Toy story Featured

11:30am EDT April 25, 2003
In an office strewn with toy trucks, giggling hippo flashlights and play kitchens, Brian Kirkendall, vice president of global product marketing for The Little Tikes Co., puts all his weight on the bed of a toy dump truck.

"It's designed to hold up to 250 pounds," says Kirkendall, explaining that Little Tikes has long been a stickler for high-quality manufactured toys. "That's always been important here. You can kill a brand by making it cheap."

And in the world of highly publicized product recalls, parenting magazines and Web sites devoted to parental assessment of toys, quality control is key. But for Hudson-based Little Tikes, it's just half the battle.

"We have always been a good manufacturing company," Kirkendall says. "People know, 'If I buy it from Little Tikes ... it will last.' "

Little Tikes has two very distinct purposes. One is to design and manufacture safe and appealing toys for its target market -- children 6 months through age 5. The other is to convince parents to buy those toys.

To accomplish the second task, Little Tikes must get its name in front of parents and, just as critically, ensure the right stores stock its products.

These goals are the same as those of every retail manufacturer in the industry, and have been for a long time. But times have changed since Little Tikes began making toys in 1970.

The world today is much more kid-centric than it was 30 years ago, and the toy industry is more competitive. The challenge has become to successfully compete against the continuous onslaught of new products.

In 1994, Rubbermaid acquired Little Tikes from its founder, Thomas Murdough. Newell Inc. took over Rubbermaid in 1998.

A few years later, after six straight quarters of declining sales at Newell Rubbermaid, the board of directors brought in Joe Galli as CEO to turn things around.

Galli brought with him impressive credentials, beginning as a marketing wunderkind with Black & Decker. There, he worked with Rory Leyden, Little Tikes president & CEO, and Kirkendall as part of a successful management team.

Galli has nothing less in mind for Newell Rubbermaid than a complete corporate-culture overhaul.

"He has laid out six strategic initiatives," says Leyden.

Notable among those were an increased focus on marketing and increased key account management.

So far so good for Galli and his team. Newell Rubbermaid has posted sales increases and the stock price has climbed since he came aboard.

Newell Rubbermaid's overall 2002 fourth quarter profits rose 33 percent, driven in part by acquisitions and higher product sales. Revenue was $2 billion, up 11 percent over the fourth quarter 2001.

Estimates of Little Tikes' contribution to overall annual sales fall somewhere between $300 million and $500 million. The company is part of Rubbermaid's infant/juvenile care and play division, which makes up 13 percent of total sales revenue.

"We actually had a good year," says Leyden. "Despite the market, we grew 6 percent last year."

Looking at the average child's bedroom, it may be hard to believe that the toy industry as a whole has flattened out over the past few years. However, despite the explosive popularity of video games, which have grabbed one-third of the toy sales market, Little Tikes has held its own.

According to toy industry statistics, annual sales of traditional toys (not including video games) hit an all-time high in 1999 at $20.5 billion, only to fall in both 2001 and 2002 to a little more than $20 billion a year -- an average annual expenditure of $328 for each of the estimated 60 million children in the United States.

Little Tikes' specific market -- infant/preschool toys -- also experienced a 14 percent drop in revenue when sales nationwide fell from $3.2 billion in 2000 to $2.8 billion in 2001.

The industry is not recession-proof, but it has fared better than other expendable consumer goods.

"Toys are one of those last things that you cut back on," says Kirkendall. "Grandparents are not going to stop giving presents to their 2-year-old grandchildren."

Sales figures notwithstanding, toy prices have followed the same consumer trends that many other consumer goods have. And that's where Leyden's new focus comes in.

Today, Leyden's and Kirkendall's job is to do for Little Tikes what their team, under Galli, did for Black & Decker -- increase sales. At Black & Decker, under their leadership, sales grew from $35 million to $1.3 billion in a seven-year period. And while children's toys may seem a long way from power drills and hand tools, selling is selling.

"We've always had a good brand," says Kirkendall. "We just didn't tell people about it. We're not going for the hard sell. It is more about having a presence."

One new initiative under Leyden is an aggressive marketing campaign. Explains Kirkendall, "We now have one of the biggest PR agencies on board, and we ran spots on TV for the first time. The prior management always thought of manufacturing as the company's core competency, but we want to make the current core competency marketing. We know we're great manufacturers ... now we want put more investment in marketing."

Leyden has put the company's money where its mouth is, tripling Little Tikes' marketing staff and doubling its marketing budget

"We dramatically increased funding," says Leyden. "Before, they would put a little product booklet in with every order. There were things here and there, but for the most part, it was spread a little too thin."

Now Little Tikes has a much more specific marketing agenda. Part of that is a focus on the company's target market -- moms.

"There is a 'nag factor' that kicks in at about 3 years old, when kids start saying for the first time, 'I want that,'" says Leyden.

