Little Tikes Company

views updated

Little Tikes Company

2180 Barlow Road
Hudson, Ohio 44236
U.S.A.
Telephone: (330) 650-3000
Fax: (330) 287-2864
Web site: http://www.littletikes.com

Wholly Owned Subsidiary of Newell Rubbermaid Inc.
Incorporated: 1970
Employees: 2,000
Sales: $2.59 billion (2002)
NAIC: 339932 Game, Toy, and Children's Vehicle Manufacturing

The distinctive, brightly colored plastic toys produced by the Little Tikes Company are a staple for kids around the world. The company manufactures a variety of children's products, including foot-to-floor vehicles, playhouses, basketball sets, activity gyms, and furniture. Its most famous product—the red and yellow Cozy Coupe Car—celebrated its 20th anniversary in 1999 with over six million units sold since its launch. While the company experienced stellar growth from the 1980s into the early 1990s, it faced challenges in the new century due to a slowing economy. As a wholly owned subsidiary of Newell Rubbermaid Inc., Little Tikes operates as the largest rotational molder in the world with manufacturing facilities in Ohio and California, as well as international locations in Europe and Asia.

Origins

Little Tikes was founded in 1970 by Thomas G. Murdough. Murdough became interested in the toy business in 1968 when his then-employer, Wilson Sporting Goods, asked him to run marketing for its Wonder Products subsidiary. The late 1960s saw the toy industry undergo a period of intense transformation, as smaller companies and distributors found themselves being swallowed up by the big manufacturers. Murdough was reportedly appalled by the increasing shoddiness of toys. According to an article in Fortune, Murdough felt that the toy manufacturers' sole aim had degenerated into bringing toys to market at ever-cheaper prices. This trend was exacerbated by the huge new discount retailers who often sold popular toys at a loss in order to bring people into their stores. Murdough was determined to buck this trend. He quit his marketing job at Wilson and set out to start his own company. Murdough saw a need for well-made plastic toys, as only the cheapest fabrication processes and forms of plastic raw materials were being used in toy manufacture at that time. In 1970, he formed the Little Tikes Co. and, with nine employees, began to manufacture large plastic outdoor play equipment, toy boxes, and children's furniture in an old barn in Aurora, Ohio.

Murdough's Personal Approach Leads to Success: 1970s and 1980s

Little Tikes pioneered the use of rotational molding, an industrial process for molding plastic that had formerly been used mainly to produce large products like agricultural tanks and chemical containers. Rotational molding could produce larger, more durable products than the traditional blow molding that had been widely used in the toy industry. By allowing for a large variety of shapes with large surface areas, fewer parts were needed to create each large toy. Fewer parts meant not only less assembly time on the factory floor but also a more durable final product. In addition, the new process permitted the production of a variety of colors at the same time, adding versatility to the production process.

From the start, Murdough insisted on maintaining his own personal approach towards toy marketing. He was convinced that by restricting distribution of his products to independent toy stores and toy supermarkets he could avoid the deep discounting that had eventually forced other toy manufacturers to lower production costs and quality. Large discount stores like Kmart tended to "cherry-pick" the hottest items out of a given manufacturer's line and then sell them at or under cost in order to draw parents in. Small retailers were then faced with lowering their prices in order to compete. As their profit margins shrunk to unmanageable levels, they then put pressure on manufacturers to further lower wholesale costs. Murdough avoided this pattern by simply declining to distribute through large discount stores. "Murdough had a good understanding of how not to go to market. He was very careful not to flood the market with merchandise," said one retailing executive in a 1989 Business Week article. Murdough carefully nurtured his relationship with the small toy retailers. By discouraging deep discounting of its most popular toys, Little Tikes kept profit margins high for all its retailers. In exchange, the company insisted that retailers stock the full range of the Little Tikes line.

