Two weeks ago, Toys ‘R’ Us announced that it had acquired eToys.com (as well as BabyUniverse.com and ePregnancy.com). While Toys ‘R’ Us claims that eToys.com will continue to operate as a seperate entity from toysrus.com, this acquisition is another blow to the consumer. As smaller and mid sized toy retailers go bankrupt or get purchased, the consumer will see less and less choices. With fewer companies in control of toy retail, there is less opportunity for product variety, new manufacturers, innovation, etc. And, again, the consumer suffers.
It seems like the current situation with the American economy, coupled with the significant boost in regulations relative to the toy industry, is already resulting in, not the survival of the fittest, but the survival of the biggest. Unfortunately, small toy manufacturers and smaller independent toy retailers may be the ones who end up suffering the most. Hopefully, that is not the case in the long run. Because if it is, the end game is one or two corporations (like Wal-Mart – hint, hint) in complete control of the industry. When that happens, and it is a lot closer than you think, quality goes down, consumer choice goes down, and prices go up.
2009. The year of change.
Maybe more likely, the year of trepidation….
Certainly, all of us small business owners, or whatever you would like to call us, are a bit shell shocked as we start the new year. The 2008 economy performed dismally and most of us think 2009 will be worse.
So, I received a phone call about a month ago from a reporter for the Capital District Business Review. She was working on an article regarding the attitudes of business owners like myself relative to the economic state of affairs. I thought the article was very good in principle, so I let her interview me. I had a couple of previous experiences with this reporter, so it seemed like a good opportunity.
As we were discussing the current state of things, I began to open up about the concern I had for our business – especially the portion which depends on the local economy. Upstate NY is certainly leading the way these days as far as this economic downturn goes….
In any event, I am always incredibly wary of talking negatively about any of our business ventures. If customers feel your business is in trouble, they will most often stop buying from you. You would like to hope the opposite would be true, that people would rush to support a local business if they thought they were struggling — but that just is not reality.
Despite this concern, I spent about 45 minutes with the reporter explaining that indeed, like all other small business owners in Upstate New York (and the rest of the country) we are very concerned about 2009. This is the worst economy that most of us have seen in our lifetimes, so we would be naive at best to not be concerned. Of course, I explained – and was sure to repeat myself 3 distinct times – that I did not want to be featured in the article if it was not also added that our technology company enjoyed actual growth in 2008 and that our diversification efforts would help us stay viable. I emphasized the fact that this needed to be part of the article, because a business experiencing any growth in 2008 in Upstate NY was quite an accomplishment. And, again, no one every wants to appear in an article that describes one’s business as struggling.
SO, the article came out and my headshot ended up on the front page of the Capital District Business Review with the headline ‘Survival mode’: businesses pessimistic about ’09. It was explained that I was very concerned about our survival and there was absolutely NO MENTION of the growth of our technology business.
I proceeded to send a “Thank you very much” email to the reporter who immediately called and apologized. Apparently, they didn’t see it that way. They would now like to do another story on the positive sides of our business….
Finally, to the point at hand: Reputation Management. What do we do? Do we no longer talk to the press? I don’t think that is reality. While I do not agree with Brendan Behan who said, “There is no such thing as bad publicity except your own obituary”, Brendan was an author and obviously not a business owner, I do think that you have to keep putting yourself out there and talking to reporters and trying to get your message out. When you have a flattering piece written by a neutral third party there is nothing like it from a marketing standpoint. Of course, you have to be careful and a little selective. For instance, it may not be a good idea for me to speak to this particular reporter again.
But beyond that, we were able to respond to this article through our company web sites:
Gile Companies Response
With these type of responses, hopefully we can reach the same audience that might read the article in the Business Review. That is certainly why it is important to regularly communicate with your customers through your web site, through blogs, through other social media and, maybe most importantly, through email.
These are all things we need to get better at. We need to regularly communicate with our customers and hopefully our prospects, so if this type of thing occurs we can contact them and spin it the right way before they even see it.
Perhaps even more importantly, with these avenues established and well-trodden, we can then better distribute good press like this article in On Point – The Gile Companies: Blending Buy Local Marketing and High Tech Products and take advantage of flattering publicity.
Or probably better entitled, How Walmart Bought Christmas for Good in 2008.
The Grinch Aint Got Nothing on Walmart
Only BJs’ and Walmart’s sales were up in November 2008 – while every other retailer in America was down. Let me repeat…. Walmart’s sales were up in November 2008 over last year. The sky is falling – we are heading towards another depression and Walmart’s sales were up. Hmmm…. Toy Industry is recession proof? Nope. Walmart is recession proof!
While the media has convinced everyone that the sky is actually falling, which certainly appears to be accurate, we also seem convinced that the only way a consumer can save money in these times is by shopping at Walmart. So, Walmart “lowers prices” on all these toys and, still, they sell more dollars than last year. While the rest of the toy retailers are down. Interesting….
Goodbye KB (although I think we said goodbye years ago, if I’m not mistaken). Goodbye Toys R Us. So long E-toys (didn’t we do that years ago too?). Adios speciality toy retailers.
Let me share a couple of stories. We put a particular item that featured a particular superstar – a no brainer, no lose, toy item – in our Christmas flyer (of which we had 30,000 printed). Retails for $59.99. My cost was $49.50. Not much markup, but a very nice, attractive item.
Big box is selling it for as low as $14.99! I have an email in to the manufacturer – that was ten days ago, still awaiting a response.
We carry LeapFrog Didj – a great new product this year with a minimum advertised price of $89. That means that NO ONE can sell it for less than $89.
