Playing LeapFrog
December’s best-selling toy wasn’t the much-touted Razor Scooter, and it wasn’t Sony’s elusive PlayStation 2. Instead, it was a toy most people never heard of from a small San Francisco Bay Area company most people don’t know.
For the first time, the country’s top toy during the holidays was an educational product, Emeryville-based LeapFrog’s LeapPad, a roughly $50 high-tech read-along book complete with word and phonics lessons.
In addition to consumer approval, the 6-year-old company has won legions of awards, deep-pocketed backers and devoted fans among retailers.
With estimated sales last year of more than $160 million, privately held LeapFrog still is a relatively small player in the fragmented toy industry.
But the company has carved out a niche and growth strategy with its schools division. LeapFrog’s Leap Into Literacy system was approved for use in California schools in 1999 and has expanded to several other states’ school systems as well as the U.S. government’s Head Start program.
But exponential growth and nationwide distribution don’t guarantee LeapFrog’s longer-term prospects in the notoriously tough toy business.
Other major and specialty toy makers have encroached on LeapFrog’s turf, increasing their attention on educational products and integrating technology into those systems.
What’s more, LeapFrog’s target consumers, preschoolers, have tripped up more than a few veteran toy companies, especially when they tried to increase business by broadening their product lines.
“They also face the fact that toys are a slow-growth industry and that younger kids are ever more susceptible to being lured away by video games,” said longtime toy industry analyst Sean McGowan, director of research for Gerard Klauer Mattison in New York. “But it’s one of the hottest toy companies out there, they’re selling well and they’re the envy of the industry.”
Market research firm NPD Group Inc., which surveys 60% of U.S. toy retailers for sales numbers, reported earlier this year that LeapFrog’s 2000 sales increased 120% to $145.2 million over the same period a year ago. The toy industry as a whole saw sales drop 1.2%, according to NPD.
LeapFrog began in 1995, when lawyer Michael Wood of the Bay Area firm Cooley Godward couldn’t find a good reading toy for his son.
Wood left his firm to create his own products, which now include more than 50 responsive toys and 40 interactive books on a variety of school subjects.
In 1997, LeapFrog got the backing of Knowledge Universe, an education company founded by former junk bond king Michael Milken and Larry Ellison, founder of software company Oracle Corp.
LeapFrog now has its Leap Into Literacy program in hundreds of Head Start early-learning programs and 2,500 schools in five states. By the end of the year, the company says 10,000 schools will be using LeapFrog products.
“Nothing gives a product more credibility than the fact that teachers are using them in their classrooms,” said Tim Bender, LeapFrog’s vice president of sales.
And look for the company to announce partnerships with textbook publishers, so that LeapFrog products will directly reinforce skills and concepts taught in class.
Maureen Melvold, principal of Clover Elementary School in West Los Angeles, bought two $765 Leap Into Literacy systems using grant money for underachievers in kindergarten through second grade.
Housed in a bright blue and green child-size cupboard, the Leap Into Literacy Center consists of a series of electronic toys with integrated books, cards and letters of the alphabet.
The best-selling LeapPad looks like a kid-friendly notebook computer, but acts like a talking book. Once one of the stories and its cartridges are placed onto the pad, a child uses a pen-like pointer to help sound out or read whole words.
“The kids love them and the teachers love them,” Melvold said. “We wanted something that would reach out to children in different ways. This has moving parts for kids who learn by doing things, auditory elements for kids who learn by hearing and visual challenges for those who learn by seeing.”
More formal assessments of the system will come at the end of the school year, she said.
So far, the company has focused on infants to 8-year-olds, but hopes to broaden its product line to include older children and, eventually, high school students, company executives say.
But that can be a tough sell, Gerard Klauer’s McGowan said. In the past, when toddler companies such as Fisher-Price tried to broaden their reach, they alienated older children, who associate the brand name with products for little kids.
And expanding the product line means facing stiffer competition from the biggest toy companies, which already produce toys and games for older kids.
But LeapFrog has overcome difficulties and competition, starting six years ago with the battle to win toy sellers.
“Retailers are slow to embrace and grow quickly with companies that they don’t have a long-term relationship with,” Bender said.
Still, the company’s speedy move onto shelves at the nation’s largest retailers offers a model for other beginning toy makers.
In its first year, LeapFrog products were available in specialty stores as well as at one of the industry’s most important players, Toys R Us. But the marquee name, Bender said, doesn’t necessarily blaze a trail to the shelves of the rest of the nation’s toy sellers.
“Toys R Us has a lot more space, so other retailers think that Toys R Us can try things they can’t,” Bender said. “There’s a chicken and egg situation--how do you create enough demand for your product that retailers want to put it out there, when you don’t have your product out there to generate the demand?”
By 1996, LeapFrog added Target Stores to its roster of customers. In 1998, Kmart Corp. stocked the various frog-themed toys, and in 1999, LeapFrog landed the country’s No. 1 toy seller, giant Wal-Mart Stores Corp.
Through 1997, LeapFrog spent almost nothing on media and advertising. Instead, the company banked on its educational initiatives to boost its toys.
The company’s first real campaign began in 1998, with modest print advertisements totaling less than $1 million focusing on parenting and mothers’ magazines.
LeapFrog mounted a bigger effort, complete with television ad time, in 1999, though Bender said the company still spent less than 4% of revenue.
In 2000 and again this year, the company expects a marketing budget of less than 5% of revenue, Bender said.
This year, the company will offer Mind Station, which will allow users to download customized content for LeapFrog products.
The Mind Station also will serve as a conduit between LeapFrog toys and the LeapFrog Web site, allowing parents to evaluate children’s progress and print reports, suggestions and customized lessons.
“The greater goal is for each child to always have a product personalized for them,” Bender said. “Learning is a personal and fun experience.”
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Leaps and Bounds
Privately held LeapFrog is a growing tadpole in the electronic toys arena, one that wins kudos from teachers, children and parents.
Four-Year Sales History
In millions
1997: $6.5
1998: $22.1
1999: $65.9
2000: $145.2
* Data compiled from about 60% of U.S. retailers; actual sales figures probably are higher.
Source: NPD Group Inc.
Top-Selling Toys in December
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Rank by Average dollars price in sold Item Manufacturer December 1 LeapPad LeapFrog $42.37 2 Razor Scooter Razor USA 81.98 3 Poo-Chi Robotic Dog Tiger Electronics 20.59 4 Tekno Robot Dog Manley Toy Quest 35.55 5 Hot Wheels Basic Car Mattel 0.79 6 Diva Starz Dolls Mattel 27.32 7 Who Wants to Be a Millionaire Pressman 21.71 8 Barbie Cruisin Jeep Fisher-Price 212.14 9 Dancin Debbie Mattel 35.63 10 Easy Bake Oven/Snack Center Hasbro 16.81
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Source: NPD Trsts Toys Tracking Service