In addition to keeping retailers happy, Murdough's approach to marketing allowed Little Tikes to create an up-scale, "boutique" image for its products. This was important because Little Tikes relied almost exclusively on word-of-mouth to promote its large, and often pricey, plastic play equipment. Murdough was convinced that advertising to kids was not only morally questionable but was also not good business sense. Little Tikes toys were almost exclusively designed for pre-schoolers, an age when pressure to conform to fads is at a minimum. The preschool market had always shown much more brand loyalty than other segments of the toy industry. Parents tended to choose toys they felt would be durable and safe for the younger child, and they relied on a manufacturer's reputation to ensure this kind of quality.

The giants of the pre-school toy industry, Fisher-Price and Playskool, had relied heavily on building brand equity to achieve their dominance of this sector, and it was clear that Little Tikes had to build a stellar reputation if it wanted to succeed. Advertising on television was a very expensive and not particularly effective way of communicating a message of reliability to new parents. For this reason, Murdough chose to forego all television advertising and concentrate instead on creating a reputation for superb customer service. Little Tikes became one of the first companies to mold a toll-free telephone number into all its products and to hire and train specialized staff to respond promptly to customer queries and complaints. The company enclosed a catalogue displaying the Little Tikes line with all of its toys in order to encourage a feeling of buying into a brand instead of just a single toy. With much lower advertising costs, Little Tikes could also afford to charge less for its products than the heavily advertised competition, which further encouraged parents to try the Little Tikes plastic play equipment.

Murdough's approach to the internal management of Little Tikes was as unconventional as his marketing philosophy. From the start, when all of the employees of Little Tikes could easily fit into his office, Murdough held monthly no-holds-barred meetings to discuss company strategy. As the company grew, Murdough retained this open style of management. He introduced profit-sharing, subsidized on-site child-care, and offered tuition reimbursement for employees furthering their education. In an industry that was known for a cut-throat approach to personnel management, Little Tikes commanded impressive staff loyalty. Murdough was also committed to keeping jobs in the United States. When most toy makers were transferring the bulk of their manufacturing overseas, 99 percent of Little Tikes products sold in the United States were made and assembled there.

The Little Tikes product marketing approach was an overwhelming success. As the baby-boom generation began to have kids of their own, the pre-school toy industry boomed. Little Tikes' image as a sort of parents' toy club encouraged word-of-mouth advertising, and sales soared. The company quickly outgrew the old barn that had served as its headquarters and manufacturing plant and in the mid-1970s moved its operations to a much larger plant in Macedonia, Ohio. Within the next decade, Little Tikes would also open manufacturing plants in Ireland and Canada and begin distribution of its toys outside the United States. By the end of the 1970s, Little Tikes' sales had grown to about $15 million and its product line had expanded to include ride-on toys. In 1979, the company introduced its first major hit toy, the Cozy Coupe ride-in car. This red and yellow foot-powered vehicle was enclosed, unlike the time-honored tricycle, and seemed to give kids a sense of security about venturing forth in the world. By the early 1990s, the Cozy Coupe was the best-selling car in North America, beating both Ford's Taurus and Honda's Accord, which prompted Ford's marketing director to quip that they'd "have to give those kids a good trade-in on a Taurus."

The Rubbermaid Purchase: 1984

With its Cozy Coupe and a variety of very popular playhouses and outdoor play equipment, Little Tikes entered the 1980s in a position to begin competing seriously with the large, established pre-school toy manufacturers. In 1982, during a period of decline for the toy industry as a whole, Little Tikes sales increased by 28 percent to $23.1 million, which was followed by an astounding 73 percent rise to $42.9 million in 1983. It was clear that Little Tikes toys were more than just a passing fad. During the same period the giant housewares company Rubbermaid Inc. was undergoing a major restructuring and was searching for new acquisitions. The fledgling toy company, with its emphasis on plastic and its family image, was a good match for Rubbermaid and an offer was made. Murdough was reluctant to give up control of Little Tikes, but he felt that the company needed Rubbermaid's capital if it was to continue to expand. Rubbermaid acknowledged that Murdough and his management team had been fundamental to the success of the toy company. In 1984, Rubbermaid bought Little Tikes for about $50 million, with the agreement that Murdough would stay on as president, and his approach towards management and marketing would be retained.

