By 1999, Irwin’s board members were at loggerheads over the leadership of CEO and president George Irwin. The eldest son of Macdonald Irwin, George had taken over the reins from his father in 1990 and had helped to initiate many of the transitional changes that the company underwent in the `90s. But George’s management style alienated many in the company.
The Canadian business press ate up the Irwin infighting and provided an ongoing blow-by-blow account of the dispute. It wasn’t pretty. Quoting company sources, one story stated that George Irwin was constantly giving special consideration to a particular female employee. In one instance, he pushed ahead the development of a costly project this employee had suggested, a proposal that had already been quashed by a senior manager.
Other stories surfaced claiming that the company was often rudderless and had let slide key segments of its business (like its sporting goods division, which currently pulls in US$13 million annually). The whole mess was finally resolved when George left his post last December. But in the year leading up to that point, the dispute cost the company several of its key employees, including Bryan Irwin, former senior VP; Scott Irwin, former VP; and David Irwin, former marketing director.
The ongoing family feud didn’t just have an impact on personnel; it also negatively affected Irwin’s premier brand Dragon Ball Z. The frequent turnover of product managers hindered production of Dragon Ball Z figures. ‘There were less experienced people who didn’t set up the pipeline properly,’ says FUNimation’s Fukinawa, which hurt sales of the toys in 1999. However, Fukinawa stuck by Irwin as management eventually began to hire more seasoned executives to help shepherd the brand.
New ownership, new attitude
These days, Irwin employees would, understandably, much rather discuss the company as a new player in the global toy business than its recent problems-and for good reason. New owner Livgroup Investments, which bought the company in April for US$36 million, has brought a new professionalism to every facet of Irwin’s business-in addition to injecting capital into the company. Headed by new CEO and president J.R. Halde, Irwin is investing in a new computer system, hiring additional staff and establishing basic best business practices like regular employee appraisal programs. ‘It’s a breath of fresh air,’ says director of research and product development David Hilt, a former buyer with Toys `R’ Us who joined the company last November.
‘We’re currently looking for a VP of marketing, and it’s global search. It’s not just somebody phoning up someone they met at a cocktail party,’ says Hilt. ‘It’s being treated with the utmost importance.’
The new leadership has communicated a clear mandate to employees, he adds, and is showing the financial wherewithal to match the rhetoric. ‘We’re absolutely committed to long-term growth,’ says J.R. Halde. To ensure Irwin meets that goal, Halde, former CEO of logistics company The Livingston Group, took the company private in April. By doing so, Halde, who has no previous toy industry experience, says Irwin will be able to make necessary investments in infrastructure, training, etc., without the scrutiny of the public or investors.
‘As a private company, will our bottom line be impacted by these investments? Absolutely. But if it’s the right thing to do, then we’ll just do it. Whereas if you’re a public company, you have to explain the terrible quarter you just had. People get upset. The analysts get nasty. We don’t want to go there,’ says Halde.
Undoubtedly, Irwin’s biggest investment will be made in the area of product development. ‘We’re going to have to beef up that group because it’s the heart of our business,’ says Halde. He expects Irwin’s short-term growth to come mostly from the acquisition of entertainment licenses, but adds that the company will be investing heavily in developing proprietary brands, which currently account for only 30% of Irwin-developed product revenues.
Though Halde declined to say how much Irwin would be investing in entertainment brands, David Hilt says his target is to sign at least three new licensing agreements a year over the next three years. It may not sound like a terribly ambitious number for some toycos, says Hilt, but it represents a major increase for Irwin, which didn’t sign any new licenses in 2000 and has historically taken an ad-hoc approach to licensing.
One of the newer agreements Irwin has signed is with Carlton International for North American toy rights to its Thunderbirds TV show. Irwin will create 11.5-inch action figures, die-cast keychains and playsets based on episodes of the British TV program from the `60s, which Carlton recently updated and remastered. Though Carlton had not yet found a U.S. broadcaster for the show at press time, Hilt says Irwin will still be able to profit from its association with the property because Irwin Pacific already controls distribution rights for the toys in Australia, where the show is a mega-hit.
Irwin has also entered into a joint-venture with FUNimation to launch a new toyco that will specialize in developing toys based on FUNimation’s properties, which include the Dragon Ball Z movie brand and anime properties Yu-Yu Hakasho and Blue Gender. The as-yet-unnamed toyco, of which Irwin owns 50%, is expected to launch later this year.
As for proprietary product development, Hilt says the company plans to boost its design operations, adding designers and machinery in-house to handle work that has typically been outsourced. Additionally, Hilt and colleague Al Bishop, Irwin’s inventor relations manager, are traveling the globe meeting with inventors on a quarterly basis to let them know Irwin is interested in their work, and to hopefully get an early read on innovative products that it can bring to market.
Irwin will find out this year whether the path the company charted in the early `90s to become a full-blown toyco is paying off as it rolls out three new proprietary lines-Baby Shoe Babies (a miniature doll set due out this fall that girls can clip to their knapsacks), Blazin’ Key Cars (mini replica cars that hit stores last December) and Bead Boutique, an arts and craft item for tween girls. Though he feels all three items will be successful, Hilt knows they’re entering a tough market. ‘With all of the new video game consoles being released at stores, we feel 2001 will be another soft year for the toy industry. We’re using this year to retrench for 2002,’ says Hilt.
In the interim, Hilt is also charged with trying to transform Irwin’s toy production unit into a more agile operation. In today’s environment, where the lead times for toycos are constantly shrinking, it’s crucial that companies get toys to retail as close to the TV show or movie launch date as is possible, says Hilt.
With the Hasbros and Mattels still living up to their legendary reputations for moving slowly, Hilt feels a mid-size company like Irwin will prove to be a more attractive alternative for licensors. ‘Look at Thinkway’s experience with Pixar’s Toy Story, for example,’ he says, referring to the Canadian toyco. ‘The license for that movie would have been a natural for Mattel, but they couldn’t turn the toys around in time. Thinkway did, and was able to release some very innovative product. Those toys put them on the map. That’s the approach we’d like to have at Irwin.’