Big box wasn’t moving enough.
So LeapFrog changed the map to way below our cost – now Amazon is selling at $49.99. Hmm….
Define Category Killer. One word: Walmart. Good for the consumer? Save Money. Live Better. That’s their slogan? Really? Save Money. Live Better. Has anyone ever set foot in a Walmart and felt like they were living better? Obviously, Walmart is talking about their customers, not their employees…. And are their customers living better?
If they are, it’s not for long. When the category is officially killed, how low will those prices be then? When Walmart is choosing the toys you can buy, and what you can buy them for – and no one else is around to balance…. Try to save money and live better then!
Speaking of saving money, when did that ever become the American dream? I guess that’s another blog entry for another day…..
For those who didn’t grow up watching Happy Days, the Malachi brothers were two demolition derby drivers whose infamous move was the Malachi Crunch. Well, this year it’s not Fonzie who’s getting the squeeze, it’s the toy retailers.
Over the past year, manufacturers have seen rising costs due to the increasing prices of raw materials and labor as well as safety concerns. But don’t feel bad for Mattel and Hasbro, the two largest toy manufacturers in the world. They just pass the costs onto the retailers. Normally, I would say don’t feel bad for the retailers, because we’ll just pass the costs onto the consumers. But, not this time. Consumers are scared. The extortion of the American people on Wall Street and the lack of hope relative to the election of either presidential character, I mean candidate, is causing parents to panic and plan to cut back this year for Christmas.
So who really loses? Again, poor Mattel, in the face of rising costs, “profits grew by a sluggish 1 percent, to $238 million“. How about Wal-Mart or Toys “R” Us? They are playing the same game as usual, loss leader items to lure you into the store and then charge more on other products. This leaves two losers this year, the independent retailer and the consumer.
The independent retailer now has to shrink margins in response to low price demands and the increased costs from manufacturers. As a result, retailers cannot take as many chances, so they do not buy as many “risky” items from smaller manufacturers.
The consumer loses big because they now have less choices. Going to Wal-Mart and Target, the consumer is limited to only the toys that these stores carry – the “top sellers”. In the interest of saving money, they settle for lower priced toys that their kids didn’t want. Even when the consumer goes to speciality retail stores, there is not as much alternative product because of the risk factor for the retailer this year. Certainly, this will put some small, independent retailers out of business this year, which will mean even less choice for the consumer in 2009.
Sometimes in the toy business we actually make a good decision on what to bet on for the Christmas season. Sometimes it’s a well informed, well researched choice of product that sells like crazy. Other times it’s just a good guess or a hunch that pays off. Of course, the flip side of this (that happens far too often) is the calculated risk that flops, or the educated guess that collects dust in the warehouse for two years.
Iron Man Mighty Mugg by Hasbro
As a speciality toy retailer, we have always believed in the importance of providing unique product that distinguishes us from “Big Box”. So, much of our focus has often been on educational games, made in America product, small innovative manufacturers and award winning toys. But, we have also always believed strongly in the consumer’s right of choice. Relative to toys, customers often have brand preference, and rightfully so. As a result, we have always tried to make sure we carried the brands that people wanted, especially at Christmas time, in addition to the rest of our sometimes eclectic offerings.
From the beginning, we chose to feature Hasbro toys prominently at Christmas time. While Mattel is the largest toy manufacturer in the world with Hasbro the second, we have always felt more strongly about the brands and selection from Hasbro. We have placed a couple of small orders with Mattel over the last couple of years but have not been enamored with their selection or with their customer service. While we have had our issues with Hasbro, we have found their brands stronger, products more inventive and enjoyed the fact that many of their board games are still made in the USA.
In any event, it turns out that we are not alone. While Mattel’s stock has plummetted this year along with the rest of Wall Street, Hasbro is one of less than 30 companies in the S&P 500 that has actually seen their stock rise in 2008.
As if the consumer wasn’t scared enough already, now we have to fear that the world’s largest toy manufacturer and the world’s largest toy retailers might not make all the money they had hoped for on yet another version of Elmo. It appears that Tickle Me Elmo, TMX Elmo, Stretch and Fun Elmo, Ba Ba Baby Elmo, Up Up Elmo and Elmo Knows Your Name have not completely satisfied the public’s appetite for all things Elmo. This Christmas, Mattel thought the answer was Elmo Live.
Elmo Live is Scary!
But wait, Mattel (Fisher Price), had to cut some corners to keep the price point at $60. Mattel “made several concessions. Its final version sacrificed some movement to reduce the toy’s complexity. It also eliminated, for example, the ability to swivel at the hip. Elmo Live blows kisses, but other gestures were ruled out.”
And now, with the DJIA devastation plaguing the US economy, Wal-Mart and Toys R Us may not sell enough Elmos. Wouldn’t that be terrible? Forget the speciality toy store that can’t just “always invest heavily on Elmo” like Chief Executive Officer of Toys R Us Gerald L. Storch does. The independent retailer actually has to take risks on unique products, by innovative manufacturers. Products that the speciality retailer knows are exceptional because they have played with them and researched them. The only problem is that they haven’t been shoved down the public’s throats like Elmo – often in the name of “education” by PBS’s Sesame Street.
In any event, as consumers we should not fear for Mattel (who just one a monstrous lawsuit against MGA, makers of Bratz), as if spending $60 on Elmo Live at Wal-Mart might some how stabilize the economy and thrill the child that only currently owns a meager 4 out of 400 versions of Elmos. If Big Box toy companies can’t move enough Elmos at $60, they will just drop the price to $55. If that doesn’t work, $49.99 sounds about right.