Where Toys Come From

Selling fun to children is one of capitalism's least predictable pursuits
The Dimensions of the Business

Ruth Cronk knows more interesting facts about Barbie than most people know about anything. For example: If Barbie were blown up to human size, her measurements would be 39-21-33. Barbie and Ken, her boyfriend, were named after the real children of Ruth Handler, Barbie's creator, the wife of one of the founders of Mattel, Inc., and the driving force behind the company for many years. When Ken was introduced, in 1961, Handler wanted him to be what is referred to nowadays as "anatomically correct," but Mattel's (male) marketing department said no. When you rotated the arm of Growing Up Skipper (1975), her breasts got bigger. When you pulled apart the legs of Guardian Goddess, a sort of outer-space Barbie introduced in 1980, her arms flew up and her clothes fell off (Mattel, unlike Ruth Cronk, does not include Guardian Goddess in the Barbie family). If all the Barbies ever sold were laid end to end, they would span so many football fields that you would soon realize that more than 250 million Barbie-family dolls have been sold.

Cronk is a contagiously cheerful middle-aged housewife from the Bronx. She is also the president of the International Barbie Doll Collectors Club, the editor and publisher of the International Barbie Doll Collectors Gazette, and one of the world's leading authorities on the world's leading fashion doll. She is giving a lecture titled "The Barbie Family" to about a dozen members of a doll-collecting club in the basement of Brooklyn's St. James Evangelical Lutheran Church. Spread out on the table before her are numerous Barbies, Kens, Midges, Francies, and other dolls, along with a broad sampling of their furniture, dogs, horses, automobiles, and, of course, clothes. (Mattel says that Barbie's vast wardrobe has made the company the world's largest producer of women's wear.)

Ruth Cronk owns more than 3,000 Barbies. She has an original 1959 Barbie (along with the box it came in), worth perhaps a thousand dollars. She has Barbies with Western features that are sold in Japan. She has Barbies with Asian features that are sold in the United States. She has Tiffs. She has Kelleys. She has a discontinued black friend of Tutti's (Tutti is Barbie's tiny sister, fraternal twin of Todd) that was sold only in Germany.

Barbie was not an immediate hit when she was introduced to the toy trade twenty-seven years ago. Buyers thought, among other things, that she was too small and too busty to catch on with little girls and their staid, Ike-loving moms. Sears, Roebuck and Co. didn't order any of the dolls at all. But the ones that did make their way into stores were snapped up so fast that Mattel had trouble supplying replacements.

Since then the Barbie trade has been everything that the toy trade in general has not. While Barbie and her family have been a sturdy, reliable success, the business of keeping children amused has been volatile. Fads have come and gone, and companies have followed. Mattel's own history reflects the whimsicality of the entire enterprise. Since its founding, in 1945, the company has risen from obscurity to become the world's largest toy manufacturer, plunged to near bankruptcy, and pulled itself back together.

In the midst of all that jumping around, the industry as a whole has grown dramatically, generating $12 billion in retail sales last year, up from $7 billion in 1980. This growth has had several sources. Various demographic trends have conspired to make today's children more likely to be given more toys by more people who have more money to spend. (Notably, the increase in the number of remarriages following divorce has increased the ratio of grandparents to children, which has increased the ratio of presents to birthdays.) Also, the flourishing of Toys R Us and other so-called toy supermarkets has helped extend the toy-selling season beyond the traditional Thanksgiving-to-Christmas crush. A boom in licensing has made it possible for children to own their favorite characters in the form of not merely toys but also wallpaper and breakfast cereal. Perhaps most important, toy manufacturers have become vastly more sophisticated (some people would say insidious) at marketing their products. Television in particular has become a marketing tool, with the effect that most new TV programs for children are extended commercials for toys. Major toy introductions are now minutely planned campaigns in which tens and even hundreds of millions of dollars are at stake.

