Bandai Back as Major Player

It took a cyber chicken that hatches from a plastic egg to put Bandai America Inc. back on top of the toy industry food chain.

The Cypress-based company, the U.S. subsidiary of Japanese toy giant Bandai Co. Ltd., sells Tamagotchi, the virtual pet that’s been flying off store shelves.

Since Tamagotchi’s American debut in May, Bandai has sold more than 3 million of the chip-based critters in the United States. Tamagotchi was the top-selling toy in the nation in May and June, the last month for which figures are available, according to NPD Group, a Port Washington, N.Y., research firm.

Worldwide, more than 12 million Tamagotchis have been sold, and Bandai now believes it will hit at least 25 million this year.

“There’s no doubt it’s a huge hit,” said toy consultant Christopher Byrne, editor of Market Focus: Toys magazine.

Bandai officials can scarcely conceal their giddiness over Tamagotchi’s reception in the $22-billion-a-year U.S. toy market.

The company has nine plants around the world churning out the gadgets. With retailers saying they’ll take as many as the company can deliver, sales are now “limited by manufacturing, not by demand,” said Gene Morra, Bandai America’s vice president of marketing.

“The minute they go on the shelves, they don’t stay there,” said Toys R Us spokeswoman Carol Fuller. “If we could get more, we would be thrilled.”

*

But Bandai, the company behind the Power Rangers toy craze of a few years ago, knows well the perils of the fickle toy business. It recently hired a marketing executive director and is planning new versions of its virtual pet in hopes of giving it added shelf life.

Undoubtedly, Bandai stands to earn a barnful of profits from Tamagotchi this year, analysts say. But in the toy industry, as in the fashion and movie trades, they say, hits fade quickly and companies can plunge from the top of the heap to the bottom one year to the next.

“There’s no question that having a megahit of this magnitude does wonders for the financial health of the purveyor,” said David Leibowitz, managing director of Burnham Securities in New York. The question is how long the good times last, he said. “Novelties, which is the niche area that these products fall under, tend to be short-lived.”

Remember Cabbage Patch dolls? Their maker, Coleco Industries Inc., couldn’t produce another popular toy and went out of business. So did Worlds of Wonder Inc., the company behind the talking bear Teddy Ruxpin.

“The name of the game in our industry is: What’s next, what’s new?” said Diane Cardinale, a spokeswoman for the Toy Manufacturers of America trade group. “You can’t just ride on the coattails of one success.”

*

In a sense, that’s what Bandai was doing the past few years. The Power Rangers phenomenon, which put the company on the map in the United States when it hit in 1993,has cooled significantly.

Attempts to produce another big winner flopped. Its Sailor Moon toy, based on a Japanese cartoon character, didn’t catch on in the United States. Pippin, a multimedia device Bandai developed with Apple Computer that debuted last fall, failed miserably.

In its fiscal year ended March 31, Bandai lost $15.6 million, before taxes, on an 8% decline in sales to $1.73 billion.

The surprising success of Tamagotchi came none too soon. In May, Bandai bailed out of a proposed $1.1-billion merger with video game maker Sega Enterprises Ltd., a deal that many observers had branded as a desperation move by two struggling companies.

Bandai executives say the decision to cancel the Sega merger deal wasn’t related to the success of Tamagotchi. But it’s clear the toy injected new life into the company at a crucial time.

*

The idea for Tamagotchi was hatched when Bandai’s market research folks found that children in Japan longed for pets. Tight living spaces there make real animals impractical--so Bandai toy developers dreamed up a virtual pet.

Tamagotchi, which means “cute little egg,” sells for about $15 and comes in a variety of colors and with a key chain attached. A booklet explains that the creature is visiting from another planet, and needs constant attention.

After the toy is turned on, an egg hatches on a tiny screen. The Tamagotchi owner then pushes various buttons to feed, play with, clean up after and give medicine to the digital animal. Those who neglect the creature’s needs see it grow into a nasty adult that dies quickly. Nurturing produces a cute virtual pet that can last for weeks.

In hindsight, Tamagotchi looks like a stroke of genius. It’s cheap to make, analysts say--the packaging probably costs more than the toy--and is as much a fashion accessory as a plaything. It debuted in Japan last November and was an instant hit among adults as well as kids. (Bandai executives say the average buyer is 18 and just as likely to be male as female.)

Yet Cardinale said “it was a very big gamble whether it would take off in the U.S.”

By the spring, when the toy was rolled out worldwide, the buzz was so great that any doubts about whether Tamagotchi would translate well in foreign markets quickly disappeared. Stories abounded in the international press about school principals banning the toy because addicted students weren’t paying attention, and of parents worried about the psychic toll on youngsters when their virtual pets went to cyber heaven.

*

Though there are imitators on the market--notably the Nano from Playmates Toys in Costa Mesa and Giga Pets from Illinois-based Tiger Electronics--industry insiders say that Tamagotchi is the brand to beat. “It was the first on everyone’s lips,” said toy consultant Ruth Roufberg.

The revenue pouring into Bandai from Tamagotchi sales will help pay for the considerable costs of researching and developing new toys, industry analysts say.

That’s critical, they say, because toy makers need to be as diversified as possible in their product lineups. Even Mattel Inc., with its perennial juggernaut Barbie, invests heavily in new toy lines, partly to cushion itself from periodic lulls in Barbie sales.

At the same time, Bandai must also strike while Tamagotchi is still hot with as many spinoff items as possible, including backpacks, board games, lunch boxes, CD-ROMs and plush toys. “They have to try to capitalize on the demand as it peaks,” said Frank Reysen, editor of Playthings magazine.

*

It’s probably no coincidence that Bandai America this month hired advertising veteran Brian D. Goldner as executive vice president of sales and marketing.

Goldner promised “a much more aggressive approach to marketing.” He said that four updated versions of Tamagotchi will debut in the next year. The company recently announced Digital Monster, a boy-targeted virtual pet that battles with others. A promotion with a major fast-food chain will soon be announced, he said.

Bandai will also focus on “getting more in the pipeline, and more different toys on the shelf,” Goldner said. “In any one year, we want to have two to three times the product development we have presently.”

That’s the kind of activity a toy company needs to achieve staying power, analysts say.

Still, the toy business amounts to little more than high-stakes betting, they say.

“The only real experts in this business are the kids,” Reysen said. “You could have a PhD in toyology and you’d still be only guessing.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Bandai America Inc.

Headquarters: Cypress

Parent company: Tokyo-based Bandai Co. Ltd.

Business: Toy manufacturer

Major products: Tamagotchi virtual pet, Power Rangers and BeetleBorgs action figures

President: Paul Nojima

Employees: 80

Bandai Co. Ltd. 1996 sales: $1.73 billion

Bandai Co. Ltd. 1996 net loss: $15.6 million

Source: Bandai America Inc.