Cabbage Patch Kids are getting a 2014 makeover, with help from Skechers (SKX) USA Inc.
The dolls, which were so popular in the 1980s they drove moms to fisticuffs, are hitting stores later this year with new outfits and Twinkle Toes, a line of Skechers sneakers that sparkle and light up.
Jakks Pacific Inc. (JAKK), the toymaker with the rights to the Cabbage Patch franchise, is trying to reinvigorate the brand and find new ways to reach consumers. The Malibu, California-based company is in talks to sell the $34.99 dolls in Skechers’s locations, helping make up for a shrinking number of toyshops and toy departments in the U.S.
“They’re bringing Cabbage Patch into today’s era,” Stephen Berman, Jakks’s chief executive officer, said in an interview. “They are really cute looking, dressed cute and wearing the most fashionable kids shoe.”
The licensing deal with Skechers is part of a broader strategy to expand distribution and diversify, brought on by the changing economics of the toy industry. Retail chains like Target Corp. (TGT) are shifting square footage to groceries, leaving less room for dolls and action figures. The demise of specialty chains such as KB Toys Inc. also has forced toymakers to get more creative, Berman said.
One response is to get Jakks products out of the toy aisle. It now has a pets division that makes dog treats and fake mice for cats. There’s a subsidiary producing Halloween costumes for kids and adults, and a unit called Funnoodle sells those bendable foam things for lounging in swimming pools.
Another tactic is to team up with kid-focused brands like Skechers and Claire’s Stores Inc. Last year, Jakks started a line of play sets called miWorld that look like dollhouse versions of popular retail chains. Claire’s, a tween accessory and jewelry store, and ice-cream purveyor Dairy Queen Stores Inc. were among the first to sign onto the idea. There will also be a play set that mimics a Skechers store.
The strategy has helped Jakks’s sales rebound after falling for five straight years -- hurt by product misses and the loss of a license to sell World Wrestling Entertainment Inc. (WWE) products. In 2012, the company also fended off a takeover bid from private-equity firm Oaktree Capital Management LP. Revenue sank 30 percent from a peak of $903.4 million to $632.9 million last year.
“It was like a perfect storm,” said Berman, who co-founded the company in 1995 with industry veteran Jack Friedman and became CEO in 2010 shortly before Friedman died. “We went through a real tough period.”
Sales have risen in the past two quarters and analysts are projecting a third straight gain, partly because of Jakks’s license for Walt Disney Co. (DIS)’s “Frozen.” Jakks sells dolls, dresses and wigs based on the movie, the highest-grossing animated film ever.
The shares have responded by gaining 28 percent this year to $8.63. Still, the company’s market value of $200.9 million is less than half what it was three years ago.
Cabbage Patch Kids first swept the nation more than three decades ago. News broadcasts showed long lines and frenzied dashes for dolls, leading the media to dub it “dollmania.” At the height of the craze in December 1983, Newsweek dedicated a cover story to the topic.
The dolls, created by Original Appalachian Artworks Inc. and its founder Xavier Roberts, tapped into kids’ nurturing instinct by including adoption papers and birth certificates with each one. At Cabbage Patch’s peak in 1985, the brand generated about $600 million in sales for Coleco Industries.
From there, revenue declined and the license bounced around the toy industry. It went to Hasbro Inc. (HAS), Mattel Inc. and Toys “R” Us before landing at Play Along, which Jakks acquired in 2004.
Jakks declined to say how big the brand is now. Sean McGowan, an analyst at Needham & Co. in New York, estimated it has annual sales of as much as $50 million. While that would be less than 10 percent of the Jakks’s total revenue last year, it’s still impressive that the toy brand has lasted so long, McGowan said.
“Just because something was big doesn’t mean it will stick around,” said McGowan, who has covered the toy industry for almost three decades. “He-Man isn’t around and it was just as big and from the same era.”
The Cabbage Patch era now spans multiple generations, so there’s lots of nostalgia and a built-in fan base that makes it a less risky bet for chains like Wal-Mart Stores Inc., he said.
“It’s in that golden zone because parents and grandparents now remember it,” said McGowan, who rates Jakks a hold. “There are very few things that make it that long, and the ones that do have that going for it.”
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