Company Perspectives:

Our common goal is to create and supply innovative children's products that provide fun that lasts to customers and consumers around the world. To reach that goal, Little Tikes' associates' actions are guided by the principles of Customer Satisfaction, Teamwork, Innovation, Marketing, and Continuous Improvement.

With new capital from Rubbermaid and a brand new manufacturing plant and headquarters in Hudson, Ohio, Little Tikes was set to begin an intensive expansion of its product line and distribution. It added a "spring-summer" line of outdoor play equipment that included climbing and sliding sets as well as plastic sports equipment. The company also began to depart from its exclusive reliance on rotational molding by having a line of small injection-molded toys manufactured for it at other facilities. With its new products and increased manufacturing capabilities, Little Tikes sales grew at a rate that far exceeded the toy industry as a whole. By 1987, the company's sales had topped $100 million, and then they more than doubled in the following two years to reach about $270 million in 1989. Little Tikes accounted for 28 percent of its parent company's profits by the late 1980s, prompting one analyst to comment in the Wall Street Journal that Little Tikes was the "star" of Rubbermaid's stable of companies.

Throughout the growth period of the 1980s, Murdough managed to retain the approach to marketing that had been so successful for the toy company. Only 6 percent of sales were spent on advertising, compared to an industry average of about 20 percent. Little Tikes also continued to resist television advertising or any ads directed at children. In 1985, Murdough even canceled Little Tikes' membership in the Toy Manufacturers of America because of the trade association's support of marketing to children. The customer service branch of the company was expanded and catalogue mailings continued to grow.

Murdough's Departure: 1989

In spite of this seemingly steady course, friction began to develop between the managers of Little Tikes and Rubbermaid over the retail distribution of Little Tikes toys. Large discounters like Kmart and Ames were the linchpin of Rubbermaid's approach to selling its popular housewares, and senior management at Rubbermaid began to put pressure on Little Tikes to end its policy of selling only through toy and specialty stores. Murdough felt that to allow discounters to carry only the bestselling Little Tikes products would be unfair to Little Tikes' full-line retailers, who had to make considerable commitments of floor and stockroom space to accommodate the large playsets. Murdough insisted that selling through discount chains would lead to short product life spans. "You saturate the marketplace," Murdough told the Wall Street Journal in 1989. "That's a big part of the reason the toy industry is flat on its back."

By the fall of 1989, it became clear that Murdough and parent Rubbermaid's positions on marketing could not be reconciled, and Murdough resigned his position with the company. "It turns out we never needed Rubbermaid's money," said a frustrated Murdough in a 1993 Forbes article. "I was spending all my time just keeping them [Rubbermaid executives] out of my hair." Rubbermaid chairman Stanley C. Gault, however, insisted that the dispute was not so much about retail relationships as Murdough's management style. Gault told the Wall Street Journal after the resignation that Murdough "is unable to work for a boss, regardless of the autonomy he has. He won't take criticism."

Rubbermaid quickly appointed Gary Baughman, who had headed up its Evenflo division, as the new president of Little Tikes. Under Baughman, Little Tikes began to experiment with broader advertising, even conducting an ad agency review, but test marketing surveys revealed that 30-second television spots were ineffective at conveying the Little Tikes message and the campaign was dropped. Instead, the course that Murdough had set was strengthened and a new 6,000-square-foot center was built to house the company's growing customer service department. Baughman chose to concentrate on increasing the efficiency of the production end of the company, and five additional manufacturing plants were opened in the United States over the course of the following five years.

The early 1990s saw Rubbermaid making intensive efforts to increase its international presence, which at that time accounted for only about 15 percent of total sales. To this end, Little Tikes manufacturing and distribution centers were built in Luxembourg and Korea to serve the European and Asian markets. In spite of increased foreign manufacturing, about 80 percent of Little Tikes toys sold in the United States were still manufactured in North America.