Barbie and her friends haven't just been standing around letting their arms fly up while this upheaval has been taking place. Ken is still a goody-goody and Barbie's feet are still shaped for high-heeled shoes, but a lot of other things about the dolls have changed. This year, for example, Barbie has acquired a brand-new glow-in-the-dark evening gown, a brand-new glow-in-the-dark (single) bed, a brand-new glow-in-the-dark vanity, and a brand-new pet tropical bird with reversible wings. She has also acquired her very own rock band, called the Rockers. ("Don't ask me to comment about their makeup," Ruth Cronk says.)

What is Barbie, the most steadfastly unhip, eleven-and-a-half-inch person in America, doing in a rock band? The answer has to do with something else Barbie acquired this year: her first serious competitor in a long time. This competitor, whose name is Jem, also has her very own rock band, called the Holograms. When Jem's manufacturer, Hasbro, Inc., invited little girls to enter a contest by dialing 1-800-ROCKGEM and singing the Jem theme song ("Jem is truly outrageous, truly, truly, truly outrageous ... "), so many of them did that the phone company had to put in extra lines.

Nobody, including Jem's creators, thinks that Jem is going to render Barbie obsolete. But some observers think that Jem might give Barbie a run for some of her money. How the competition turns out will depend on the vagaries of one of the least predictable pursuits in all of capitalism: selling fun to children.

In the olden days children had no toys per se but played with pine cones and lumps of coal. This made them happier, smarter, and better behaved than today's children, and everyone, except today's children, would like for the olden days to return.

Eventually, a few rudimentary playthings came into being: Erector sets, Tinkertoys, Lionel trains, Lincoln Logs. The children of the twenties and thirties, looking like miniature, black-and-white versions of their present selves, played with these primitive amusements, covered them with the interesting-smelling dust of history, and handed them down to their children. I remember playing with my father's Lincoln Logs, happily building and rebuilding the same small rectangular structure, for about five minutes. Then the Lincoln Logs became lost. (Actually, Lincoln Logs are still popular enough to consume four carloads of Ponderosa pine trees from Oregon every month. They were invented in 1916 by John Lloyd Wright, a son of the famous architect, and were inspired by a Japanese technique for constructing earthquake-proof buildings.)

The first great watershed in the development of toys as we know them was the end of the Second World War. The Great Depression had made it impossible for most people to buy a lot of toys. The war had the same effect. When prosperity returned and the people now known as Yuppies began to be born, the modern toy industry was born as well. Propelling it toward maturity were the two great engines of post-war American culture: television and plastic.

Today the toy business is dominated by a handful of companies, the largest five of which—Hasbro, Mattel, Coleco Industries, Kenner Parker Toys, (which consists of Kenner and Parker Brothers, a venerable game manufacturer), and Fisher-Price—accounted for more than 45 percent of all toys sold last year. Of these five only Fisher-Price began—in 1930—as a toy company. The others entered the business by peculiar routes. Kenner began in 1947 as a soap and soft-drink manufacturer; a premium called the Bubbl/Matic Gun, which came in boxes of Kenner soap, was so received that the company switched businesses. (One-hundred-and-three-year-old Parker Brothers has always been what it is today, primarily a manufacturer of games.) Coleco started in 1932 as the Connecticut Leather Company, a wholesale distributor of shoe-repair supplies; it became a toy company in the early 1950s, when it began selling the Official Howdy Doody Make It Yourself Bee-Nee Kit and other leathercraft items for children. The first products of Mattel—whose name consists of syllables from the names of the founders, Harold Matson and Elliot Handler—were picture frames and miniature furniture made of polyurethane left over from the manufacture of airplane nose cones. Hasbro started out in 1923 as Hassenfeld Brothers, purveyors of textile remnants.

Representatives of these companies and roughly 700 others can be found each February at the American International Toy Fair, a ten-day trade show in New York City. The first Toy Fair, in 1902, consisted of ten or so underfed salesmen trying to catch the attention of wholesale buyers passing through New York on their way to and from Europe, the major source of toys at the time. Today America is not only the principal market for toys, consuming a third of all the playthings produced in the world every year, but also the principal source. The 1986 Toy Fair featured 871 exhibitors, 832 of them American, and attracted some 15,000 buyers from more than sixty countries.

