Just Toys' Survival Tactics

Selling to Kids, Nov 25, 1998

Don't expect Just Toys to fade because it was recently delisted from the Nasdaq national market. The stock was under the $1 minimum bid price and $5 million national market value.

Barry Shapiro, president and CEO, has been through several rocky periods since he joined the eight-year-old company five years ago. But he's got a vision for the future that relies on the company's staple products and includes new product launches and possible acquisitions.

And the company, which is currently trading over-the-counter, is appealing the delisting.

Shapiro's had an interesting five years. The company went through:

* a consumer safety recall of Microbake oven in 1993 * a reported $15 to $16 million loss in 1995 and subsequent firing of the company's founder and president, Alan Rigberg * three lawsuits, including one from the former president, and a patent infringement from OddzOn that Just Toys won on appeal.

Rigberg went on to found Exclusive Toy Products, which manufactures licensed doll figures. Following his departure, Shapiro was appointed president.

Battling On This year hasn't been easy for smaller companies like Just Toys, of Dobbs Ferry, NY, which has 75 employees worldwide and recorded $24 million in sales in 1997.

Toys "R" Us [TOY] announced earlier this year it was reducing its inventory and closing 50 stores in its international division, nine in the US and 31 Kids "R" Us stores. And the big two toymakers, Hasbro [HAS] and Mattel [MAT] have bought a handful of smaller companies, condensing the market.

"This is a tough year because you look at the toy business as a whole and you've got two giants, Mattel and Hasbro," Shapiro says. But like those giants, Just Toys is looking for its own acquisition. In September it retained investment banking firm Gerard Klauer Mattison & Co. to target toy companies and product lines.

Also contributing to the company's difficulty is a lack of a "hot" product to drive people into the stores. "Furby is hot now.

'Godzilla' was a bust, 'Small Soldiers' was a bust. Its really difficult out there for small companies like ours," he says.

This should be one of the best holiday selling seasons on record, says David S. Liebowitz, managing director for Burnham Securities, in NY. "The larger companies tend to have quite a bit of optimism." A meaningful percentage of hot sellers are coming from major companies like Hasbro, Mattel and video game console makers Nintendo and Sony, he says. "The niche companies are doing well if they have a hot product or two and those which have only 'me-too' type of items are going to do only as well as the halo effect."

Those smaller companies could benefit if a hot product sells out or if they offer similar item at a significant discount, he adds.

But the licensee of World Wrestling Federation, Spalding and Louisville Slugger is not walking away from the plate. The company is producing new products to be introduced at Toy Fair. "We are not a promotional company like Hasbro and Mattel," says Shaprio. "Our goal is to have 80 or 85 percent of the line as a basic staple that sell all the time and that provides margin for retailers."

(Barry Shapiro, Just Toys Inc., 914/674-8697, David S. Liebowitz, Burnham Securities, 212/262-3100)