Opinion – Storch Out On A Limb

Briannewheader
Url-8

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?

Drawing a cross-industry analogy, film industry box office
analysts never expected a modern film to out gross James Cameron’s 1997
Titanic. Between 1997 and 2008 the film industry “eventized” film release
opening weekends, resulting in frontloading. Titanic remained the #1 film in
North America for 15 weeks (still a record) on its way to grossing over $2.1
billion worldwide. The film’s single highest grossing day fell six weeks after
it opened in theaters.  In
contrast, Warner Bros.’s The Dark Knight launched in 2008, grossing over $1
billion. The Dark Knight’s highest grossing weekend was its first weekend,
tallying almost $200 million and only lasted four weeks in the #1 spot.
Concentrating on opening weekend gross rather than lifetime worth has left
significant money on the table. James Cameron’s 2009 film Avatar proved an
exception, but even inflation hasn’t helped film studios compete with their
forerunners and younger selves. Avatar bucked trend and remained in theaters far longer than most modern films. Between 1997-2012 only one film (Avatar) out
grossed Titanic; the previous 15-year period featured three all-time top
grossing successors (Star Wars, E.T., and Jurassic Park).     

Frontloading may help toy manufacturers and retailers capture
quick sales, but only at the cost of potentially rich lifetime sales value.
What Storch discussed is a key component of our industry’s future best-case
scenario: ongoing iterative development. Storch recommended launching products
exclusively at specialty retailers, followed by mass market in year two, and
discounters and severe discounters only afterward. His approach allows for
periodic capturing of new consumer insights and production efficiencies
throughout product lifecycle. Software developers have produced iteratively for
decades but the toy industry continues to take a “wait and see” approach. Today,
“waiting and seeing” only lasts weeks or months before the big discounters
decide a product isn’t worth its shelf space.

Storch’s perspective reveals an important distinction between
specialty and discounters like Wal-Mart and Target – toys are not a loss leader
for toy stores! Low, low price helps Wal-Mart (at least in the short term) but
doesn’t help anyone else. Toys R Us, or any retailer, should openly and
emphatically embraced Storch’s plan. But, sadly, too few of our leaders will
choose to buck trend in favor of logic and best practice. Please, prove me
wrong.  

In his roles as Digital Strategy Director of Consumer & Entertainment Brands at Manifest Digital, Co-Founder at toy invention studio Otherdoor Entertainment, and ChiTAG committee member, Brian Torney is an innovator in the play industries, kids entertainment, and product/brand initiatives. Refusing to grow up, Brian has been contributing to the play industries since the age of 15, when he worked at a Chicagoland Toys R Us store. Brian spearheads ground-breaking creative and interactive projects for industry-leading entertainment and toy companies including Cartoon Network, Fox, Nickelodeon, Step2, The Marketing Store, McDonald’s, THQ and Hasbro. He specializes in cross-platform brand storytelling. Brian also practices ancient Jedi techniques of mind control… These are not the droids you’re looking for.

7 thoughts

  1. I’m not sure it’s as “open and shut” as that, Bob. Certainly, TRU seeking exclusives is in TRU’s best interest. But with the right agreements in place is a staggered release schedule viable? Does it present opportunity? Surely the Zhu-Zhu pets case study is relevant, but what others can we find?
    This isn’t about TRU. Sure, TRU is the only US-based entity I can think of that is almost solely motivated to sell toys. But channel scheduling could presumably start anywhere that is appropriate.

  2. Why should TRU get the “first squeezing of the grapes” on a hot item and leave the leftovers for WM/TG??
    And what if the product doesn’t sell??
    The manufacturer is left with canceled orders from TRU and a warehouse full of inventory.
    An item stops selling when every kid who wants one has one. Doesn’t really matter how you manage the channels.
    TRU is just trying to get the biggest piece of the pie

  3. Jay, this is where we get into some fun and frontier territory. The Bridge Direct incurs high costs each time a way of action figures from The Hobbit is produced. But we can look to a few sister industries for efficiencies of scale in some instances. This is a poor comparison, but designer toy companies create shorter production runs with substantially reduced costs via very different technology. Also, what if a collector-oriented action figure was sold at a higher price tag because of exclusivity and a perceived scarcity?
    We’re governed by certain constants, including higher manufacturing and labor costs and pricing pressures. But if some of those pricing structures are alleviated and your per-purchase profit margin increases, goes that present opportunity?

  4. Wow, great response! Starting with Al’s thoughts and questions: this is something I’ve been thinking about a recently, too. Designating TRU as “specialty” does seem to be a poor delineation of the company’s value as compared to big discount retailers and our neighborhood retailers (and between). I’d love to hear Jerry or anyone at TRU’s thoughts, though I’m sure that changes on an as-needed basis.
    The most important factor here is that TRU is distinctly different from Target and Walmart. TRU carries many more SKUs and makes toys one of the two cores of its business (baby items being the other, clothing a distant factor). For Walmart and Target, reducing the cost of toys will always be a priority – toys are a loss leader and play a major factor in driving customers instore during important occasions and periods. For TRU, toys is business all year round. Sure, occasion marks the majority of their business, but getting people in store and buying toys is an ongoing concern year round. This is not the case for Walmart.
    Would TRU drive prices down if not for Walmart pressure? I do believe TRU would offer a richer range of products at various price points and we would all see reward if unbound or less bound by price competition.
    The only caviate is that I’m firmly of the mind that if TRU better understood its customers and business the cost concerns would be irrelevant. Starbucks charges 5-10 times the going rate for coffee…

  5. Here’s how you might be a bit wrong given
    the audience that was sitting in the room at Playcon: A company can’t afford to spend the time and money to develop a toy line of any significance and put it out without promotion and just hope it sells at the store with very little regular foot traffic. You can put a plush item or a craft item out there and wait for a few seasons or years for it gradually take hold like a Beanie Baby or Webkin’s or Koosh Ball but if you are trying to launch or re-launch a major toy line like Ninja Turtles, Bratz, Cabbage Patch Kids or just a basic TV doll or action toy it’s impossible.
    The bottom line is that it is what it is. Some products are destined to start in specialty and break out and some need to have a broad launch. Jerry is great but did he give us an example of a line that should have started at specialty or TRU first? Zhu Zhu Pets, Squinkies, Monster High, La La Loopsy?? To another of your points, yes they need to give smarter support and more time for a product to take hold you can’t launch items in specialty but we need scope to launch toy lines that really break out.

  6. Brian, I have a question based on this statement “Storch recommended launching products exclusively at specialty retailers, followed by mass market in year two”. Is TRU a specialty retailer or a mass retailer? If you just look at the number of stores TRU roughly matches the Astra stores, however Astra retailers think TRU is mass market. Wal-Mart and Target only see TRU in their rear view mirrors. I have always been confused on who TRU thinks it is, specialty or mass? Your Jedi wisdom would be appreciated on this one.

  7. Hey Richard,
    I don’t know why Jerry Storch and others keep implying that Toys R Us is a “Specialty Store”,
    they are a discounter. You can’t compare them to a local Specialty Store, Mom and Pop store or a chain like Learning Express.These stores have to get full mark-up on everything in order to survive.
    Toys R Us competes with Target and Walmart which are Discounters when it comes to Toys.
    If Toys R Us really wants to get people back into their stores, they have to go back to how they started out, and that’s about having the largest assortment of toys than any other store. If a customer wanted to buy a dump truck years ago they would have 6 or 8 to choose from , now they have 2 and Walmart and Target have the same 2 at a lower price.

Leave a Reply