Global Toy News

Why channel management is busted; a little history

I want to thank everyone who has commented on my posting, “Jerry Storch of Toys R Us Speaks His Mind at PlayCon.”   Jerry’s position that the toy industry is terrible at channel management created a stir on our comments section, Linked In, the ASTRA bulletin board and other venues.   Channel management is, if you will recall,  the process of when and to whom product is shipped.  Mr. Storch points out that the toy industry seeks to secure all channels of trade (specialty, mass, supermarket, drug, etc.) in year one resulting in hypercompetitive pricing, a shorted product life cycle and less profit for everyone.

Brian Torney, in his Global Toy News posting “Opinion-Storch Out on a Limb” made an excellent case for the need for channel management.  As he puts it, the lack of channel management by toy companies has “…reduced product to month-long shelf life and weakened brands by a half-life. If products cost more to produce and market each year, how can we justify fruit fly product lifetimes and diminishing returns?”

So why do we have fruit fly product lifetimes and diminishing returns?  How did we come to this?  To find out, we can look at the history of the toy industry.  If you were to take a time machine back 20 years or so you would have found that the retail landscape was far more abundant in the number of retail chains.  Here is a list of just some of the larger retailers who are no longer with us:

Ames                                        Mass Merchandiser

Best Products                           Catalog Showroom

Bradlees                                   Mass Merchandiser

Caldor                                      Mass Merchandiser

Children’s Palace                       Toy Chain

Eckerd Drug                              Drug Chain

Hills                                          Mass Merchandiser

Jamesway                                 Mass Merchandiser

KB Toys                                   Toy Chain

Kiddie City                                Toy Chain

Osco                                        Drug Chain

Peoples                                    Drug Chain

Pharmor                                    Drug Chain

Service Merchandise                  Catalog Showroom

Venture                                     Mass Merchandiser

Woolworth                                 Variety Chain

Zayre                                        Mass Merchandiser

This is history but not ancient history.  Speak with some of the industry’s veterans and you will hear some great stories (funny, less funny and not funny at all) about doing business with these chains. 

My point is that there used to be an abundance of potential customers so when a company brought a product to market,  it did not have to make sure that it acquired at least two of the big three (Toys R Us, Wal-Mart and Target) in order to run a television ad.  In fact, due to the regional nature o

Worker Safety and Toys; an interview with Carter Keithley, President of the Toy Industry Association

Safety is a constant concern to all of us who make toys.  For that reason, in light of the recent building collapse in Bangladesh, I thought it might be a good time to check in on how the toy industry is doing in this regard.  To find out, I asked Carter Keithley, President of the Toy Industry Association and a member of the ICTI (International Council of Toy Industries) board of directors for an interview.  He kindly agreed and here is what I learned:

Richard:

All of us in the toy industry and society at large were shocked by the building collapse in Bangladesh.  In this case, a building containing several clothing factories collapsed killing over 1,000 people.  The toy industry had its own problems with safety in the past but fortunately not even remotely on this scale.  How did you react when you heard the news?

Carter:

I was dumbfounded by the Bangladeshi disaster.   In addition to thehuge number of fatalities,it seems likely that many more workers were permanently injured.  The United States learned of the need for effective worker protection measures more than 100 years ago in the Triangle Shirtwaist Factory fire that resulted in “only” 146 fatalities.  The scale of the Bangladeshi disaster is beyond comprehension.This has to be a lesson to the Bangladesh government about the need for worker protections.  I understand that they are trying to “bootstrap” their nation into 21^st century prosperity, but moral responsibility aside, it would be foolish for them to think that they can prosper at the expense of the safety and wellbeing of their workers, which are their nation’s asset.

Richard

The press has been keeping a great deal of pressure on the clothing industry in reporting how it is reacting to the collapse (Disney has pulled out of Bangladesh).  How do you feel that toy industry retailers and producers reacted to the toy industry’s problems and how does it compare with how clothing retailers and companies are reacting to the Bangladesh event?

Carter:

The toy industry did not encounter worker protection problems anywhere near the scale of the disaster in Bangladesh, but I am proud to say that the global toy industry’s response when some issues emerged in toy factories is one of our finest achievements.  When worker protection issues emerged in our industry, toy brands and retailers alike began to react with individual programs to try to assure that their companies were not sourcing from producers that were not treating their workers fairly.  As a result, there was a proliferation of programs, and if one factory produced product for several customers, it could be confronted with multiple and conflicting demands.  So the toy industry got together to form the industry-wide “ICTI CARE Program” under the auspices of the International Council of Toy Industries (ICTI) to assure ethical treatment of workers in toy factories.  The toy industry is nowhere near as vast as the clothing industry, so perhaps that made it a little easier for us to develop a collective response.  But the achievement of relatively reliable standards for worker protection by our small industry is stunning.

Richard:

Can you tell us a little about what the toy industry has done proactively since experiencing problems with safety?

