3 Firms See Yule Green as Way to Cap Year : Christmas rush: Companies hope they have done well with novel video games, upscale children’s items and that alluringly plump dinosaur.
With the Christmas selling season in the homestretch, three local companies are crossing their fingers that they have correctly predicted consumers’ spending plans.
That’s because for these companies, Christmas is not just the most wonderful time of year--it’s the season on which much of their performance for the entire year rests.
These are companies whose products are particularly in demand during the holidays, and they include THQ Inc., a Calabasas video-game concern; Right Start Inc., a Westlake Village seller of children’s items by catalogue, and Dakin Inc., a plush-toys and novelties marketer with executive offices in Woodland Hills.
“Christmas to any consumer-goods company is important; it’s the most important season of the year,” Dakin Chairman Robert G. Solomon said. “For us, it’s about 20% to 25%” of the company’s annual business, he said.
Or consider THQ. A rapidly growing 2 1/2-year-old firm, THQ in last year’s third quarter earned $723,000 on sales of $7.6 million. But in the following quarter, which included Christmas, profit soared to $2.6 million as sales jumped to $19.2 million.
For all three companies, Christmas is an opportunity not to be squandered. Here are the holiday strategies they’re following:
Dakin Inc.
This is Dakin’s first Christmas since Solomon bought control of the company for an undisclosed sum a year ago when Dakin was plagued with losses and plunging sales. Now, he’s trying to turn the company around with the help of a plump dinosaur, a bug-eyed Chihuahua and a daffy cat.
Those three characters, respectively, are Barney, a hero of young fans of public television; and Ren and Stimpy, whose wacky cartoon show on the Nickelodeon cable-TV channel has attracted a cult following of children and adults.
Dakin is selling stuffed-animal versions of the trio under new licenses and, in the case of Barney, it appears Solomon’s hunches about what would be popular this Christmas were right on the money.
Six months ago, when Solomon signed the Barney license, few had ever heard of Barney. Now the toothy dinosaur--a character conceived in 1987 by a Dallas homemaker--is red hot. His TV show, “Barney and Friends,” with its sugarcoated skits and songs, has struck a chord in children who are also snapping up Barney-related merchandise.
That’s helping Dakin enjoy overall sales growth of more than 10% this year, to “the neighborhood” of $75 million, Solomon said. (He declined to be more specific, citing Dakin’s private ownership.)
“So much of this business is instinct,” Solomon said. A multimillionaire at age 38, Solomon bought his Dakin stake after helping build Applause Inc. into a major plush-gift and novelty concern and then selling his stake in the Woodland Hills-based company in 1988.
“We had a hunch that Barney would be a big hit, but it’s gone beyond our expectations,” he said. “Who’s to know that a big, bloated, purple dinosaur from Texas is going to be the next phenomenon?”
But Solomon also is being cautious. It was Dakin’s overreliance on its last big hit--the Garfield toy cat that stuck to windows--that helped sink the company, and Solomon said he’s being careful not to make the same mistake with Barney or Ren and Stimpy, who combined account for only about 20% of Dakin’s sales. That means Solomon is keeping inventories low and not plowing all of Dakin’s available cash into just those three stars.
“The key is to keep in balance, to realize there’s a year after this year, and to not allow greed to intoxicate us,” he said. “I didn’t want out-of-control growth.”
Solomon’s newest hunch? He’s betting that director Steven Spielberg’s next movie, a dinosaur story called “Jurassic Park,” will be a smash when it arrives next summer. So he got the license to make stuffed dinosaurs and other novelties tied to the film.
THQ Inc.
Christmas means toy stores crowded with video-game players and software. In the game-cartridge portion, particularly, the business is fiercely competitive with dozens of different titles. So THQ tries to increase its small slice of the pie by selling games that kids can easily recognize.
In October, for instance, the company unveiled a game based on the film “Home Alone 2: Lost In New York,” knowing full well that the game would be in stores not only as Christmas arrived but also as the movie was reaching theaters nationwide.
“We rely on the fact that” the film’s main character “and ‘Home Alone’ are easily recognizable by our target audience, kids,” said Brian J. Farrell, THQ’s chief operating officer.
Also in October, THQ took a page from Dakin’s book and brought out a game based on “The Ren & Stimpy Show” to be used in the popular hand-held video-game player Gameboy, made by industry leader Nintendo Co. of Japan.
THQ also introduced board games based on “Home Alone 2: Lost In New York.”
And as part of its earlier announced plans to develop software for players made by Sega Enterprises Ltd. of Japan, Nintendo’s main rival in game players, THQ this month introduced a Sega game called “The Great Waldo Search,” based on the popular series of kids’ books.
All of which is designed to give THQ a big bang this Christmas. Farrell said more than half of the company’s 1992 sales and earnings could come just in this quarter, although he called this “an unusual year” because so many of its latest products arrived along with the Christmas season.
THQ also is hoping that Christmas shoppers help bolster the company’s flat earnings of late. In the nine months ended Sept. 30, THQ’s net income was $1.45 million, nearly unchanged from $1.5 million a year earlier, even though its sales more than doubled to $23.9 million.
The company is optimistic because sales of the new generation of game players--which rely on 16-bit computer chips that enable them to play more sophisticated games--are rising sharply.
About 12 million 16-bit players will be sold this year, up from just 3 million a year ago, when the machines had just been introduced, estimated John G. Taylor, a toy analyst with the investment firm L. H. Alton & Co. in San Francisco.
Sales of players and games this year “are doing much better than expected,” he said.
But THQ doesn’t count on Christmas for all of its growth. The first quarter of each year also is important, Farrell said, because “people who got a Nintendo player under the tree are buying games” after New Year’s Day.
The Right Start Inc.
Until the 1990s, the Christmas season was “unimportant to us,” said Right Start President Stanley M. Fridstein, who co-founded the catalogue company with chief executive Lenny M. Targon in 1985 to sell items for kids up to age 4.
The company theorized that during the holidays, parents of young children “were spending more on gifts for others and figured others would buy gifts for their babies,” Fridstein said.
But that theory evaporated during the past two years as Right Start, which is 64%-owned by American Recreation Centers Inc. of Sacramento, looked for ways to enhance its growth.
While the company mainly sells upscale items that help parents care for their kids (strollers, car seats, and the like) and enhance the children’s learning skills (mobiles, art supplies and similar items), it began “to focus more on toys, adding Christmas gift pages and repositioning the cover of the catalogue,” Fridstein said.
Result: Right Start currently markets a Holiday 1992 catalogue whose cover features a sleeping infant holding a “Reindeer Rattle,” and whose best sellers include an audio tape of Christmas carols.
But those changes alone don’t allow Right Start to relax. “Last year we had a fairly poor Christmas,” Fridstein said.
“It was our biggest mailing in history, 3.2 million catalogues, and it was a mistake,” he said, explaining that the additional production and mailing costs did not translate into a commensurate sales boost.
In its fiscal year ended May 27, Right Start’s profit tumbled 34% from the prior year, to $820,000, despite a 26% gain in revenue to $27.4 million.
“This year, we sent 2.6 million, and we’ll end up with more sales on fewer catalogues,” Fridstein said. “The combination of circulation changes”--that is, better directing catalogues to consumers with strong track records of catalogue purchases--”some merchandising enhancements and the economy being healthier have all led us to our best Christmas in history.”
Whether Right Start’s profitability picks up as well is an open question. In the first half of its current fiscal year, Right Start’s profit drooped by 28% from a year earlier, to $494,000, even though its six-month revenue jumped 32%, to $19.8 million, the company announced earlier this month. Price-cutting and higher shipping costs helped erode earnings.