These people had a pretty good time. They were squirted by battery-powered squirt guns, greeted by Jem's secretary, and briefed in a tent by an anti-terrorist commando. Among the most talked-about toys were Party Animals, hand puppets from Axlon, Inc., that make electronically produced sounds when their mouths are opened; Ohio Art Company's Etch-A-Sketch Animator, an electronic version of the old favorite; Coleco's line of licensed Rambo action figures, billed as the Force of Freedom ("He'll fight the good fight for flag and country, but it's the freedom of the individual that really counts"); numerous interactive games designed for video-cassette recorders; Mattel's Popples, which "can be changed from fluffy balls to furry friends" (and have established a new category of toy, called "transformable plush"); a wonderful battery-powered mask called the Voice Modulator, which turns human speech into electronic robot talk; and a seemingly endless procession of talking teddy bears (category name: "electronic plush").

The surprise hit of this past Christmas season was a talking bear named Teddy Ruxpin, manufactured by a hitherto unknown company called Worlds of Wonder, Inc. This year at the Toy Fair, Worlds of Wonder was hot. Teddy Ruxpin now rides herd over a vast number of noisy toys, among them Smarty Bear ("the Talk-A-Tronic you can bare all to"); Gabby Bear; Heart-To-Heart Bear; Pete, Repeat, Hello Hippo, and Rappin' Rabbit; Billy Bob ("accurately synchronized to software in the movements of its mouth and positioning of the head, body, and arms"); Spunky (a doll that "laughs, tells stories, sings songs, tells riddles, and does tongue twisters"); Dreebles ("they purr when touched); Blabber Bear, Blabbermouth, Blabber Mouse, and Blabber Phone; Bingo Bear and P. C. McChip; Petster, Pupster, Petster Puppy, RoboPup, Talkabot, Spybot, Sting Mosquito, Dippity Dolphin, Darwin Gorilla, Silly Goose, Tetrazzini Turkey, and A. G. Bear.

Not all these toys really talk. A. G. Bear, for example, responds to sounds in a sort of electronic mumble that its manufacturer, Axlon, calls Bear Talk. The mumble is produced by a little black box in the toy's back that takes sounds from the outside world, distorts them electronically, and repeats them in garbled form after a delay.

A. G. Bear strikes me as being exactly the right kind of talking toy. It responds to a child, but not with canned pronouncements. And it leaves room for the imagination, a child's most important plaything. When I was in grade school, a classmate took an electric barber's razor and shaved some little rectangles on his head—parking spaces for his Matchbox cars. His mother was apoplectic, but the parking lot was his to keep until his hair grew back.

What's on the Shelves

Until the mid-1970s as many as 70 percent of all toys sold at retail each year were sold during the six weeks before Christmas. According to the usual pattern, buyers ordered these toys at the Toy Fair, received them in the summer, and paid for them in December, a practice known in the business as "dating." Often the new toys were not put on the shelves until mid-autumn. By the first of the new year the toy year was over.

Today Christmas sales account for only about half of the year's toy business. The Toy Fair has declined slightly in importance as the selling season has lengthened; new toys are now introduced year-round. By this Christmas many of the season's most popular toys will have been on the shelves (not to mention on the tube) for months.

The person most responsible for loosening Santa's grip on the toy business was born in the back room of a Washington, D.C., bicycle shop in 1923. "I was a quiet, introspective child," Charles Lazarus says. His father bought broken bicycles, rebuilt them, and sold them. Young Charles learned to ride and walk on roughly the same day. "I always wondered why we didn't sell new bicycles," he says. "My father said it was because the big chain stores could sell them so much cheaper than we could."

Engraving these words on the inside of his skull somewhere, Lazarus went off to the Second World War, where he served as a cryptographer. After the war he felt too old (at twenty-four) to go to college. He took over the family store, got rid of the bicycles, and filled the place with baby furniture. It was a good business; returning soldiers were having large families. Over the course of several years, though, Lazarus noticed something interesting: people who bought one crib seldom bought another. Baby furniture didn't wear out. He began to think about merchandise that would. "Toys are a great kind of thing to sell, because they don't last that long," he says today. Lazarus switched to the toy business and named his store the Children's Supermart. To increase name recognition, he printed the Rs backward.

