`Has Beens' Have Been Very Good To Hasbro

One day two summers ago, seven-year-old Darryl Bernstein lost interest in G. I. Joe. The event might have passed without notice, except that Darryl's father is Lawrence H. Bernstein, the Hasbro Inc. executive vice-president charged with keeping the four-inch-tall paramilitary hero in fighting trim. As Dad performed some hasty on-site market research, he got some crushing news. "Daddy," Darryl said, "you make boring toys."

Dad wised up. And in 1991, G. I. Joe went "toy-etic," as people who sell playthings for a living like to describe action toys that fly, shoot, and make considerable noise. All told, Bernstein overhauled 80% of Joe's line. Out went combat fatigues and in came spacesuits, jetpacks, and battle copters. Kids ate up the new look: After a scary three-year drop in sales, 27-year-old Joe should produce nearly $120 million in revenues by Christmas, up slightly and well ahead of analysts' early expectations.

G. I. Joe's rejuvenation says much about why Hasbro, based in Pawtucket, R. I., is the world's biggest, most consistently successful toymaker. Simply put, Hasbro can teach old plush dogs--and dolls, and action figures--new tricks: In an industry that often relies on new-product pizzazz, Hasbro manages old products wisely.

STRAWBERRY SHORTCAKE. That's good, since Hasbro's product development efforts have been sadly ineffective. "You look at the record in the last five years, and they haven't had much," says Richard V. Sallis, senior vice-president at rival Playmates Toys Inc., distributor of the wildly successful Teenage Mutant Ninja Turtles toy lines. Hasbro, in fact, passed on a chance to license the Turtles. And it has achieved its poor record on new products despite a research budget 50% higher than that of archrival Mattel Inc. Since 1986, the lack of new-product excitement has meant slow domestic growth and stagnant profits.

But if you can't come up with your own toys to play with, you can buy somebody else's. This Christmas, Hasbro will enter the holiday fray with a wealth of new products, thanks to its recently completed $486 million acquisition of Tonka Corp (chart). Besides picking up Tonka trucks, Hasbro added the Parker Brothers unit, maker of Monopoly, to its Milton Bradley division, whose board games already account for a hefty chunk of U. S. profits. Parker Brothers had come to Tonka along with Kenner Products in a 1987 deal that crippled the company with debt and sapped its marketing strength. Even so, Kenner gives Hasbro such past successes as the Strawberry Shortcake doll and Batman figures.

The purchase should add about $700 million to Hasbro's $1.5 billion of revenues, and profits should jump to about $125 million, from $89.2 million last year. But Hasbro is taking a $59 million charge to cover consolidation costs.

Hasbro Chief Executive Alan G. Hassenfeld and his team hope to revive Tonka's languishing brands and turn them into long-running, G. I. Joe-like annuities. Hassenfeld's goal is to get 70% of his revenues from staple products. Unlike boom-and-bust toys--Teddy Ruxpin, Dick Tracy action figures, and the Turtles--steady sellers have lower manufacturing costs because they use the same plastic molds from year to year. And since sales are less volatile, shelf space is easier to come by: Retailers love predictable performers to balance riskier bets. Such cash-churning staples keep Hasbro's gross margins the industry's fattest, at 53%.

TOUGH TRUCKS. Tonka could be fertile territory for Hasbro. In an age when boys hunch over Nintendo Co.'s Game Boy, sales of Tonka's rugged die-cast trucks have plateaued at about $70 million. But Hassenfeld and Bernstein figure they can recreate with trucks their success with Cabbage Patch Kids. When Hasbro acquired the line in 1989 along with its parent, Coleco Industries Inc., sales had dropped to about $25 million, from a 1985 peak of $575 million. Hasbro introduced new dolls with heavy advertising, and quickly broadened distribution. Revenues tripled within a year.

With the trucks, Hasbro intends to boost advertising to rebuild the Tonka brand. Perhaps more important in the new age of budget-conscious parents, Bernstein wants to dust off a major selling point of the trucks: their lifetime guarantee, begun as a consumer promotion three years ago but underplayed by Tonka. "I can't wait to do trucks," Hassenfeld says.

For Tonka's other lines, Hassenfeld figures more and better advertising, especially for such well-known names as Play-doh, Nerf, and the word game Boggle, should help a lot. Other Tonka products may be headed for the big toy chest in the sky, though. The Kenner division's once successful Ghostbusters line, for example, has been slimed by the Ninja Turtle success, and sales are off 75% from their 1989 peak.

But analysts and competitors agree that Hasbro manages such disappearing acts with a deft touch. Hasbro checks weekly sales at hundreds of U. S. stores, assessing changing buying patterns for its entire product line. It can adjust manufacturing plans within weeks, or change the number of new items in the following year's line to reflect shrinking demand. That's how Hasbro makes money with My Little Pony, the line of horse figures that appeared in 1983 and reached $100 million in sales in 1985. Eight years later--several lifetimes for such a fad--Hasbro should make $4 million on sales of just $20 million.

As Hasbro gets its "new" toys into shape, it may get a boost this Christmas from the absence of any megahit that would suck up parents' dollars. And Hasbro may even be getting more creative. Analyst Sean McGowan at Gerard Klauer Mattison & Co., among others, believes that Hassenfeld has encouraged innovation more than his brother and predecessor, Stephen, who died in 1989. Despite reduced research spending, three new lines--a walking puppy, some World Wrestling Federation figures, and a set of New Kids on the Block toys--made a total of $70 million in revenues last year. And Bernstein is taking unaccustomed risks on licenses for the movie Terminator 2 and on the character Steve Urkel from TV's Family Matters.

But the real money still lies in older brands, as Hasbro's rivals know. Playmates is giving face-lifts to 80% of its Turtles line in an effort to slow declining sales. Mattel does much the same with Barbie, its indefatigable fashion doll, and the aging line of Hot Wheels cars.

A question remains for Hasbro, though. If in-house creativity fails to produce enough long-term hits, will the biggest toymaker of them all run out of old reliables to buy? As toy retailers consolidate, all but the largest, best-financed manufacturers are being squeezed out. Some independents, such as loss-plagued Lewis Galoob Toys Inc. (box) remain, but they are getting scarce. Mattel, for example, just bought Aviva, a small independent maker of sports toys. Without a world of toymakers to choose from, Hasbro may need to keep G. I. Joe and his pals toyetic for another quarter-century.