Toymaker sees growth potential in licensing

In the age of blockbuster films and cross-platform megafranchises, toy licensing is big business.

Sales of licensed toys jumped 7 percent, twice as fast as the rest of the toy market, in the 12 months ending in April, according to the Port Washington, N.Y., research firm NPD Group. In 2014, Disney's “Frozen” generated $500 million in toy sales alone. In the U.S., licensed toys represented 31 percent of the $18.1 billion industry and continue to grow, according to NPD.

Can Walled Lake, Mich.-based American Plastic Toys Inc. — which has relied on its U.S.-manufactured, low-priced toys such as sand buckets and kitchen sets — thrive among the top-selling licensed toys like Teenage Mutant Ninja Turtles, Minecraft and Jurassic World?

That's the bet.

President and CEO John Gessert said the company is negotiating licensing agreements for a line of low-priced toys to improve sales.

American Plastic Toys' sales decreased in 2014 to $41.6 million from $50 million in 2013. 

“We recognize that [licensing is] a good point of differentiation for our customers,” Gessert said. “The products we're considering will provide an opportunity for one of our retailers to provide a good entry-level price point that's maybe more appealing to their core customer.”

American Plastic Toys, which injection molds and sells toys to big-box stores such as Target Corp. and Wal-Mart Stores Inc. as well as online through Amazon.com Inc., currently does not have any licensing agreements but has done one deal in the past.

The toymaker produced some of its plastic toys with the licensed image of Clifford the Big Red Dog, made popular by Norman Bridwell's children's book series published by Scholastic Books.

“The Clifford books were inexpensive, so it was a strategy to provide lower-income customers with affordable toys,” Gessert said. “Those customers were, by and large, buying those books. We can certainly benefit from new licensing agreement relationships with licensors looking to provide a less expensive product for those customers.”

Gessert declined to name potential licensors before the deals were signed.

Mattel Inc., the second-largest toymaker in the world by market value behind Lego A/S, declined to discuss licensing agreements. Hasbro Inc., licensee of “Jurassic World” toys, did not respond to an inquiry about the business.

Juli Lennett, senior vice president of U.S. toys for NPD, said that although licensing is a substantial business for many toymakers, it's not an avenue for everyone.

“While licensing is very important to the toy industry … it is not critical to the success of every toy company,” Lennett wrote in an email to Crain's. “There are many examples of toy companies who are thriving with very little or no licensing at all as part of their toy portfolio.”

Lennett said companies such as Chicago-based Radio Flyer and Australia's Moose Enterprises PTY Ltd., for example, perform well without the benefit of licensing agreements.

Gessert doesn't anticipate licensed products dominating the lineup of American Plastic Toys. The company doesn't want to overextend itself and lose its core competencies chasing license agreements, he said.

“We're looking at it as a necessary evil,” Gessert said. “Our products are price-sensitive, so we have to be careful not to have a flash-in-the-pan moment because the risk expands exponentially if we start investing in tool and spending more to accommodate licensing agreements.”

While dipping a toe back into licensing, American Plastic Toys also seeks to expand offers toward consumer preference, such as alternative sporting goods toys. It manufactures toddler basketball hoops and other sports-related toys but may expand to other areas, such as a kids' “cornhole” game, for instance, Gessert said.

American Plastic Toys is also benefiting from the recent truckers' strike this year at ports in California. The walkout prevented imports from reaching the U.S.

Teamsters union truck drivers who haul freight from the marine ports of Los Angeles and Long Beach, Calif., went on strike in April. Also this year, a conflict between West Coast dockworkers and shipping companies caused slowdowns from the same ports.

Gessert said that because of those port problems, the company is seeing a double-digit increase in volume ordered in the first two quarters of the year.

“We were definitely chasing to keep up in the spring,” Gessert said. “While we're not a branded product, we're a domestic alternative and because our plastics come from mostly the U.S., we provide retailers an opportunity to increase their profit dollars per square foot with less risk.”