Carter:

In response to the reports of worker abuses about 8 years ago, the toy industry raised more than $5 million to capitalize the development and implementation of the “ICTI CARE” program, consisting of

Opinion - Storch Out On A Limb

Yesterday, Richard published an article detailing Jerry Storch’s divisive presentation at PlayCon 2013. Storch was both controversial and committal, unabashedly preaching his views on the larger problems facing the toy industry today, particularly that of channel management. Storch’s temporary CEO replacement was announced on Monday, Antonio Urcelay (current head of European Operations). We all know it’s easier to speak your mind when you have nothing to lose. But it makes me wonder: if more long-time leaders in the toy industry were put in that unenviable position, what keen and unabashed insights would we garner?

It might be play politics suicide to start printing “Storch was right” T-shirts, but Storch’s points are founded on basic principles of channel distribution. The bigger issue is the conscious intra-industry self-censorship we accept as law. How is directly stating that the toy industry has seemingly abandoned channel management best practices controversial? These changes have made sticky new brands like Monster High a rarity. We’ve reduced product to month-long shelf life and weakened brands by a half-life. If products cost more to produce and market each year, how can we justify fruit fly product lifetimes and diminishing returns?

The Dollar Generalization of Wal-Mart

Scott McCall, Senior Vice President for toys, seasonal merchandise, and celebrations gave a speech at PlayCon that was a unsettling to those with whom I spoke, and I have spoken to a large number of attendees.  Their concerns centered around Scott’s emphasis on the importance of promoting products at prices under $1.00.  He gave considerable attention to two examples, both of which sold in multiple millions of units but at very low price points.

Now, let me be very clear.  Scott also spoke about the productivity loop, crowd sourcing, being customer centric and being first to market with innovation.  No one who discussed the speech, however, mentioned any of that. 

In reviewing my notes after the fact, I came to the conclusion that Scott's speech was about more than low, low prices.  I think it was about a company that may be losing its more affluent shoppers and is repositioning itself to battle Dollar General and Family Dollar for the low income shopper

Consider these points made in the speech:

• Scott noted that many Wal-Mart consumers are not able to shop online because they don’t have credit cards.  They can only pay cash.  As a result, Wal-Mart is allowing them to purchase on line but pay in cash at a local store.  Those without credit cards are among the lowest income shoppers.  Why are they singled out for attention?
• Wal-Mart is opening new small format stores that are running from 2,200 to 4,000 square feet in size.  That is actually smaller than Dollar General and Family Dollar store footprints which run to about 10,000 square feet.  Dollar General and Family Dollar focus on low income shoppers; shoppers in many cases without credit cards.
• The importance of focusing on prices under a dollar is also reminiscent of Dollar General and Family Dollar, not to mention Dollar Tree.  Again, it appears that they are going after the low income shopper.

So, here is what I think: 

Wal-Mart is losing the war for the more affluent customer to online completion (think Amazon).  As a result, they are left with bricks and mortar customers who use cash and are attracted to low retail price

Jerry Storch of Toys R US Speaks his Mind at PlayCon

Jerry Storch, CEO and Chairman of the Board for Toys R Us had a message for the PlayCon audience.  He stated that he had never seen an industry that was as poor at channel management as the toy industry.   He didn’t sugar coat it; he put it right out there.  Jerry had other things to say but it was that comment that stood out for the boldness of how it was stated.

First, however, let’s step back and define “channel management.”  The Rubicon website defines it as well as anyone:  “The process of balancing allocation of product inventory and pricing across distribution channels.”

In terms of the toy industry, channel management means how you balance distribution to the various channels (mass merchandisers, ecommerce, toy stores, supermarkets, drug stores, etc.) in such a way that you maximize distribution without hurting brand value.  What Mr. Storch was pointing out was that the toy industry tends to sell into all channels at the same time; flooding the market with goods; crushing the retail price structure; damaging profitability for everyone and ultimately shortening the life of the product.

Anyone who is familiar with the toy industry recognizes the truth in what Jerry has to say.  Simply put, the life cycle of toys has largely become reduced to months instead of years.   By flooding the market with goods, the excitement of product shortages and the frenzy they can create dissipates into shelves of post-Christmas markdowns.  Heavy discounting by retailers who see toys as loss leaders drives down prices and damages margins for those who depend upon toys for their living.

How should the toy industry’s toy companies manage distribution?  Mr. Storch suggested that specialty toy stores and, yes, Toys R Us, get exclusives in the first year.  In the second year he suggested that the product be pushed out to other retailers.  This would, he suggested, lengthen the product cycle; expand profits and keep consumers interested.  It would, in the long run, enhance brand value and generate greater revenues with fewer markdowns.

Some expressed to me that they thought Mr. Storch was correct but that his speech was self-serving in that his company would benefit greatly from such an approach.  I recall him saying

Train Board Game about the Holocaust Pushes Boundaries

A couple of years ago, I spoke with Brenda Brathwaite Romero about her series of 6 board games titled ‘The Mechanic is the Message’ that make one ponder their themes/topics and change how you think about these topics. Among many things, Brenda is a TEDx2011 speaker (her talk is about these games and is incredible) and a celebrity in the video game world.

