Few would argue that the recent history of the U.S. toy retail market is as gloomy as a Stephen King novel. Ames, Caldor, Bradley’s and other chains are dead; Kmart and FAO Schwarz have hacked jobs and closed locations to get off Chapter 11 life support, and even stalwart chain Toys ‘R’ Us has had trouble making a profit outside of Q4 and has slimmed down its inventory.
The truth of the matter is this: Outlets that draw consumers on a more regular basis offer a far more lucrative opportunity these days. According to a recent SmartMoney.com article (‘Value at the Toy Store,’ July 25, 2003), retail analyst Donald Trott says the average Toys ‘R’ Us family tends to visit the store four or five times a year, usually for birthdays and the holiday season. This is compared to 22 to 26 visits to a mass retailer like Wal-Mart or Target, and 95 trips to the grocery store. With this in mind, many traditional toy retail players are starting to retrofit their business models to tap into new opportunities in alternative streams.
Thanks to a new five-year agreement, Toys ‘R’ Us has become the exclusive toy supplier for Albertsons’ nearly 2,300 grocery and drug stores. In most cases, the deal will manifest itself in branded, 60-foot TRU Toy Box aisle displays. The Toy Box roll-out will take place in two phases, the first of which began mid-October at 1,000 Albertsons in order to take advantage of Thanksgiving and Christmas shopping surges, giving Toy Box a strong number of immediate impressions. A second launch wave in Q1 2004 will involve 1,200 stores.
The concept has been testing for the last two years in 25 Albertsons, with between 2,000 and 2,500 SKUs – just enough to demonstrate that price points needed to be under US$15 to hit the most valued Albertsons shopper: mom. TRU found its target was mothers buying for one of two reasons: birthday gifts for other children, or ‘no special occasion’ gifts for their own child (i.e. reward toys, sympathy toys and the all-important ‘shut-up’ toys). ‘The effort is really to peel US$5 to US$6 a visit off of mom,’ says Toy Box VP Darryl van Ligten. ‘Since we’re seeing her two or three times a week, that comes out to big numbers at the end of the year.’
The low price point policy doesn’t apply to the holiday season, however, when Van Ligten thinks Toy Box can do a brisk business in items priced between US$29 and US$39. When it comes to licensed versus non-licensed toys, he says TRU is more concerned about getting a wide play assortment into Albertsons than it is about ticking off a list of franchise names.
Looking to rebuild after coming out of Chapter 11, FAO struck a deal with Borders/Walden Books in September that will see it move into the book chains in Q4. FAO-branded areas ranging between 100 and 200 square feet will be tested in 25 Borders and a dozen Walden stores for six months, with Borders bringing in about 100 SKUs. In a reciprocal initiative, Borders will help push videos, books and music that it supplies to FAO.
According to Diane Mangan, category manager for children’s merchandising at Borders/Waldens, the biggest question mark surrounding the deal concerns the FAO name. ‘Is a customer in Kansas City, Missouri aware of the FAO brand? Does it mean something to them? The product lines are not secondary by any means, but I think it’s brand awareness [that's important].’
Borders had already begun to expand its non-book kids merchandise in 2002, slanting towards educational products, games and puzzles. While the FAO assortment is still being selected, Mangan says it will likely be a mix of what currently works for the book retailer: plush, creativity kits, puzzles, games and some dolls, with price points ranging from US$5 to US$50. Where licensed product makes sense – as an extension of currently stocked book titles, for example – it will certainly be included.
As toy retailers attempt to hit more of their consumers by branching out to other retail realms, so too do manufacturers and licensees, who benefit by being nimble enough to both negotiate smaller, customized deals and quickly tweak strategies that don’t pay off right out of the gate.
Fisher-Price director of sales Cole Racho says his company had limited success when it initially explored the food and drug retail market – mostly because it took a mass-market approach that didn’t fit the alternative stream’s cost model, distribution plan and packaging needs.
One of the biggest lessons Fisher-Price learned was that most non-traditional toy retailers buy on an item basis; the other main difference concerned ordering windows, which are much longer for food and drug chains. ‘Whereas a mass account might be willing to set their fall plan-o-gram as late as June, a food and drug account is working on fall 2004 starting in October 2003.’
Finding a physical fit in the non-traditional outlets was also a challenge. ‘A lot of it consisted of simple, disposable corrugated displays that we could ship in pre-loaded with our toys,’ says Racho. ‘We had never done anything like that before.’
The process became a whole lot easier in 1997, when Fisher-Price’s parent company Mattel acquired license-heavy manufacturer Tyco Preschool. ‘Its product line was much more adept at adjusting to [food and drug] channels,’ observes Racho. ‘And its sales people were used to dealing with them.’ Now called Fisher-Price Friends, the inherited Tyco Preschool product line features a multitude of low-cost plush SKUs that come in well under the price ceilings governing drug and grocery stores (below US$9.99) and dollar stores (somewhere between US$0.99 and US$4.99).
Alternative market experience has also made Fisher-Price more savvy when it comes to overall line planning. Whereas the company might have traditionally sold a four-pack of PVC Winnie the Pooh baby figures at mass and toy retail for around US$7.99, it now considers splitting them up to sell for US$0.99 apiece at dollar stores, which have an incredible market reach.
