New Product Introductions, Marketing Campaigns Call for Understanding Online and Physical Retail Realities

BROOKLYN, NY; March 3, 2020—Created for Karen Raugust and my “10 Keys To Success in A Changing Retail Landscape” session at NYTF, these slides can serve as an outline for just about any product introduction or marketing campaign, toy or otherwise. Let us know if we can help you ask the right questions and flesh out the outline when working on your next project.

Toy Fair Keys to a New Retail Landscape.FINAL

Toy Fair NY 2020: What Was Cool, What Might Last, What Was Missing

NEW YORK, NY; February 26, 2020—Characters (and logos) trending up: Harry Potter and Frozen II are still everywhere. Don’t underestimate the staying power of NASA for kids, especially with the namesake organization increasingly active once again. And EVERYONE wants Pink Fong’s Baby Shark license for something. (So maybe there’s another season in Baby Shark, but will that really have long-term staying power? Remains to be seen.)

Hot product: Kids Embrace car seat liners featuring DC, Disney, Marvel, Nickelodeon characters. SmarTrike similarly has generic liners (e.g. lady bug) inside some of its strollers.

Smart product: Crayola’s Dry Erase Wall Paint — a clear coating that’s painted on and turns any wall into a dry erase board. (Pictured: Crayola’s Warren Schorr and Licensing International’s Sharon Weisman.)

Crayola Dry-Erase wall paint

STEM/STEAM is more integrated throughout the show as virtually all traditional toy companies get involved.

Tiny “collectibles” (the offspring of Shopkins and Polly Pocket) are trending toward smaller groups — six or eight rather than dozens and then more dozens.

Tangle Pets, Ztringz, and other stress relievers are vying to take back the shelf space that went to fidget spinners and shaped rubber bands a couple of seasons ago.

Scratch-off comes to toys: A few weeks ago I wrote about scratch-off greeting cards; now 4DPuzz introduces NYC, London, Paris and world map scratch-off jigsaw puzzles that reveal skylines and other landmarks. The company is primarily known for its beautifully elaborate 3D Game of Thrones, Harry Potter, and other licensed puzzles. (The scratch-offs are not on their website as I write.)

NYC scratch off history puzzle

Like Harry and Frozen, kid “influencers” (I can’t say it without the quotation marks) are everywhere: 8-year-old Ryan Kaji/Ryan’s World Youtube channel, with almost 24 million subscribers; 10-year-old gymnast/martial arts video star Payton Delu Myler, with 23 million Instagram followers; and Blippi, a preschool Youtube edu-tainment property created by adult Stevin John with toys coming from Jazwares.

Conversation/get-to-know-you card games are taking on renewed life even as board games continue to resonate for Gen Z’ers, Millennials and others. (Pictured: Yours truly with a Settlers of Catan sheep. Not live. The sheep, that is.)

Ira with Catan sheep

Sometimes what’s missing is just as telling: Far fewer upstarts showing robot and other electronic building sets than the last two years.

If ever there were a Toy Fair that spoke licensing — it was almost as though if you didn’t have a license (or weren’t trying to license your own property), you were just background noise. I’m not suggesting that’s good. I’m just reporting the impression walking the aisles for a day. And yet…

Quote of the show: “Licensing is great, but it doesn’t work across the board.” Ryan Fens, M&M Sales Enterprises, manufacturer of swings and other outdoor products with licenses for Sesame Street, Daniel Tiger’s Neighborhood, John Deere. Hoping to get the Baby Shark license and add a sound box to play the song while the child swings. (Says I, that sound box would be special to make the parents crazy!)

M&M licensed toddler swings

 

 

Shopping the Stationery & NY NOW Aisles for Specialty Licensing Opportunities

NEW YORK, NY; February 5, 2020—In: Cannabis and CBD products, including specialty packaging companies catering to that market. Out: Reusable straws, at least from a fancy design standpoint, now that they’re commodified. And here are my finds for new products well suited for licensing, and others ripe for expanding existing licensed offerings.

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Holiday Retail: Exuberant Shoppers, Race to Stock Shelves, Inventory Gaps

Looking to 2020 From the Intersection of Pop Culture, Marketing & Consumer Research

Confronting the Apparel Industry’s ‘Going Out of Business Model’

“What made us successful yesterday may be the reason for our failure tomorrow,” said Edwin Keh of the Hong Kong Research Institute of Textiles and Apparel at the Sourcing Journal Summit: The New Fundamentals. Indeed, the rate of change in the apparel and footwear industries over the past decade will be mightily outpaced by the changes over the next decade.