As Lazarus expanded his business, he decided that his signs didn't look right. If two long words were to fit on a sign, the letters had to be small. Shorter words, bigger letters. He set out to find the shortest possible name that would convey what he was selling. He settled on Toys R Us, retaining a backward R.

The whole structure of retailing was under renovation in the 1950s as Lazarus was hammering out his strategy for selling toys. The age of discounting had arrived. Lazarus retrieved his father's pronouncement from his cranium and studied the experience of the cut-rate chain E. J. Korvette. The key to success, Lazarus decided, was offering name-brand merchandise at less than list price. In 1966, having opened three additional outlets, Lazarus sold his business to a company called Interstate Stores for $7.5 million. Lazarus himself was part of the package, staying on to manage his stores. Over the next eight years he added forty-three new outlets.

While Toys R Us prospered, though, the rest of Interstate gradually fell apart, finally filing for bankruptcy in 1974. The company was reorganized in 1978, under the Toys R Us name, with Lazarus as its chief executive officer. The new company's early days were difficult, but toy manufacturers extended extremely generous credit terms to keep Lazarus in business. Toys R Us quickly entered a period of rapid growth that made it, in the words of a recent research report from the international banking and brokerage firm Goldman, Sachs & Co., "one of the outstanding companies in all of retailing." From 1975 to 1985 the company's annual revenues grew from a little over $200 million to a little over $2 billion.

Toy manufacturers were willing to back Lazarus because they believed that Toys R Us was the key to what they yearned for: year-round toy sales. Unlike traditional toy retailers, Lazarus didn't cut his stocks back dramatically in the off-season. Nor did he pick and choose among manufacturers' offerings; he usually ordered the entire catalogue and he put at least one of everything out where customers could see it.

Visiting a Toys R Us store for the first time is quite an experience. The stores look like warehouses. Toys are stacked nearly to the ceiling, and the customers push shopping carts. The selection—more than 18,000 different toys in every store—is almost inconceivably vast. "There's an enormous opportunity in America if you're willing to make a commitment to inventory," Lazarus says.

Like striped toothpaste, seedless grapes, and many other great ideas, the present-day Toys R Us concept is relatively simple. The most important element is central control. Toys R Us managers never place orders; new toys simply arrive. A computerized merchandise-tracking system links every cash register in each of the 233 American Toys R Us outlets with corporate headquarters in Rochelle Park, New Jersey. If the Toys R Us, in Christiana, Delaware, is running low on Immortals of Change Attack Probes, this information is noted at the nearest distribution center and Attack Probes are shipped to the store.

Decisions made at Toys R Us affect every aspect of the toy business. Before Lazarus, dolls were kept in closed boxes behind toy counters. Now toy packaging is designed according to how it will look (and whether it will fit) on the shelves at Toys R Us. Because Toys R Us stacks toys high into the air, virtually all packages are made to stack.

Toys R Us has become important to the success of most toys, and manufacturers generally check with Rochelle Park before they go into production. "By early December," Lazarus says, "we've seen nearly everything that will be introduced at the Toy Fair. In fact, we've seen more, because some goods get dropped along the way." Very often the goods that are dropped are goods that didn't appeal to Lazarus and his staff. Some toys are even tested in the stores before a final production decision is made. A company planning a new toy for Christmas of 1987 might make a few samples and ship them to Toys R Us as early as September of 1986.

Toys R Us has been so successful that the rest of the retail toy business has had to change in order to survive. The company has given rise to imitators, including Child World, Lionel Leisure, and a host of regional chains. Even more significant, it has forced existing stores either to act like Toys R Us or to get out of the toy business. Big discount chains like Kmart and Caldor used to run their toy departments the way Macy's did, expanding them for Christmas and contracting them during the rest of the year. Now the discounters and even Macy's have discovered that if they don't maintain competitive toy departments all year long, their customers defect to Toys R Us during the off-season and don't come back for Christmas. In the meantime, many traditional department stores have essentially stopped selling toys.