The titles/themes include:

-Train Board Game, about the Holocaust 

-The New World, a game about slavery

-Síochán leat (Gaelic for Peace Be With You), or The Irish Game about Oliver Cromwell’s invasion of Ireland

-Mexican Kitchen, about illegal immigration, still in prototyping

-Cité Soleil, about day and night violence in a densely populated shanty town in Port-au-Prince in Haiti, in progress

-One Falls for Each of Us, about the Trail of Tears, in progress

Art, experience, entertainment, controversy – whatever you want to label it, they are brilliant and inspired. I was going to write about Brenda and her games, but she recently gave a talk and there is an article about that talk says it better than I could have. The following are just a few excerpts to hopefully interest you to link over to the original article – a very interesting read.

“Train accomplishes something that few other board games can do: It makes you think about an emotionally difficult subject.”

“A board game might seem like one of the last places you’d find innovation. In fact, board games are going through a revival now, in part because of the popularity of crowdfunding on Kickstarter, and because they are now an increasingly popular inspiration for their digital cousins, video games. The game is part of a growing tradition of Games for Change, which are as much about social causes as fun.”

“Word about the series is getting around. A film crew is prepping a documentary about Train. Other publications have written about it.”

Read more at http://venturebeat.com/2013/05/11/brenda-romero-train-board-game-holocaust/#2IyhHrpkrYBkR9wi.99

PlayCon 2013; great content with a little spice

This is part one of a three part series on PlayCon 2013.

Based upon my own experience and that of many others I spoke with; this was the best PlayCon in memory…and the most well attended too.  I was told that the total attendance was around 175 people (roughly 75% bigger than last year) who came to hear a series of speaker deliver content with value.  Content, as John Barbour, CEO of Leapfrog, likes to say, you can take home.

And speaking of John Barbour; again based upon my experience and those of others who heard him speak; he has emerged as the toy industry’s leading voice.  His keynote address was delivered with a mix of passion based in reality; belief grounded in experience; humor mixed with gravitas and hope grounded in realism.

There were a number of other excellent speakers with messages that were to the most part high value in terms of content and delivery and in some cases a bit controversial (a little spice never hurts).  There were, however, two speakers who stand out in terms of their controversial messages (there is that spice); one was Jerry Storch, CEO and Chairman of the Board of Toys R Us and the other was Scott McCall, Wal-Mart Senior Vice President for toys, seasonal merchandise, and celebrations.  I will write about what they had to say in my next two postings.

 

This Week in Digital Kids: Speakaboos Digital Literacy Platform Offers One-Stop-Shop for Interactive Children’s Storybooks

Leaders in the children’s entertainment and publishing industries have joined forces to launch Speakaboos, an education-focused, multi-platform storybook subscription service.

Delivered directly to consumers in homes, schools and libraries internationally, the service helps children age 2-6 read, explore and discover the books they love in a world of interactive storybooks.

Childhood, Animals and Toys

Why are parents and their young children so fascinated with animals?   That is the point of a nice, but possibly overly complex, look at why animals are given so much prominence by adults when nurturing their children.

The article “A Child’s Wild Kingdom,” written by John Mooallem, appeared as an opinion piece in the New York Times Sunday review section.  Mr. Mooallem makes the point that animals, in profusion, show up in pre-schools, children’s literature and even ancient toys (“…many of the oldest, prehistoric toys discovered include animal-shaped rattles and little wooden crocodiles”).  Let me quote him as he describes his daughter’s preschool:

It can be a little alarming to step back and realize just how animal-centric the typical American preschool classroom is. Maybe the kids sing songs about baby belugas, or construction-paper songbirds fly across the walls. Maybe newborn ducklings nuzzle in an incubator in the corner. But the truth is, my daughter’s world has overflowed with wild animals since it first came into focus. They’ve been plush and whittled; knitted, batiked and bean-stuffed; embroidered into the ankles of her socks or foraging on the pages of every storybook.

Lest we think it is just his experience of the world, he cites a Purdue University child psychologist who reviewed 100 randomly chosen children’s story books; only 11 did not include animals.  He notes that what was common was for animals not to act like animals but to act like humans.  Anyone who has read Richard Scarry’s “The Early Bird” knows the discomfort of seeing the “Father Bird” eating a hard-boiled egg for breakfast (Father Bird obviously would have fared well with the Donner Party).

The article engages in a vibrant discussion of society, pre-history, parenting and brain development; even Freud has his moment.  I don’t dispute any of his arguments as to why children and their parents are

The End of the Cash Register; Checking Out With Your Smartphone

The cash register is dead; yes, dead.  That according to a Columbus Dispatch article by Anne D’Innocenzio titled “Cash register could join endangered-gadget list;” and it's not just the register that's going away but the people who run them.

It seems that the experience of waiting in line to pay for your purchase is on the way out as retailers turn to clerks with smart phones to take care of purchases on the spot.  Not only that, some companies are allowing consumers to do it themselves on their own smartphones and tablets.

Here is how D’Innocenzio describes the motivation behind the change:

Stores like smartphones and tablets because they take up less floor space than registers and free up cashiers to help customers instead of being tethered to one spot. They also are cheaper: For instance, Apple Inc.’s iPads with accessories such as credit-card readers can cost a store $1,500, compared with $4,000 for a register. And Americans increasingly want the same speedy service in stores that they get shopping online.