Dollar General alone is projected to have roughly 10,000 stores in its arsenal by the end of 2004. ‘Our business there has easily grown 50% in the last year,’ says Racho. ‘Plus, because these stores work so much further ahead and because they order everything directly out of Asia, they pay upfront. As a working process, it’s certainly less risky than holding a certain number of toys for a larger account in hopes that they’ll order them.’
Alternative retail accounts can be quite demanding when it comes to promotional support. ‘All of these retailers are very aggressive,’ says Isabel Miller, Henson’s executive VP of consumer products worldwide. ‘They expect you to pull more of your licensees together and say: ‘What can we do for your window? What can we do to drive traffic into your store?”
As part of their 25th anniversary revival, the Muppets will take the stage as an end cap in nearly 900 Barnes & Noble boutiques this holiday season – thanks in part to some persistent legwork by New York-based toy licensee Sababa Toys.
The Muppets boutiques will feature Sababa SKUs like a first-ever, four-piece Electric Mayhem Band plush (US$20), Muppets Uno (US$12), Muppets Magic 8 Ball (US$14) and Muppets chess (US$25), as well as a mini-Muppets PVC set (US$14.99) from Palisades Toys, another toy licensee on the property’s call sheet. Kermit himself will help on the promotions front, making in-store appearances at the Lincoln Center and Union Square B&N stores in New York on November 14.
Henson and Palisades have worked together to build a Muppets presence in Musicland, and Henson plans to focus more of its attention on the chain in Q4 2003 and Q1 2004, adding apparel and Sababa merch to the existing lineup of videos/DVDs, figures and T-shirts. Palisades has had a relationship with Musicland since the mid-’90s, supplying the chain with South Park cardboard standees, action figures and higher-priced resin statues.
Although the Elkridge, Maryland-based company has recently begun selling into Target, which does a high-volume business with the few PVC action figure SKUs it carries, Palisades president Mike Horn values his business with smaller retailers such as Musicland, Electronics Boutique and Game Stop. He notes that they have the advantage of being able to work on trends, bring in test items and turn deals around faster than the big chains. Horn’s ideal distribution model would be to have 10 retail customers, each with 10% of the inventory.
Applause president Bob Solomon says his company’s entire business model is built around distributing gift and plush product at specialty retail. While stores like Target might order toys by the truckload, Solomon says he sleeps better at night depending on a diverse range of non-mass outlets, because ‘if Wal-Mart catches a cold, most of its vendors catch pneumonia.’
Blockbuster Video is one alternative route that has paid off big-time for Applause, which moves several million dollars worth of character-based plush and figurines through the video chain’s 4,000 U.S. locations each year. Because most people don’t go to Blockbuster to buy gifts, Applause supplies the stores with impulse-buy items in the US$3 to US$15 price range. The manufacturer maintains a retail space in the center of each store that measures a mere 18 square inches, and it does a brisk business with exclusive products that tie into new kids theatrical or video releases.
Besides thinking out of the box when it comes to retail opportunities, manufacturers should consider the box itself. In operation since 1986, 24-hour home shopping channel QVC does US$4.4 billion in annual business and is the leader in at-home retailing. The net is available in about 85 million homes, and it advertises toys in a run-up to the holiday season from July to Christmas. While most retailers judge success by dollars per square foot, QVC measures it in dollars per minute. It works on a margin basis like any other retailer, but merch must be successful to pay for all that TV time.
While suppliers can deal directly with QVC’s vendor relations department, specialized agents like Pennsylvania’s T.O. Epps & Associates make a healthy living by knowing the ins and outs of QVC’s business, and they can help manufacturers avoid common pitfalls. ‘The key to being successful with QVC,’ says company founder T.O. Epps, ‘is having the end in sight. It’s not about selling the product to QVC; it’s about figuring out a way to successfully sell the product to the consumer.’ That includes having a highly demonstrable item, a solid on-air pitch with guests, a set script and a convincing value statement (QVC customers are very price-savvy). The net’s 24-hour airtime offers a lot of marketing muscle, allowing for demonstrations and research communication. ‘In a 30-second commercial, all you can do is sell the sizzle,’ notes Epps. ‘Now you can actually sell features and benefits.’
Sesame Workshop used T.O. Epps when it signed up for a branded hour on QVC last year. The company experienced sell-outs on items including Chicken Dance Elmo and the Elmo’s Neighborhood book series, and it hopes to repeat the experience this year. QVC is a very focused retailer, notes Kearns. ‘They have a track record of what they’ve tried before, and they know who their shopper is for toys, books and other juvenile products.’
That kind of finite consumer knowledge tends to put QVC firmly in the driver’s seat when it comes to planning on-air retail strategy, says Henson’s Miller: ‘When they tell us, ‘We want it simple’ or ‘We want a piece of jewelry,’ we say yes.’ Henson first tried the outlet about a decade ago and is returning this month with some Sababa product. Although details were still being finalized at press time, Henson will likely sign up for some Muppet-specific time and offer plush and videos as part of its product range.