US OPINION: The turnaround of Jakks

Six months ago I said in an article that Jakks was turning around and that their sales would be powered by their increasingly successful toy licences, mainly from Disney.
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However, I was worried about their dependence on Wal-Mart; their lack of progress in their non-toy business [craft and activity kits and pet products] and I also fretted about their continued lack of success in the international arena.

This article will now take another look at the company and see how much progress they have made since then and whether the turn-around is really materialising.

Firstly, they continued to show negative sales numbers for each of the two quarters since then.

However, their dependence on Wal-Mart decreased somewhat – from 39.8 per cent six months ago to a still very high 33.9 per cent during last quarter. Their international business improved, from 17.2 per cent six months ago, to 20.6 per cent now but then again, given the fact that international represents something like three times the US toy market, this is not overly impressive. In short, a first look would suggest that things really have not improved that much. This first look would be wrong.

For one, their core toy business has materially improved and showed positive numbers for each of the past three quarters. What dragged them down were the sharply declining sales in their craft and pet business. This is what Anne-Marie Feliciano, VP Communications at Jakks had to say about this:

“Our endeavors outside the traditional toy area, including Halloween costumes, dress-up/role play and kids’ indoor and outdoor furniture have been profitable for Jakks. The activity and stationery segments are highly competitive with low margins and we exited those programs, along with kites, to focus our efforts on initiatives that will generate more growth and profitability such as through our owned content, including Real Construction, Spy Net and Monsuno. Real Construction is our construction/building activity sets that came out of our Innovation group.

"Yes, the pet industry is very large but it is mostly focused in consumables and pharmaceuticals. Our pet business was driven by too many SKUs and we are currently refocusing our efforts in this space and are expecting to regain growth and profitability through upcoming and not yet announced initiatives and including the introduction of our own branded products under the American Classics brand."

So, they finally left the stationery business and are refocusing their Pet business. I think the former was definitely the right decision and time will tell whether the latter stands a chance. My advice to Jakks in this would be what my mother always preached – never push water uphill. Jakks skill and expertise is in toys for kids and they may want to just concentrate on where their strength is particularly since they have, with Monsuno, a lot on their plate this and next year and the last thing you want is senior executives diluting their focus on what are essentially secondary pursuits.

As for their international endeavor, they have begun to put long-overdue infrastructure resources into Europe with offices in the UK, Spain and France and more planned for the next two years. To put muscle behind this, they recruited late last year two very accomplished European toy veterans – David Carscadden from Mattel and Chris Jones from Vivid. However, neither offices nor people, however great, can do much without a major product effort and this is what Jakks had lacked all these years.

Europe for them was the classical vicious circle – no top licences = no business; no business = no top licences. Yes, they are making progress with some homegrown products such as Creepy Crawlers, Spy Net and Real Construction but this is an uphill struggle and very slow going.

Jakks is hoping that a recent and very gutsy decision will be the catalyst for a major expansion of their sales not only in Europe but also in Asia and North America. I am talking about the joint venture with Dentsu, one of the largest advertising conglomerates in the world, on one side and Topps, the market leader in sports and entertainment cards, and confectionery brands, on the other. The three partners are producing the Monsuno animated TV series (52 episodes of 30 minutes each), a boys action adventure that centers around re-awakened Monster DNA that finds its way into the unsuspecting hands of adventure-seeking boys.

The series is targeted at boys aged six to 11 and so will undoubtedly be the toy range produced by Jakks for it. The creative director for the project is Mitzuharu Inoue who also produced Bakugan Battle Brawlers. The series will be aired next year in North America, Europe and Asia. Jakks has already signed up Giochi Preziosi as their European partner – Giochi is Italy’s largest toy company with a strong presence throughout Europe – and Hunter Products in Australia. The Monsuno toy range will be released in spring 2012 on all three continents and is expected to make Jakks a much more potent player in the toy space internationally.

In fact, the key retailers in Europe – Carrefour, TRU UK, Asda, Migros and others – are cautiously positive about Monsuno and told me that they would definitely consider taking the range onto their shelves next year. This would be a first for Jakks and a real break-through.

In the United States, Jakks is becoming an increasing force on the strength of its mainly Disney licences. They have shown good marketing and distribution skills for Club Penguin, Tinkerbell, Fairies and Hannah Montana. They got Princess and Me last year, a doll range which is taking market share away from American Girl. This year they have the movie-backed master licenses for Pirates of the Caribbean [Disney], Steel [Disney] and The Smurfs [Sony/Columbia].

In addition, they have the Halloween costume sublicense for Thor, Captain America, the Pirates, Real Steel, Tron and Tangled. In addition, in the words of Anne-Marie Feliciano: “We have exciting movie licences expected for 2012 that we have not yet announced”.

The fact that Jakks continues to get new Disney licences shows that Disney is happy with their performance and is hence likely to grant them exclusives on new movie properties coming down the pike.

As the attractiveness of their product range increases, Jakks will likely want to broaden their distribution to the point where the big three – Wal-Mart, Target, and ToysRUs – no longer represent nearly two-thirds of their business.

All in all, I think that Jakks stands a good chance to do well this and next year. More so, they are addressing the three fundamental issues that have raised red flags for the past couple of years. In short, they now stand a very good chance of totally transforming their business.


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