Magformers LLC, a toy maker based in Canton, Mich., is looking to bring revenue back up to where it peaked before Toys "R" Us closed all of its stores.
When Toys "R" Us closed all of its more than 700 U.S. stores last year, Canton Township-based toy maker Magformers LLC lost its biggest brick-and-mortar customer.
The unexpected business loss threw a wrench in the company's growth plans and forced it to find other channels to sell its products. With new contracts on the horizon, and its popular building block sets on a growing number of Christmas lists this year, the toy manufacturer is angling for a rebound.
"When you take that kind of money from a manufacturer, it's tough," CEO Chris Tidwell said, referring to the multimillion-dollar hit it took when Toys "R" Us closed. "We're tight this year."
Magformers reached its peak revenue of $50 million in 2017. It is on pace to hit $37.5 million this year. Tidwell said the company, which employs 20, narrowly avoided layoffs amid the sales slide, but it halted plans to add more workers.
While the manufacturer's single largest customer is Amazon, its distribution deals with Meijer, Target, Walmart, Kohl's and other chains account for 60 percent of revenue. Brick-and-mortar — specifically, entering more food and drug stores — is a key part of its expansion strategy. It recently landed a deal to be in Walgreens stores across the country, and a similar agreement with Rite Aid is in the works, Tidwell said.
"As much as everyone says it's all e-commerce, it's not," Tidwell said. "There's still a lot of in-store presence."
Still, digital is eating away at the traditional toy industry. Toys were a $28 billion market in the U.S. last year, down 2 percent from the year prior, according to the New York-based Toy Association. The industry, fueled by equal parts nostalgia and innovation, has faced stiff competition from digital media, with tablets and mobile phones replacing Power Rangers and Hot Wheels in kids' grips.
The toy market has long been dominated by household names that include Denmark-based Lego Group, New York-based Fisher-Price and California-based Mattel. Magformers' value proposition, though, fits a growing niche: educational toys.
Magformers' marquee product is its 30-62 piece sets of magnetic shapes that can be arranged into different structures. It is marketed as a STEM-friendly, fun way for kids to learn colors, geometry and how to build 2-D into 3-D. It sells more than 200 types of products, including brands Tile Blox, Clicformers, Stick-O and a recent addition of plush toys. It uses neodymium rare-earth magnets and patented design for reliable connectivity, according to the company.
Its products are sold around the world, but its main market is the United States. The Ford Road headquarters houses administrative services such as sales, finance and marketing. A retail showroom opened there in 2017. Its products are manufactured in China and Belgium.
In addition to making more of its toys available in stores and online, the company is working out a deal with Novi-based Learning Care Group Inc. to get toys into some of the more than 900 schools the company operates. Learning Care is the second-largest for-profit child care provider in the country with brands including Childtime, The Children's Courtyard, La Petite Academy, Montessori Unlimited and Tutor Time.
Tidwell said he aims to work with educators in other states to incorporate Magformers into lesson plans, which would help build out its revenue stream.
Magformers was launched in Medford, Ore., in 2005 by entrepreneur Stephanie Hunts, who exited the business in 2017. Its majority owner is South Korea-based Gym World Inc., which had been an equal partner with Hunts until she left.
In 2012, the company hired Tidwell as CEO after approaching him about growing the company. Tidwell had been an executive at Wild Planet Entertainment, Mega Brands and Lego. In search of a cost-efficient, centralized location, Tidwell moved the company to Canton in 2012, building it up from a $2 million-a-year specialty toy maker into a midsize company.
Tidwell said he expects company revenue to hit $50 million again next year and grow from there. He plans to add four employees after the New Year and eventually staff more than 50 in the next few years as new revenue streams come online and brick-and-mortar grows, on which Tidwell is banking.
"I don't believe the consumer is ever going to want to not have a physical buying experience," he said. "We still need to use our senses."