Toys R Us customers are very loyal. The chain has a no-questions-asked return policy that grew out of a discovery Lazarus made when he was starting out in business. "I noticed that the customer who raised his voice generally got his purchase taken back anyway, regardless of the merits," he says. Toys R Us also carries a selection of children's clothing and other non-toy merchandise—most notably disposable diapers, which the company buys by the megaton and sells below cost. Many customers come to Toys R Us to stock up on Huggies, and then spend the savings on toys. (The company has also found that its customers buy toys with the money they save buying other toys; people generally come to Toys R Us planning to spend a certain amount of money, not to make specific purchases.)

All in all, the strategy has been astonishingly successful. Close to 16 percent of the money Americans spend on toys is spent at Toys R Us, and analysts say that the figure could eventually go as high as 40 percent, a market share unprecedented in retailing. Almost everywhere Lazarus looks, he sees trends that make him smile: parents are having fewer children and spending more money on each one; working mothers are feeling guilty about not seeing their children and making it up to them with toys; in 1990 there will be 15.1 percent more children between the ages of five and nine than there were in 1983.

Lazarus also likes what he sees overseas. There are now Toys R Us stores in Canada, the United Kingdom, and Singapore, and many more stores are planned in Europe and elsewhere. Any country that has supermarkets, Lazarus says, is a potential home for Toys R Us. That goes double for any country with commercial TV. Here at home the company has been expanding the number of its outlets at a rate of roughly 18 percent a year.

In a world where people disagree about almost everything, it's reassuring that there is a single, universally accepted standard for judging toys. This standard can be stated simply: A toy is appropriate for my child if I had either it or something almost exactly like it when I was growing up.

My favorite toy when I was growing up was a smallish set of Lego building blocks. Lego is not an American toy. It is the product of Interlego A/S, a privately held multinational corporation based in Billund, Denmark. The company began in 1916 as the Billund Woodworking and Carpenter's Shop. The proprietor was a young joiner named Ole Kirk Christiansen. One of his biggest projects was rebuilding the Billund Woodworking and Carpenter's Shop, which two of his sons accidentally burned to the ground in 1924. When the Depression hit, Ole began making ironing boards and stepladders. Then, to save scarce raw materials, he began making miniature ironing boards and stepladders. He sold them as toys.

The toy business was good to Ole, and gradually he devoted his full attention to it. One of his biggest sellers was the Yo-Yo, a toy that reached Denmark in the early 1930s. (It was introduced in the United States in 1929 by Donald F. Duncan, Sr., who also invented the parking meter.) Then, abruptly, the market for Yo-Yos vanished. Ole unfortunately had a warehouse full of them. Facing ruin, he was suddenly inspired: he sawed the Yo-Yos in half and used them as wheels on toy trucks.

In 1934 Ole offered a prize to the employee who suggested the best name for the company. The winner was Ole himself, who thought of Lego, from the Danish words leg godt, meaning "play well. " After the Second World War plastic was incorporated into the line. One of company's first plastic toys, introduced in 1949, was a product originally called "automatic binding bricks." These were small plastic bricks that had round studs on top, enabling them to be snapped together.

In the 1950s control of the company gradually passed to Ole's son Godtfred, who is usually referred to by his initials, GKC. (Today the company is run by GKC and his son Kjeld Kirk Kristiansen, who changed the spelling of his last name.) In 1954 GKC devised what are now known as "The 10 Lego Characteristics." These include "unlimited play possibilities"; "enthusiasm to all ages"; "always topical"; "safety and quality"; "more Lego-multiplied play value"; "imagination, creativity, development." To translate somewhat, GKC decided that the ideal toy was one that both left and suggested much to the imagination, that was not limited in its appeal, and that could be expanded indefinitely, creating the possibility of multiple sales.

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