Other speakers at the Summit offered variants of that theme. “If you started your company tomorrow would it look like it does today?” Jesus Vega asked. An “entrepreneurial agitator” who had been with Inditex’s Zara unit, he posed the question relative to the “Freddy Mercury-ization of retail: ‘I want it all and I want it now.’”

Outstanding in both content and execution, the mid-October Sourcing Journal Summit gave voice to six specific areas of concern:

  1. Sustainability — and the lack of clarity in what the term means.
  2. The need to align direct-to-consumer brands’ data-driven business model with the product orientation of traditional retailers.
  3. Uncertainty re tariffs, borders, and the regulatory climate.
  4. The prospects for moving production to less heavily tariffed territories.
  5. Inventory backups.
  6. Amazon.

Sustainability

Edward Hertzman, founder and president of Sourcing Journal Media, and host of the Summit: “There is twice as much organic cotton [labeled on] t-shirts as there is organic cotton. . . .If we asked everyone in this room [about 400 people] to write down what sustainability is, would any two have the same answer?” It was a rhetorical question, but McKinsey & Company’s Karl-Hendrik Magnus answered for all: “No.”

The need for “common language” regarding sustainability came up repeatedly, as did the need to differentiate between environmental and social responsibility. Cyrus Wadia, a former Nike executive now also with McKinsey: “Sustainability has to be on the same plane as other business factors — not an add-on. . . .Sustainability is moving from nice to have to must have — but mostly for 2025” and beyond. And Hertzman again: When a manufacturer promises you organic cotton, how do you know it is? “You don’t.”

“So much capital is locked up in inventory that you have to solve the inventory problem before you can embrace sustainability,” said Chainge Capital’s John Thorbeck. “We need a sustainable business model. This is a going-out-of-business model.”

Aligning Business Models

“Direct-to-consumer brands [DTCs] have tech strength but they’re not product people. Wholesalers’ and retailers’ strength is product but they don’t have data or don’t know what to do with the data they have, and they don’t have the ability to reach that digital consumer,” said Andrew Postal, Managing Partner at MMG Advisors, an investment banking firm. “Most traditional wholesalers and retailers stink at it,” he added.

That said, D2 Brands/Delta Galil’s Victoria Vandagriff, whose company does not have DTC brands, interestingly pointed out that direct is “how customers want to shop.”

DTC brands can manufacture 200 of each of 10 designs and know within days, at most, what sells, said Lever Style’s Stanley Szeto; Lever is a contract manufacturer for Theory, Hugo Boss, Stitch Fix, Bonobos, and others. That, he added, is very different than the two million pieces a Uniqlo will have to order without knowing how it will be received.

The small orders for DTC brands require “flexibility — you need a supplier that can deal with on-demand” production and delivery, said Taylor Shupe, of Future Stitch, a knit apparel manufacturer.

DTC brands’ digital expertise “allows you to acquire data about the final customer,” said Anthony Choe, founder of Provenance, a private equity firm. “Most DTCs don’t take advantage of that. But the right brand needs to be in multiple channels,” including both traditional retail and digital platforms. “Digital is under-distributed in the real world [meaning traditional retail],” Choe continued. “But the retail economics are starting to work for digital-native brands” to make the transition.

Uncertainty: Tariffs and More

The prevailing sentiment came down to:

  • Get used to tariffs. “There may be some respites, but it’s not going back to what it was,” said Michael Zakkour, a retail and digital commerce consultant.
  • Expect corresponding price increases. “Tariffs are real. It’s going to come from somewhere,” said Stephen Lamar of the American Apparel & Footwear Association (AAFA). “When you move to new contracts you’ll see those costs passed along the supply chain to retailers and consumers.” Similarly, while Postal of MMG noted that efforts to raise prices to date haven’t worked, part of the current difficulty is that “tariffs just happened. We didn’t have a chance to adjust the supply chain.”
  • Pressure to renegotiate licensing agreements is growing. Postal said that tariffs are accelerating demand by licensees to lower royalties. “Those manufacturers [large public companies] that have clout can to go to licensors and say, ‘Renegotiate or I’ll give you the brand back.’ Others can’t.” Still, with royalty rates of 7%-9% for brands and 13%-16% for entertainment properties, “the margins are not sustainable. They’ll have to either restructure minimum guarantees and royalties or go out of business,” Postal said of licensees.

Moving Production

With 69% of footwear, 41% of apparel, and 84% of accessories manufactured in China, moving production in response to sudden tariffs is impossible. For footwear, in particular, where the technology and piece work are both intensive, it’s not going to happen, all agreed.

“If Vietnam gets big enough and this guy stays in office you’ll see tariffs there too,” said MMG’s Postal. And, noted Nathan Serphos of Michael Kors, “Vietnam is not going to double its population over the next two years.”

