Consumer Products

Toycos spin new strategies to turn figural fortunes around

Once considered the crown jewel of the toy business, the mighty action figure category has fallen on hard times of late. Just three years ago, it was riding high on the strength of hit anime TV show Pokémon and a theatrical revisit of the original Star Wars trilogy. In 2000, though, the bottom caved in. Sales plummeted 26% (the second largest slide of any toy category for the year), and in 2001, the situation fared little better. According to market research firm The NPD Group, action figure sales rose a mere 6% for the first 11 months of 2001. And though the Harry-Monsters-Rings troika of tent-pole pics helped to nudge the category's sales northward in the last quarter, the industry still isn't exactly bursting with confidence that the category will return to the heady days of 24% annual growth it enjoyed in 1999.
February 1, 2002

Once considered the crown jewel of the toy business, the mighty action figure category has fallen on hard times of late. Just three years ago, it was riding high on the strength of hit anime TV show Pokémon and a theatrical revisit of the original Star Wars trilogy. In 2000, though, the bottom caved in. Sales plummeted 26% (the second largest slide of any toy category for the year), and in 2001, the situation fared little better. According to market research firm The NPD Group, action figure sales rose a mere 6% for the first 11 months of 2001. And though the Harry-Monsters-Rings troika of tent-pole pics helped to nudge the category’s sales northward in the last quarter, the industry still isn’t exactly bursting with confidence that the category will return to the heady days of 24% annual growth it enjoyed in 1999.

There are many reasons for the category’s less-than-stellar performance. Two consecutive years of video game console releases (PlayStation 2 in Q4 2000, followed by Nintendo’s GameCube and Microsoft’s Xbox in Q4 2001) have eaten into dollars that could have been spent on figures, as has the age compression phenomenon, which sees kids move in and out of the category at earlier ages. But the factor with the most impact is the shortage of action figure-appropriate entertainment properties. That action figures generally live or die on the strength of the entertainment brands upon which they’re based is hardly a news flash, but these days toycos are acknowledging this fact.

‘There may be a rebound with Monsters and Harry Potter, but even if there is, you can’t be bankrolling the entire industry on two lines, because it doesn’t solve everybody else’s problems,’ says Todd McFarlane, CEO and namesake of McFarlane Toys. ‘Waiting for lightning to strike is no way to run your business.’ As toycos trot out their action figure hopefuls this Toy Fair, the various tactics being used to make lines more appealing to kids and buyers alike will be on display. And while these strategies–which vary from adding more technical innovation, to targeting new demographics–may not be new, they do demonstrate that the willingness of toycos to bring more value to their lines is stronger than it has been in recent years.

Cross-category cannibalization eats into action figure revenues

One of the causes for the dip in action figure sales may be a question of semantics. Over the last two years, products that are decidedly action figure-esque, such as Bandai’s Gundam Wing snap-together model kits (which captured six of the top 10 rankings in the model kits and accessories category for the first 10 months of 2001) are consistently taking away dollars from the action figure category, says Reyne Rice, NPDFunworld’s director of marketing and communications. Lego’s Bionicles line, released last year, is another good example. The toy, which comes in plastic pieces that kids construct into a robot-like figure, scored six of the top 10 spots on NPD’s top 20 chart of new toys introduced in the first half of 2001.

Though both lines are action figure-like, retailers routinely stock the products in their building and construction set aisles, and NPD consequently tallies them as such.

Since expanding the definition of the action figure isn’t in the cards anytime soon, toycos are increasingly glomming on to the some-assembly-required trend. Last fall, Hasbro introduced Electronic ZOIDS Ultra Action Figure Model Kits exclusively through Toys ‘R’ Us. Based on characters from the same-name series that currently airs in Cartoon Network’s Toonami block, the kits allow kids to snap together the battery-powered ZOIDS, which can then be customized with sticker decals. Hasbro began rolling the line out last month at all mass retailers.

Also in the you-build category are Bandai’s Cyclonians. Scheduled to hit stores this month, Cyclonians are spinning tops that kids construct and then send into battle against one another. There are 12 SKUs in the line, which Bandai launched in Japan last year.

Based on positive initial sales and the growing popularity of spinning top toys in Asia (for example, Takara’s Bey Blade line, which Hasbro released into the U.S. in limited distribution last December), Bandai America’s director of marketing Colleen Sherfy believes the toys can deliver a sales success in North America as well. Comic books detailing the back story and personality traits of each character will be bundled with the 12 Cyclonians, which are targeted to kids ages six and up. Bandai also plans to follow up with six new Cyclonians and some battle arena playsets this fall.

Targeting new demos: How low and how high do you go?

The belief that kids are burning through action figures faster than they did a decade ago is generally accepted as industry fact today. Though there’s no hard cross-brand data to support this shift, individual action figure lines have seen the age of their customers change over the last decade. ‘I think the action figure category is splitting–it either skews really young to preschoolers, or really old to collectors–and very few figures cover both,’ says Steve Tucker, director of marketing and sales at Los Angeles, California-based Manley Toy Quest.