Little Tikes' policy of growth took on a new direction in the 1990s as the company acquired three small commercial playground equipment companies: Iron Mountain Forge (Missouri), Ausplay (Australia), and Paris Playground Equipment (Canada). In conjunction with these companies, Little Tikes began to produce large commercial playground equipment suitable for child care centers and community playgrounds. The large plastic and steel PlayCenters were designed to sell at about $3,000, some two to five times less than the more traditional wood and steel structures. Although the longevity of these plastic play systems was only one-third that of the more traditional steel playgrounds, Little Tikes felt that the significantly lower cost would be attractive to child care centers, which tended to replace equipment every few years. In spite of president Baughman's 1994 defection to rival toy company Tyco, Little Tikes seemed poised to continue its rapid growth in the last half of the 1990s.

Key Dates:

1970:: Thomas G. Murdough establishes the Little Tikes Co.
1979:: The company introduces the Cozy Coupe ride-in car.
1983:: Sales rise by 73 percent to $42.9 million.
1984:: Rubbermaid Inc. acquires Little Tikes.
1989:: Disagreements over marketing strategies lead to Murdough's resignation.
1999:: Newell Inc. purchases Rubbermaid.
2002:: Little Tikes launches its first national television advertising campaign.

Overcoming Problems in the Late 1990s and Beyond

The company began to experience problems, however, as high material costs and slowing demand began to take their toll on Rubbermaid's profits. As such, Little Tikes bolstered its research and development activities, revamped its retail product displays, and increased the number of new product launches. As the company was setting these strategies in place, Newell Inc. announced its $5.6 billion acquisition of Rubbermaid. The deal, completed in 1999, left Little Tikes exposed to a new management style. As a 1998 St. Louis Post-Dispatch article reported, "After buying a company, Newell uses its formula—called 'Newellization'—of cutting overhead and production costs, improving service, and trimming product lines." The Little Tikes' plant in Shippensburg, Pennsylvania, became the first victim in the "Newellization" process. The company announced in early spring 1999 that it would close the facility in order to reduce excess manufacturing and streamline the firm's distribution network.

Instead of trimming its product lines, Little Tikes entered the new century focused on bolstering its merchandise mix. During 2000, the company launched its spring line that included over 30 new products. Since the Newell purchase, Little Tikes had focused heavily on consumer research—finding out what parents wanted or expected from toys. The firm's research found that consumers looked for products that stimulated role-play and imagination in their children. Many of the new products offered that year were based on the firm's new weather-resistant technology that allowed electronic toys to be left outside. One such product, the Imagine Sounds Playhouse, was designed to enhance imaginary play by using motion sensors to set off various sounds, including a knock at the door or the sound of rain falling on the roof.

The company strengthened its foothold in several new product categories in 2001 when it teamed up with Thinkway International Inc., Team Concepts North America, and Prestige Toy Corp. in licensing agreements that would market interactive, educational, and plush toys under the Little Tikes brand name. Despite the company's efforts, however, Little Tikes continued to face problems as a result of dwindling sales. The company's largest customer, Toys "R" Us Inc., began cutting its inventory. To make matters worse, an August 2001 Crain's Chicago Business article reported that "other retailers, intent on maximizing sales per square foot in a slowing economy, are allocating less space for Little Tikes' plastic playground sets and other bulky offerings." In response to these problems, the company revamped its packaging and merchandising strategies and began to investigate selling more of its products online. It also set plans in motion to launch its first national television advertising campaign during the 2002 holiday season. The commercials featured voice-overs by Christie Brinkley, Wolfgang Puck, and John Cleese.

As Little Tikes worked to regain its financial footing, rumors of a possible sale began to surface. Nevertheless, the company continued to strengthen its holdings, adding licensed character items, bath toys, and wood furniture to its product arsenal. It also signed 20 new licensing agreements in February 2003. Regardless of its future ownership, Little Tikes' products would no doubt continue to be found in homes across the world for years to come.