Exclusives becoming a common practice - Toy players: the state of fun

DSN Retailing Today, Feb 9, 2004

In the past, exclusive deals between suppliers and retailers were used to test the waters for new products with questionable potential. But these days, exclusives have become a common practice and a mainstay for specialists who need any edge they can get in a price-driven business.

It's common knowledge that Toys "R" Us and KB Toys have made exclusives a key part of their strategy going forward, but their larger rivals are also tapping into the trend. Wal-Mart and Disney Consumer Products signed a landmark pact last June that gave Wal-Mart a six-month exclusive on sales of toys and merchandise from Disney's new Kim Possible franchise.

"It was a new and unique way to roll out a new property, and everything sold through extremely well, said Gary Foster, vp of corporate communications for Disney Consumer Products. "Toys lagged a bit at first because of the timing of the promotion [that began in July], but they caught up during the holidays."

Disney's decision to partner with a single retailer on a product launch was a departure for the company, but it's a practice that may become routine. "We're now in discussions with other retailers [about exclusives]," said Foster.

Exclusives can be a gamble for both suppliers and retailers, but they do provide benefits. In 2000, Scholastic Entertainment was getting ready to relaunch Clifford the Big Red Dog after years of letting the popular kid s franchise wither on the vine. Instead of using a full-court press to bring Clifford back, Scholastic took its time and opted for a soft launch.

"We did two exclusives," said Peter Van Raalte, vp of consumer products for Scholastic Entertainment. "We did a launch of soft goods with JCPenney then followed with a mass market launch with Target that included toys and just about everything else.

Van Raalte said going with an exclusive on Clifford was important because it gave Scholastic and its licensees a comfort zone they wouldn't have had with a launch across several different channels.

"It was good for the retailers because they got higher margins on what was essentially a house brand, and they had something unique that people couldn't get anywhere else," said Van Raalte. "And we were able to work with one retailer that was committed to our products and that enabled us to make a much bigger statement at retail."

For retailers, making a statement is what exclusives are all about, and no company is more committed to them than Toys "R" Us. "They're one of the key tenets of our company's strategy," said Andy Gatto, senior vp of new product development for Toys "R" Us. "We're always looking for exclusives from major brands, like Mattel and Hasbro and other manufacturers."

The retailer's list of exclusives features a wide range of smaller partners not necessarily involved in toys. They include The Discovery Channel, which Toys "R" Us uses to market 30 to 40 exclusive items under the Animal Planet banner, and Harley Davidson, which has lent its name to an exclusive line of bikes and wheeled-toys.

And the company is in its final year of a three-year deal with Universal Studios to sell toys based on its hit film "E.T.: The Extra-Terrestrial."

"That's kind of unique deal for us," said Gatto. "In general, we're more interested in a brand building that involves longer-term deals.

Gatto said Toys "R" Us is already negotiating new exclusives that it will launch this fall in time for the holidays. For Toys "R" Us, every new exclusive makes the retailer a more unique place for shoppers and adds much-needed distance from its competitors.

"There's a sameness to the merchandise in today's market and we need things that set us apart from the big boxes and give consumers options," said Gatto. "Even Target does the same thing to make itself different than Wal-Mart."

KB Toys has dabbled in exclusives in the past but is now making a concerted effort to pursue them in the wake of the holiday shakeout that will force the retailer to close up to 500 stores this year. KB already has several deals in place, including one with Sears and Craftsman Tools for their line of My First Craftsman tool sets, and is on the hunt for more.

"We're always on the lookout for new exclusives," said John Reilly, director of sales promotions and public relations for the 1,240-store chain. "It's hard to compete when your competitors are selling products below your costs, so the name of the game going forward is going to be establishing a point of differentiation."