Consequently, many toycos believe the category’s future lies in creating product for the under-six set. And no company has enjoyed more success with this strategy than has Fisher-Price with its Rescue Heroes. The line, which consists of chunky six-inch figures modeled after paramedics, firemen and policemen, has doubled its sales every year since it launched in 1998, netting over US$100 million last year.

That the figures are based on non-violent play patterns is the reason for the line’s enduring success, explains Chris Pardi, director of marketing at Fisher-Price. ‘When we did focus group testing before we launched Heroes, many parents said they were concerned that they couldn’t distinguish between the good and the bad guys in other action figure lines,’ says Pardi. Not surprisingly, the unfortunate events of 9/11 have increased the popularity of FP’s line, boosting sales of its Fire Rescue assortment by 50%, says Pardi, as has the Nelvana-produced Rescue Heroes TV show, which is now entering its fourth season on Kids’ WB!

For 2002, Fisher-Price doesn’t plan to mess with the success of Rescue Heroes. It will add greater articulation to the line, giving the figures hips that swivel, as well as introducing a night force team featuring figures that are fitted with lights. Though Rescue Heroes are ostensibly action figures, they are included in the preschool villages and scenery sets category, which means, like Bionicles and Gundam, they’re also eating into action figure sales. ‘Some people put [the Rescue Heroes line] in the activity sets aisle,’ says Jim Meyer, senior action figure buyer with KB Toys. ‘We buy it in preschool. Either way, it’s an action figure.’

Recognizing this downward demographic slide in the category, Toy Biz is planning to launch its first preschool line of figures under the Spider-Man brand. Scheduled for release in August, the Spider-Man & Friends product roster will consist of six-inch oversize figures of the webslinger and his pals Spider-Girl, the Hulk and Captain America. The figures, which will be able to stand on their own (an important feature in preschool figures) will incorporate the look and gear of firemen, policemen, construction workers and air rescue teams. Says Kathryn Maciel, VP of marketing at Toy Biz: ‘We tested moms with kids two to five and found that Spider-Man had an awareness rating of 96%. They all saw him as a positive role model, someone who helps people.’ With age compression still taking its toll on the industry, Maciel says preschool has become a very important category for Toy Biz.

Action figure innovation: Thinking outside the box

Though the former sweet spot for action figures–kids ages four to 12–may be shrinking, not all toycos have given up on this demo. With companies targeting teen or adult collectors with lines that emphasize finely detailed sculpts, or preschoolers with chunky figures that can stand on their own, innovation in action figures has taken a back seat, says Manley’s Steve Tucker. ‘When was the last time you saw a figure and said, ‘That’s so cool?” asks Tucker. ‘They’re usually direct mimics of the license.’ Thus, Manley’s strategy is to try and restore action to the action figure category by creating figures that actually do something. A case in point is its Stretch Screamers line, which hit stores in September. Screamers, 13-inch grotesqueries that allow you to stretch their bodies and squeeze their eyes and brains out, have done exceedingly well for Manley, clocking sales of 80,000 units a week last December. Part of the Screamers’ popularity, says Tucker, is due to Manley’s decision to play off the ghoulish nature of the line and ship it to retailers in early September 2001, thus allowing the company to capitalize on two big shopping seasons–Halloween and Christmas.

The main reason for the line’s success, though, is that Screamers offer kids more than just poseability, says Tucker. ‘Today you have to think outside of the box. You can’t insult your consumers by doing static, poseable action figures.’

Tucker is hoping kids will find sufficient play value in Morph Man, the company’s major 2002 action figure line that it will introduce this fall. Like Stretch Screamers, which borrows the proven feature play of Stretch Armstrong, Morph Man also incorporates an established figural feature. Based on the old Cap Toys doll VAC Man from the early ’90s, Manley’s Morph Man line includes a pump that sucks the air out of 13-inch figures. Once deflated, the dolls reveal a grisly endoskeleton, littered with metal plates and shrapnel that can be molded into different shapes. If kids want to change him back to his original shape, they need only press the pump again and the voice chip-enhanced doll fills up with air and screams ‘I’m Morph Man!’ The Morph Man line, which Manley is targeting to kids six and up, will be available in three SKUs–Steel Man, Muscle Man and Rock Man.

While increasing figure functions may be a successful strategy for attracting middle-age children, other companies like Jakks Pacific can’t afford to ignore their large teen and adult collector bases, for whom authenticity is the key selling feature. In the last few years, that’s been a challenge for the Malibu-based company. With the constant turnover of characters on the World Wrestling Federation’s various TV properties, Jakks was often shipping figures modeled on characters who were no longer on TV.

‘We found that our fans don’t want to buy product if it’s not based on the characters in the show,’ says Stacey Pauly, director of marketing at Jakks. To accommodate the needs of this group, Jakks moved from a bi-annual to quarterly product release schedule in 2001 for its WWF lines.

