Four years ago, Cheong Choon Ng invented a one-of-a-kind bracelet-making kit that could be found exclusively at his family home in Michigan. It was a labor of love—a way of bonding with his two young daughters—but the contraption proved to be such a hit with neighborhood kids that Ng decided to manufacture and sell it. He called it Rainbow Loom and it would one day change the toy landscape. But back in 2010, the biggest challenge was finding any retailer willing to carry it.
Ng tried to sell Rainbow Loom online, but potential customers didn’t latch on to the concept, especially without any sense of how it worked. It was just a box filled with elastic bands, plastic clips, hooks and a plastic board. Big-box toy stores also balked at stocking a product with unproven sales. Mom-and-pop shops sold a few of the kits, but his big break came in 2012, when the owner of one Learning Express Toys franchise ordered 24 kits. Two days later, Ng received another call for a reorder. Pretty soon, Learning Express Toys across the US were snatching up Rainbow Loom kits and offering “how-to” classes in-store.
As sales heated up into 2013, Ng got the call from US arts & crafts retail giant Michael’s and he agreed to a one-year exclusive starting in August, with a few caveats. First, Ng wanted to continue to sell to smaller specialty retailers. Second, Michael’s would not sell Rainbow Loom for less than US$14.99 per unit—a lower price than that would undercut the indie shops that first supported Ng.
As it turned out, the trade-off was a trade up. Michael’s has approximately 1,250 locations in the US, but a slew of smaller retailers carrying Rainbow Loom nationwide—with classes, events and clubs to boot—would help generate buzz. “Michael’s sees these specialty stores as mini-salesmen for the product that will help it to continue the trend,” Ng says.
Approximately eight million original Rainbow Loom sets have now shipped worldwide, according to Ng, and the craft toy won top prize at the 2014 Toy of the Year Awards. Additionally, Rainbow Loom accounted for 2.9% of same- store sales growth at Michael’s for the entirety of 2013, even though it only started stocking the kits that August. The arts & crafts store sold approximately US$4 million worth of bracelet-making kits in those five months. The loom bracelet craze is now spreading across Europe, where even Prince William was recently spotted wearing one.
Ng says Michael’s was a very good partner, though he would have tried to work out a different contract if he had a do-over. “Knowing what I know now, I probably would have made some slightly different deals that allowed me to be a little more flexible,” the 45-year-old says. “The deal with Michael’s totally shut off the [chance] to be able to work with anybody else.” Namely, Rainbow Loom wasn’t to be found at any of the approximately 7,500 retail locations combined for Toys ‘R’ Us, Walmart and Target across the US.
“Ubiquity is the new exclusivity,” says Carol Spieckerman, president of the retail consultancy firm newmarketbuilders, based in Bentonville, Arkansas. “Being in more than one retailer makes it better for everyone because it drives awareness and it drives brand equity.”
So besides cutting off other avenues for sales, long-term exclusives can bring certain perils. “If an exclusive is granted to a single retailer, and you’re well-known enough, and the concept is catching on, you do run the risk of limiting your options—and at the same time, having your brand diluted through knockoffs and copycats being sold at the retailers you didn’t grant distribution to,” says Spieckerman.
There is no shortage of products trying to capitalize on the craze Rainbow Loom started, such as FunLoom, Bandaloom and Magic Loom. Toys ‘R’ Us listed the Cra-Z-Loom on its 2013 “Holiday Hot Toy List.” Ng even designed a competing loom machine of his own, Wonder Loom, to be manufactured in Rhode Island when Walmart asked for a Made in the USA version of the craft toy.
“If I’m Rainbow Loom, and I’ve got one or two SKUs, what’s the advantage [of an exclusive]?” asks Richard Gottlieb, a New York-based toy industry consultant and publisher of online trade Global Toys News. “One chain can’t give me enough distribution to make up for what I’m going to lose.”
For retailers, however, there are few downsides to owning exclusive rights. It frees them from competing with others on price or selection. And when one major retailer has the hit toy of the season, like Michael’s did with Rainbow Loom, running out of stock means customers might have to wait, instead of shopping at a direct competitor.
