Hasbro's Little Cash Cows

Sales of the company's toys for girls have soared from $60 million to $600 million in five years

Hasbro (HAS) has long been known for its toys for boys: Transformers, Star Wars light sabers, and the original action figure, G.I. Joe. Now it has found something for girls that is so popular it gets as much space in Toys 'R' Us as Barbie dolls: the Littlest Pet Shop, a collection of inch-tall kittens, puppies, hamsters, and turtles that inhabit a pet store.

Littlest Pet Shop's success has helped send sales of girls' toys soaring at Hasbro—from $60 million to more than $600 million in five years. What's really interesting is that it's an old brand executives have just dusted off. The Littlest Pet Shop was first introduced in 1992 to modest acclaim. After four years enthusiasm dwindled, and the line was retired.

The second life of Littlest Pet Shop is also a critical test of Chief Executive Alfred J. Verrecchia's plan to develop more enduring brands that can translate into other merchandise—in this case bedding, backpacks, and electronic gadgets. As Sharon John, head of Hasbro's girls' division, puts it: "No more one-hit wonders."

Since reintroducing Littlest Pet Shop in 2005, Hasbro has sold more than 60 million of the figures at roughly $4 a piece. Gerald Storch, head of Toys 'R' Us, is pleased, but he knows few toys have long shelf lives. "It's hard to tell which are the lifetime franchises and which are the five-year ones," he says.

The girls' toys revival at Hasbro dates back to the relaunch of My Little Pony, a big hit in the 1980s. While archrival Mattel (MAT) and newcomer MGA Entertainment were battling it out with their Barbie and Bratz dolls, Hasbro reintroduced its plastic ponies (with long, brushable hair) in 2003. "Everyone was complaining that dolls had gotten edgy—that girls were growing up too fast," John says. "We went with a very sweet back-to-basics product."

In its marketing, Hasbro played up nostalgia for the toy. One ad in Parenting magazine promised moms they could "share those wonderful memories" of My Little Pony with their daughters. Hasbro even decided to keep the original theme song (My little pony, my little pony/Will there be exciting sights to see?/Where will you wander? Hither and yonder).

After that, Verrecchia wanted a whole portfolio of girls' brands. Executives decided to look methodically for toys for each age group. My Little Pony targeted girls age two to five; John and her team figured Littlest Pet Shop could be pitched to six- to eight-year-olds.

In redesigning Littlest Pet Shop, John's group mixed the modern with the traditional. They gave the animals the big, vulnerable eyes made popular by Japanese animators. They toned down the pink packaging and went with more contemporary purple and green. But they kept the figures the same size as before—much smaller than most dolls—knowing girls like to collect and carry little things.

Then John applied a few time-tested lessons from boys' action figures. The company created more than 300 versions of the animals, changing them every few months to keep kids interested. And for the holiday season there's Littlest Pet Shop bobble heads ($4), electronic diaries ($19), and plug-'n'-play TV games ($25).

Now comes the digital strategy—which will sound familiar to those who know about Webkinz (below). Hasbro has started selling what it calls Virtual Interactive Pets on its Web site and those of a few retailers. The bigger, $15 dolls come with a secret code that unlocks an online world where kids can create virtual pets and play games. Hasbro hopes the new line, which goes national in February, will draw in girls older than eight.

Sometime later in 2008, Hasbro, through a relationship with video-game maker Electronic Arts (ERTS), will introduce Littlest Pet Shop games for Nintendo's (NTDOY) handheld DS and Wii game platforms. Maybe then boys will want to play, too.

    Before it's here, it's on the Bloomberg Terminal.