Does junior want a big plastic gym for the yard or a friendly new computer?
That's the spending decision facing baby boomers with children, and one of the forces altering the world of large, rotationally molded toys. The segment is small — major players include Little Tikes Co., Step2 Co. and Fisher-Price — but it accounts for a huge chunk of the rotomolding industry.
Most rotomolding authorities say toy molders are the industry's artisans of efficiency. Their plants turn out high-volume products. Playhouses, sliding boards, kitchenettes and riding vehicles flow out of huge medieval-looking machines, spinning slowly through ovens and cooling. Crew members on platforms pass the parts down chutes to finishers, then into a box.
But something went wrong in toy land. It happened almost all at once. First, Fisher-Price returned to rotomolding in 1995, adding more product. Prices for polyethylene resin seesawed up and down. Stressed-out retailers harshly questioned the space vs. profit of these ``big cube'' toys. Inventory piled up. Parents were facing new decisions, to spend $250 on a gym set or to pick up some video games.
Mattel Inc., which owns Fisher-Price, ended up shutting its major rotomolding plant in Medina, N.Y., this year and, according to a former Fisher-Price official, leaving a warehouse filled with toys.
This past March, as Fisher-Price was laying off workers, Little Tikes announced major news: the closing of its 300-worker plant in Aurora, Mo. Part of the problem: Wal-Mart cut back on its toy stock. That followed the 1995 closings of Tikes plants in Blythewood, S.C., and Guelph, Ontario.
Gary Kleinjan, who was Little Tikes' president and general manager until Aug. 11, said the 1995 Christmas wasn't that great.
``We think 1996 was kind of an unusual year. The year started out with a carry-over a little heavier than most manufacturers would like, because of the 1995 Christmas season,'' he said in an Aug. 6 interview. ``Then we hit a very cold, wet and long spring on the outdoor products, which really never got us started.''
Rubbermaid named Kleinjan president of sales and corporate accounts at Rubbermaid on Aug. 11.
Thomas G. Murdough Jr., who founded Little Tikes, then Step2 Co., places the blame on Fisher-Price for cut-rate pricing of ``me-too'' products and heavy advertising — then criticizes Little Tikes for following.
Meanwhile, Fisher-Price has dramatically scaled back its rotomolding, closing the Medina factory and doing a small amount of custom work — not toys — in Ontario, Calif. For toys, a small rotomolding plant in Augusta, Ga., is all that's left. Rumors are swirling that Fisher-Price might pull out of toy rotomolding altogether, but FP spokeswoman Laurie Strong said no.
``We're still committed to the process'' in Augusta, she said. ``We see this as a viable business that we're going to continue to pursue.''
Of the three major players, only Step2 showed a sales increase in 1996, according to Plastics News' ranking of North American rotomolders. Tikes' sales de- clined 15 percent, to an estimated $175 million, down from $206 million. Fisher-Price got hacked to an estimated $15 million, from $25 million in 1995, its first full year back in rotomolding.
The sales figures reflect North American rotomolding-related sales, not total sales.
Step2 sales grew by nearly 12 percent. That almost equals a flat year for the fast-growing firm in Streetsboro, Ohio. Murdough founded Little Tikes in 1970, then sold it to Rubbermaid in 1984, getting Rubbermaid stock valued at $50 million. He stayed to run the leading toy molder, but clashes with management led him to resign after several years.
Murdough started Step2 in 1991, first making trash containers. When Murdough's noncompete clause expired, Step2 began pumping its own toys into the market — Big Climbers, Power Cats, Jellybean Wagons. In less than five years, he was operating three U.S. factories. This year he announced an overseas factory, in Northern Ireland.
Murdough is blunt about what he calls the ``black cloud'' over the industry.
``With Fisher-Price coming in, and with ourselves in the business, growing pretty nicely, Little Tikes, under pressure from Rubbermaid, became very aggressive as well. The effect of the Fisher-Price and Little Tikes moves, essentially created an oversupply in the market for rotationally molded products, with an oversupply to retailers,'' Murdough said.
``And this was occurring as we saw a sluggish retail environment. Generally retailers were having to unload this excess inventory of products at distressed prices, which means that their margins were negatively affected. The net result for this was a black cloud over the whole industry, as far as retail was concerned.''
Murdough said Fisher-Price violated a taboo, advertising heavily, and discounting.
``Essentially [Fisher-Price] was another player that came in very aggressively taking a promotional approach to a category that traditionally has not been a promotion industry,'' he said.
Fisher-Price declined to allow its new president, Gary Baughman, to comment for this story. Strong, the public relations manager, said Baughman is too new to Fisher-Price, and she fielded all the questions.