Creating product that appeals to both collectors and kids is also key to Jakks’ 2002 lines, especially in its R3 (Real Scan, Real Scale and Real Reaction) line. For the R3 assortment, Jakks designed the figures to look identical to the wrestlers upon whom they’re based, even making them proportional to their real-life sizes. Each figure will also come fitted with microchips that allow kids to use them with various R3-enhanced playsets. And whereas last year’s version required you to fasten a figure’s foot to the playset in order to make it interact, R3 character-recognition technology now lets kids to wave the character over the playset for automatic reactions, including sound bites of the character’s voice and theme music.

It’s the entertainment hook, stupid!

Technical innovations and collector carrots for action figures are all good, but there’s no replacing the ability of a hot entertainment property to drive sales. For evidence, look no further than the top three action figure lines over the first eight months of 2001–Power Rangers, Digimon and Jurassic Park III. All are based on well-known entertainment franchises. Yet given the disappointment of a recent string of event pics that failed to deliver in the toy aisle, selecting the right license today’s means different things to various licensees, and depends on the size of your company.

In Mattel’s case, it means finding entertainment properties that are appropriate for action figures. ‘I think a lot of the anime properties that were big in the ’90s were a lot less toyetic for action figures,’ says Mattel’s Geoff Walker, director of marketing for action figures. ‘A property like Pokémon probably did a lot less in action figure sales as a percentage of its overall revenues than Batman or some of the old men-in-tights properties because on a toyetic basis, Batman gives kids an easier play pattern and conflict to glom on to,’ he explains.

Nevertheless, one of Mattel’s major boys lines for 2002 will be based on Yu-Gi-Oh!, the hit anime property that has sold US$2 billion worth of merch in Japan to date. Mattel will bow with puzzles and a limited line of six-inch figures in March, with plans to go wide with more products–including two-inch action figures and playsets–in the fall. Mattel’s Walker justifies the pick-up of the Yu-Gi-Oh! license by noting that the show features easily identifiable heroes and villains, but is not rife with the many intricate subplots that characterize some anime properties.

Boasting an equally transparent story line is Mattel’s other major action figure release for 2002, an update of its ’80s property He-Man. Marking He-Man’s 20th anniversary this year, Mattel plans to launch with a wide assortment of figures at retail in September. The toyco will support the line with a one-hour TV special produced by Mike Young Productions (set to debut in August on a yet-to-be-determined broadcast outlet) explaining the back story of how He-Man came to be Master of Castle Greyskull. Also in the works is a Mike Young Productions He-Man TV show, for which Mattel is currently in negotiations with a number of broadcasters. The company will be giving He-Man a bit of a makeover for his latest incarnation. Out is the pageboy haircut, which will be replaced by a more anime-style shards-of-hair look. And though still buff, He-Man’s muscles won’t bulge quite as prominently as they did in the ’80s. ‘We’ve altered him to make him more relevant to kids, which is really our focus this time. We know there will be collectors, but we want to make sure it translates to kids,’ says Walker.

That said, to get collectors on-side, Mattel will be quietly distributing limited-edition SKUs through its regular assortment releases to retailers.

For toycos working below the Mattel and Hasbro revenue bracket finding the right license upon which to base action figures often means settling for the crumbs the two giants leave behind. Yet with both Mattel and Hasbro being more selective in their licenses, the leftovers are becoming more tantalizing for small- to mid-sized outfits. McFarlane Toys, for example, was able to snare toy rights to last summer’s hit animated feature Shrek. ‘Three years ago, when things were going great for the industry, I wouldn’t have been able to grab a Shrek,’ says McFarlane. ‘The big guys would have said, ‘OK, it’s an event pic, family fare, we’ll take it.”

McFarlane says the Shrek toys did reasonably well, but he’s not eager to take on a license for another blockbuster. ‘The problem is that you’re directly competing with Hasbro and Mattel. And trying to compete with an 800-pound gorilla with a company the size of mine isn’t necessarily a smart business move,’ says McFarlane.

What is smart, he says, is licensing action figure categories from which both Mattel and Hasbro walked away–like sports. Last year, McFarlane picked up action figure licenses to all four major sports leagues after Mattel nixed its deal with the NBA and Hasbro terminated its contracts with the NHL, NFL and MLB. The broad demo appeal of sports collectible figures grabs both older adult collectors and kids, says McFarlane. And the year-round appeal of sports (once baseball is over, McFarlane can rotate in hockey and basketball figures) allows him to secure a large piece of retail real estate in mass retailers like Wal-Mart, which never carried his company’s products before.

‘Retailers are looking for blue-chip product, and sports are an easy buy for them. It’s never going to make them tons of money, but they don’t have to worry about it while they say, ‘Ahhh, I hope that US$1 million worth of Harry Potter product sells,’ or ‘Ahhh! I hope I can move that US$1 million worth of Star Wars product.”

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