But even though children beg for toys and sometimes get their way, 65 percent of the time it's mom who makes the buying decisions without input from their children. So part of Leyden's campaign is to simply make customers aware of new products.

To do that, Little Tikes recently sent a catalog with the Sunday Plain Dealer. Also, Newell Rubbermaid's corporate structure helps with marketing, and in conjunction with GRACO, a Newell Rubbermaid company, catalogs are integrated to include Little Tikes products.

And the company has tapped into Newell Rubbermaid's sponsorship of Winston Cup car No. 97 to help promote Little Tikes. Recently, it set up a miniature racetrack and had Winston Cup fans race its Rugged Rig toy trucks against each other.

"It's just another way to get the product out there," says Leyden.

One of the unique challenges Leyden and his staff face is that Little Tikes must make toys that appeal to children but market them to parents and, perhaps most important, keep its other big customer -- the big box discount store -- happy.

Retail success today is measured by Wal-Mart and Target square footage for your product. Says Kirkendall, "Wal-Mart space is the most valuable space in the world."

On average, toys take up 40 to 60 feet in any given Wal-Mart store. The space becomes even more coveted when you consider that Wal-Mart and Toys R Us together make 50 percent of total toy sales.

"Wal-Mart and Toys R Us have been our biggest customers for 10 years," says Leyden. "We work very closely with them. We share our plans with them and let them know what we are working on."

"Wal-Mart doesn't like it when they give you space and your product doesn't sell -- they will pull within six weeks if its not doing well," says Kirkendall. "They literally make decisions within weeks -- they can track sales that quickly."

On the flip side, if something takes off at Wal-Mart, it means a big return for any company. And return on investment is important to Little Tikes, considering what Wal-Martization has done to consumer prices across the board.

Profit margins have decreased significantly, and Wal-Mart is known for squeezing suppliers.

"This dump truck three years cost $19.99," says Kirkendall, pointing out one of Little Tikes' well-known products. "But because of competitive activity, it dropped to $14.99. Then last year, it sold for $9.99."

If there is any further question about the power of the big boxes, these stores can also do the unthinkable -- fold time and space.

"By this May, they want the next spring's product," says Kirkendall. "There are toy fairs in February, but by then, Wal-Mart has already made its decision. They know what's going to be on the shelf."

That relationship with the big box stores is worth its weight in shelf space, but it has changed the face of product longevity for Little Tikes.

"The retailer makes that decision," says Kirkendall about when to continue with a new product line. "If it isn't selling, they pull it."

Understanding what customers are looking for is one thing when they can tell you. But what about when they can't?

Leyden looks to the parents for answers.

"Parents of young children are always concerned about creativity," he says. "You watch kids play and talk to mom. Ask them what they look for. You have to think like a kid to be successful."

This has led Leyden to make new product development another of the company's strategic priorities.

"Our goal going forward is to introduce at least 100 products a year," says Kirkendall. "The idea is to take the best 100 products and go forward."

It costs a few thousand dollars to bring a product to the model stage, but the last thing the company wants is a toy that makes it into the market and elicits a negative consumer reaction or a recall.

Little Tikes conducts an exhaustive product research process, from formal studies to introducing new products into its on-site daycare center.

"Within 15 minutes at a daycare, we know how the toy will go over," says Kirkendall.

That may sound like fun, but the average toy customer is a fickle and ever-changing consumer. Take, for example, the trend toward children maturing at an earlier age.

"At eight, they don't want to be little anymore," says Kirkendall, adding that with children, nothing is ever really certain. "We watch and see how kids interact with the toy all the way from the beginning of the design process."

In this hyper-consumer awareness that has developed post-Sept. 11, marketing products that are sensitive to the new trend of cocooning have become a priority. The six-month to 5-year-old market that Little Tikes serves, albeit healthy, is not prone to large growth. So for the company to increase its traditional single-digit growth, it's imperative to focus on organic growth.

To facilitate that, Little Tikes recently launched a line of child-sized wood furniture.

"It has been a big departure for us internally," says Kirkendall. "But it really resonates with the parents. In our research, we have parents saying, 'It's about time.'"

Some of its standard products have also become more adult-friendly.

"We launched a new line of outdoor sandboxes," says Kirkendall. "We re-colored them to be more natural ... to be considerate of all the money people are spending on landscaping."

And, he adds, "We've tried to meet the needs of the customer. Moms don't want a big, rugged metal truck in the house they just spent a ton of money redoing. That's why we put soft rubber tires and rounded edges on the truck, so it won't scratch up the coffee table."

It's a nice idea, but don't be fooled. In the end, kids still like what they like.

"Kids love noise," says Kirkendall. "And the more obnoxious, the better." How to reach: The Little Tikes Co., (330) 650-3374 or www.littletikes.com