It’s a fine balance, trying to maximize sales while keeping a product in high-demand. Without exclusives, a popular item sold everywhere might saturate the market, which could shorten its lifecycle and leave retailers with plenty of leftover stock. “Part of the excitement of a new product is being able to get it,” Gottlieb adds. “Scarcity is a very exciting thing.”
But sometimes an exclusive might hold a product back from its potential. In October 2011, California-based tech manufacturer Fuhu signed an agreement with Toys ‘R’ Us to become the exclusive provider of the nabi tablet to the retailer. That deal ended a few months later in turmoil. Fuhu claimed Toys ‘R’ Us failed to promote its tablet, or order enough stock during the holiday season.
When thinking about partnering with a retailer, Spieckerman says it’s important to ask, “Is that environment a showcase for the brand or a rat race where you’re competing with many other brands that are similar to yours?” Toys ‘R’ Us released its own competing tablet, Tabeo, in preparation for the 2012 holiday shopping season. Fuhu accused TRU of copying some of its tablet’s design features.
The nabi isn’t stocked at Toys ‘R’ Us anymore, but that doesn’t mean its sales tanked. Quite the contrary. Fuhu sold 750,000 Nabi units in 2012. Last year, it sold more than two million of the US$199 tablet, despite the prevalence of iPads. In back-to-back years, Inc. magazine ranked Fuhu at number-one on its annual list of America’s fastest-growing companies, most recently with a three-year sales growth of 158,957%. This January, Fuhu announced a partnership with DreamWorks Animation to create the Dream Tab. The nabi is currently available for sale at Walmart, Target, Kmart, Costco and Sam’s Club, as well as plenty of other online and physical retailers.
As kids turn to tablets with video on demand, online outlets also have an opportunity to combine shows and product sales. This June, Mattel-owned HIT Entertainment signed a deal to make Fireman Sam episodes and merchandise available exclusively to Amazon.com within the US. “This is an experiment, not just for Amazon and Mattel, but I think for the industry overall,” Brian Solis, a digital analyst and business strategist with the Altimeter Group, told Kidscreen in June. Fireman Sam, while popular in the UK, does not have the same brand recognition in the US. The exclusive agreement means the series must start to gain traction without the help of kids who might only watch Netflix or Saturday morning cable TV.
In the world of e-tailing, however, exclusives can offer an avenue for IPs to stand out. Electronic Arts reportedly gave Apple a two-month exclusive on Plants vs. Zombies 2 before the mobile game was later released on Google’s Android. ZeptoLab’s sequel to Cut the Rope reportedly had a three-month exclusive with Apple, in exchange for a prominent spot in the App Store. In a virtually bottomless pit of downloadable apps, simply being seen by customers is hard enough for a new game. Trading off promotion for temporary exclusivity can help get the ball rolling, without cutting the cord with other retail outlets entirely.
Exclusivity isn’t dead as a concept, Spieckerman says, but rather the duration of exclusives is shrinking with shorter, high-impact time frames—some even as quick as 24 hours—to create a “big bang” effect. “If those properties, characters, licenses have millions of followers and they are telling their fans ‘Go to Walmart tomorrow at midnight,’ they’re creating this incredible pressure cooker of demand that’s channeled completely into a single venue,” she says.
Disney Infinity, for example, used its vault of franchise characters to capitalize on small windows of exclusivity at retailers virtually everywhere. Want the special crystal figures? Try Toys ‘R’ Us. Looking for first dibs at Jack Skellington from The Nightmare Before Christmas? Go to Gamespot. More of a Rapunzel fan from Tangled? She was only at Walmart from Thanksgiving to early January. During that same time, Wreck-it-Ralph was only at Best Buy, while Vanellope Von Schweetz sold at Target.
“Retailers run pretty aggressive campaigns at driving consumers to pick up their favorite Disney Infinity characters when they have these exclusives in their store,” says John Vignocchi, executive producer at Disney Interactive Studios. Why limit a brand to one store, when it can be exclusive with everyone?
This article originally appeared in the September 2014 issue of Kidscreen.