As for Ethiopia, the Dominican Republic and other locales, “It’s been done before,” said Harold Grunfeld, a customs and international trade law specialist at Grunfeld, Desiderio, Lebowitz, Silverman & Kledstadt. “But who wants to kill themselves trying to get goods into this country? It’s not a short-term solution” to the new tariffs.

Grunfeld also alluded to classification and accounting practices that can sometimes be used to offset at least some of the tariffs.

Inventory Backlogs

“Excess inventory is a problem for 2020,” said Chainge Capital’s Thorbeck. “Too often people think it’s a seasonal issue, but this has been a problem for a long time. It’s not just a matter of selling through the existing inventory” and then re-ordering.

“As a wholesaler you produce what’s ordered; when you’re sitting on inventory, 90% of the time we don’t make that back,” said D2/Delta Galil’s Vandagriff. Added Teva/Deckers Brands’ Anders Bergstrom, “We don’t have short-term inventory. It’s 18 months to produce; my job is to keep Ross Stores from getting a great deal.” And: “Inventory = risk, and risk management is about managing data and having vertical synergy in the supply chain,” MMG’s Postal, noting that DSW had bought the Camuto Group [with Authentic Brands Group].

“Some [stores] are buying flat to down,” said Janine Stichter, a retail analyst at Jefferies, “but structural headwinds, e-commerce, and tariffs going forward” mean inventory problems are not going to diminish anytime soon.

“We need more emphasis on process innovation,” Thorbeck urged the audience. “Tariffs complicate the situation, and technology” isn’t the only solution. “Inditex changing delivery from the standard 6-9 months to 1-3 months — that’s a process enabled by technology but it’s an innovation in process.”

Amazon

The difficulty of working on Amazon’s terms — and the lack of an alternative to working on Amazon’s terms — was a universal given. But the bottom line, also a universal given, is that “everyone will have to learn to deal with them,” said MMG’s Postal. “Amazon is today’s Sears catalog.”

 

 

Is There No Rest for the Disney Consumer?

On the surface, embedding 750 sq. foot Disney Stores in 25 Target stores starting next month, with another 40 planned a year from now, is a win-win: It’s a great differentiator for Target, gives Disney properties further exposure, and guarantees additional distribution for some licensees’ and Disney Store-exclusive merchandise.

But:

• To what extent will Target’s Disney shops siphon business from mall-based Disney Stores? The Target outlets will have 450 SKUs — 100 of which are exclusive to and available in Disney Stores. Does that mean the other 350 will be available elsewhere anyway? (Stand-alone Disney Stores have long claimed 90% or so of their selections are exclusive, though similar items are often available elsewhere.)

• Will Target customers in areas where there aren’t embedded Disney Stores feel unloved? Is there room to roll out the concept to Target’s 1800+ stores in North America?

• Is there a saturation point for Mickey/Star Wars/Marvel/Princesses/etc.? Is the consumer complaining that those properties aren’t ubiquitous enough?

• The release says Target will manage these store-in-stores. To what extent will the mass retailer be forced to showcase whatever Disney wants to promote — regardless of how well it does? If a movie is a clunker, can Target yank that merchandise out of its Disney Stores the way it does when such a property is displayed in the regular assortment? (Who needs who here? Technically, the answer is no doubt “Yes.” But the reality is it’s a business of relationships, and will Target want to risk displeasing Disney?)

• What impact will this deal have on Disney licensees’ relationships with other retailers — Walmart in particular? Will Walmart stop selling/reduce the amount of licensed Disney merchandise it stocks in stores where there’s a Target-Disney nearby? Or is Disney so critical at this point that it doesn’t matter (that could well be the case).

Let’s not forget Disney overbuilt its Disney Stores, sold them, then bought back the scaled down version. The Warner Bros. stores went through a similar experience, albeit without the range of properties Disney has amassed: Initial exclusivity at a very limited number of flagship Warner Bros. stores brought great results, so they overbuilt, overexposed the merchandise, and lost the cache. Warner, however, never got back into its own retail operation.

Walt Disney the man was a consummate marketer. He rotated his animated films out of circulation for seven year periods, waiting for a fresh audience before re-releasing them. That continued through the early years of home video, when Disney put its videos “in the vault” and then re-released with fanfare. (Now they remake them and/or add new titles to the “franchises.”) Even individual characters were promoted and would then take a back seat for a number of years. Mickey never disappeared, but he wasn’t always the focus of Disney marketing efforts. Some years it’s Minnie. Or Donald. Or even Goofy!

Today, the theory seems to be everything out there all the time: As many new movies as they can crank out for each “franchise” to bring home the box office and merchandising magic of quarterly growth for The Street. 

Is there no rest for the consumer?