But Baughman is hardly new to rotomolded toys. He joined Little Tikes a few months after Murdough resigned. In 1994, he left to take the top spot at Tyco Toys Inc. In March when Tyco merged with Mattel, they named Baughman Fisher-Price president.
Strong rejected Murdough's claims that Fisher-Price piled on more of the same old stuff, clogging the pipeline.
``We believe we have brought innovative products to the market,'' she said, pointing to the Grow-With-Me feature that allows toys to be expanded.
Strong declined to comment on pricing, but she said Fisher-Price was able to gain market share with differentiated products.
Strong also would not talk about inventory, citing company policy. But the former Fisher-Price official, who spoke on condition of anonymity, said the closed-down Medina plant resembles the North Pole right before Christmas.
``Inventory in Medina is still very high. You expect a plant that's shutting down to have virtually no inventory of product. Wrong, cowboy,'' the former Fisher-Price official said. He said management difficulties caused many of the problems.
In July, Fisher-Price hired two former executives from Little Tikes, based in Hudson, Ohio. Kevin Aker, Tikes' vice president of research and development, left Little Tikes to start his own design firm recently. Aker will act as a consultant to Fisher-Price. Kevin Curran, who headed sales and marketing at Little Tikes in Europe, has joined Fisher-Price as senior vice president of research and development. Tikes originally recruited Curran from Fisher-Price seven years ago.
Tikes also lost Joe Cacciola, its director of design for consumer toys. Cacciola confirmed last week he has taken a similar position at Playskool. He said he wanted to move back to his New England roots.
Kleinjan, a 17-year Rubbermaid veteran, will admit that the new player, Fisher-Price/Mattel, hurt.
``Certainly, they're a major player in the toy industry. They commanded some space because of their size and their product offering,'' he said.
But Kleinjan does not agree that the large-toy market has slowed.
``From our research in the marketplace, with consumers and customers, we don't think it's slowed.''
Little Tikes stepped up its market research during the rough period.
``One of the things, as we've gone through the '96 year, we asked ourselves many times ... has this business slowed down? Is it oversaturated? And when we went out to talk to the consumer and the marketplace, we found just the opposite,'' Kleinjan said.
He said that Fisher-Price has pushed Little Tikes even harder to come up with the lifeblood of any toy company: good new products.
In an interview at Little Tikes' Hudson headquarters, he pointed to a simple red ride-on toy shaped like an all-terrain vehicle. Retail price: $19.99.
Murdough says an inventory overhang still threatens the industry.
Kleinjan said he doesn't know about the reported full Fisher-Price warehouse in New York. As for Little Tikes, he said, the company has kept inventory under control, even during the slow period.
And Kleinjan insisted that Little Tikes has turned around in the second quarter. The toy industry overall has rebounded.
``Since the first of April, we have seen just a dramatic surge in our business. Right now we're probably even lighter on inventory than we'd like to be. We're running our facilities in North America now full out.''
Rubbermaid as a whole had a 6.7 percent decline in profit for the second quarter, although sales were up 12 percent. Rubbermaid releases very little financial information about Little Tikes.
One analyst who follows Rubbermaid disagreed with Kleinjan's upbeat assessment — but another analyst backed him up.
``I would argue with anyone that would say that the large-toy category is turning around,'' said Eric Bosshard, analyst at Midwest Research in Cleveland. ``That would be a shock to me. Retailers don't want to put big, slow-moving products on their floors, in their stores, anywhere.''
Scott Graham, senior vice president of Oppenheimer & Co. Inc. of New York, disagreed, saying ``orders are firming up.'' Graham said Little Tikes has come out with smaller products priced less than $40.
``Rubbermaid has taken down its price points to match its competition.''
Step2 also has a line of small toys.
Graham and Little Tikes officials said the big play sets will not disappear.
``The company is also finding ways to put its larger footprint products into boxes so that it takes up less space on the floor. Retailers are applauding those measures,'' the analyst said.
Toy makers are focusing on cube-space — the amount of space the box takes up. At Little Tikes, that means designing products so they can be partially assembled at home.
At the National Hardware Show, held Aug. 10-13 in Chicago, Little Tikes showed two products, a picnic table and a slide, that fold up for easy transport and take up less display space in stores.
One potential new product Little Tikes is studying is a combination stroller/wagon, able to hold two children, with lockable storage areas. The company is conducting consumer focus group studies now, although Kleinjan did not want to say much about them.
Mike Neff, vice president of operations, said the tough period has prompted Little Tikes to wring out efficiencies. Neff said a new overhead conveyor has helped ``unclutter'' the Hudson factory, cutting down on the use of forklifts and products stacked near the machines.
Other plants are installing the system. Through work teams, Little Tikes production employees also have reduced excess movements.
``We also are looking at some automation,'' Neff said.