Vivid’s success story with Bratz in the UK has been both a blessing and a curse for the firm. A £45m business that has defined its growth over the last five years, but which it is shortly to lose to the brand’s owner MGA at the end of the year.
A victim of its own success for sure. But Vivid’s loss may also be its gain, as it looks forward to creating a business built on a more steady foundation of its own product rather than third party distribution agreements.
There has been talk of MGA setting up a UK office for some time and its recent moves in acquiring Little Tikes, part of Zapf Creation and Smoby all point to a company that has ambitious expansion plans going forward. The Vivid deal was always going to end at some point, distribution contracts do.
But it is still 30 per cent of Vivid’s business, still £45m. But, although Vivid boss Nick Austin is not unduly dismissive of the loss of such a large chunk of the firm’s turnover he already has plans to increase its range of in-house developed product lines. Indeed, the aim is to produce 70 per cent of its business in-house by 2010.
“They’re very ambitious goals,” admits Austin, “but you can’t run a profitable and sustainable toy business on distributing brands alone. Distribution contracts only last a few years. When Bratz took off and we had
Jakks, Playmates and so on and we realised the danger of having too much based on distribution business.
“Character were almost exclusively distribution-based and were very volatile prior to that. They realised that they had to build in-house and own something or they were at the will of big US companies.
“The only reason Bratz is being terminated is because the brand is so successful. If you do too good a job as a distributor you’re writing your own termination notice.
“At the moment I don’t believe I will have to make any unpleasant decisions regarding redundancies at this stage. We’ve got so many other growing parts of the business.”
Much of that in-house development has begun.
Vivid has a 12-strong development team headed up by Tracey Nelmes and the firm has signed properties such as Chapman’s Roary the Racing Car, the BBC’s Robin Hood and Endemol’s Goldenballs game show.
“We’re in with the right people and the great thing about being a UK company is that a lot of the TV output originates from the UK. It will be more stable and certainly more profitable in the long-term, but fronting all the development and licensing costs make it a higher risk strategy.
“Robin Hood cost £750,000 over three years and it’s all money upfront. It’s an upfront bet. You could argue that we’re upping our risk profile, but we don’t view it that way. It delivers better margins so it’s more profitable. There’s a ten to 15 per cent margin difference. And if you’ve done your own product development you’ve got international potential. Robin Hood has been sold into lots of markets. And if you’ve done all your product development the chance are people will take the product off your toolings.”
You can’t, says Austin, “bet the ranch” on any licence, no matter how much of a nailed-on certainty it looks. And expectations are managed with regard to each property. For every Dr Who there’s a Boohbahs.
“For every five properties one will be a huge success, two will be moderately successful and probably a couple won’t make it. But the difference between us and our competitors is that our batting average is good. We hit more home runs than other companies. And that means we’re profitable for retailers and they have a higher level of confidence in us. People know that we back brands heavily.
“We brought in two new products in the last month which were too late for the buying cycle of our customers this year – Goldenballs and a product called Eyeclops from Jakks Pacific, which is a 200-times magnification microscope that you hold in your hand and can show images on a TV. It is shipping in the US in September and we showed it to our retailers and they all loved it and opened their listings again for it.
“One of the reasons we can get listings success like that is because people have got a high level of trust in our track record. We’re viewed as a safe pair of hands in product development.
“A lot of companies take a more maverick approach to it and put it out there to see if it sticks. I think that’s flawed, retailers can’t handle that. Marking down product is probably one of the biggest problems in the industry.”
Austin believes that his firm’s ability to move quickly, in an entrepreneurial fashion is another factor in its successful hit rate.
“Our speed to market is another reason for our success. If Hasbro or Mattel had signed Goldenballs it would have taken them a year to get it to market through developing it by various committees. Whereas I could just as well have a job title involving product development here.
“Take Crazy Frog. We had to hit with it that Christmas otherwise it was gone. Five years before that we had Flat Eric and we turned that around in four or five months.”
The licensed business model is competitive, with Character Options and Golden Bear also operating in the same space. But Vivid also has the ability to create its own IP and has enjoyed great success with its I Love Ponies products recently and which, with a licensing deal for the US market just signed, could become a $50m brand for the firm.
“You’ve got to build the whole thing yourself and build the heat yourself. It’s a slower build but it’s more sustainable. I Love Ponies could be $50m in two years. There are over one million kids involved in horse riding in UK, so it’s a market with great potential.”
The Crayola brand, which the firm took on from Binney and Smith in 2005 is also making a recovery and has produced sales of £15m this year.
“Crayola had dropped to £12m value, so we knew it was at its lowest ebb. Last year through TV effort and getting hold of the customer base we turned it round. It did £15m and this year it will do £20m. It has nearly doubled in three years.”
And the firm will continue to pick up third party lines from the US. WWE from Jakks Pacific is a £20m brand for Vivid, having enjoyed a surge in popularity to rival even Power Rangers in the boys action figures category.
“It’s not a contradiction in terms to focus on our stuff and still be the sort of ‘greatest hits of the world’, because that improves our strike rate. We track the US more successfully than probably any other company.”
To date Vivid has not pursued the acquisition of other firms but Austin says he is actively looking. Although, he wants companies that are in good shape and not “broken”. Those that will immediately add to the firm’s portfolio rather than taking two or three years to get back in the black.
Austin is aware that many will be writing the firm off now that MGA is going it alone, some might even be crossing their fingers for that. But there’s a lot more to the firm than the one, albeit very lucrative, line.
“We were profitable before we did Bratz and we will be profitable after it. With all our brands coming to fruition it means our profit string is more stable.”
So Vivid will no longer be the ‘Bratz firm’, and that might turn out to be the best thing that ever happened to it.