Spin Master, Ltd.

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Spin Master, Ltd.

450 Front St. West
Toronto, Ontario M5V 1B6
Canada
Telephone: (416) 364-6002
Toll Free: (800) 622-8339
Fax: (416) 364-8005
Web site: http://www.spinmaster.com

Private Company
Incorporated: 1994 as Seiger Marketing, Inc.
Employees: 145
Sales: C$200 million (2003 est.)
NAIC: 339932 Game, Toy, and Children's Vehicle Manufacturing

Spin Master, Ltd. is a Canadian toy manufacturer whose string of popular, imaginative products have helped make it one of the top ten toy companies in North America. The firm's signature offerings include Air Hogs, planes that fly up to 100 yards on compressed air; Catch-A-Bubble, long-lasting soap bubbles that can be caught and stacked together; ICEE Maker, which children can use to make cold, slushy drinks; and Mighty Beanz, collectable, wobbly plastic capsules with depictions of cartoon characters on them. Spin Master also offers an updated version of the 1970s sensation Shrinky Dinks, the McDonald'slicensed McFlurry Maker, toys based on the Australian musical entertainers The Wiggles, and many more. The Toronto-based concern is owned and run by its three founders, Anton Rabie, Ronnen Harary, and Ben Varadi.

Beginnings

The origins of Spin Master date to 1994, when three young Canadians began marketing a novelty gift item called Earth Buddy. Ronnen Harary and Anton Rabie, both born in South Africa, had been friends since they attended summer camp together as children, and Rabie had gotten to know Ben Varadi while all three were students at the University of Western Ontario. Rabie and Harary had run a poster business in college, and after graduation began seeking a new type of product to sell. They found it in a gift Harary's grandmother had brought back from Israel, which consisted of a nylon stocking with a face drawn on it that was filled with sawdust and grass seed. When watered, it sprouted green "hair" on top. Deciding to market it in Canada, the pair took $10,000 of their savings to make 5,000 copies to sell as gifts for Mother's Day, 1994. On Rabie's suggestion, Varadi was brought in to oversee manufacturing.

The Earth Buddy was a poor cousin to the better-known Chia Pet, but it immediately caught on with the public and the partners soon found themselves expanding production to fulfill orders from such chains as Kmart. By year's end the $7.99 Earth Buddy had generated more than $1.5 million in revenues.

It was Harary, a one-time "Deadhead" who had traveled to follow the performances of The Grateful Dead, who came up with the firm's next product. Adapting a popular activity from the hippie-style gatherings that sprang up alongside the group's concerts, the trio began marketing "Devil Sticks," a set of three rubber-covered batons which could be used to perform tricks. The company sent college students cross-country in vans to give demonstrations, and by the end of 1995 the partners had sold more than 600,000 of the $14.99 sets. Taking inspiration from this new product, the firm, which had originally used the name Seiger Marketing, Inc., became known as Spin Master, Ltd. Harary was its CEO, Rabie its president, and Varadi the executive vice-president in charge of product development.

In February 1996 they discovered another new product, one which would put the firm solidly on the map in the toy industry. While attending the annual toy fair in New York where industry buyers and sellers met to cut deals and promote new products, the partners were approached by British inventors John Dixon and Peter Manning, whose crude soda-bottle-with-Styrofoamwings prototype airplane had been rejected by everyone they had shown it to. Impressed by the battery-less, compressedairpowered toy's potential, Spin Master made a deal to license it and then hired two outside firms to work out the technical details. Over the next two years the partners gambled virtually every penny they had on the toy, spending $500,000 to perfect a plane that could fly up to 100 feet in height and 100 yards in distance. Its small piston engine converted 90 pounds per square inch of compressed air into 4,500 propeller revolutions per minute, which produced a satisfyingly realistic droning sound. A bicycle pump-like "docking station" was supplied to give the plane its energy.

Air Hogs Sky Shark Debut in 1998; Sales Soar

In the spring of 1998 the purple and yellow Air Hogs Sky Shark began to hit the shelves of such specialty stores as Zainy Brainy. Business for the innovative new toy was brisk, and soon media attention from NBC's Today Show, the Regis & Kathie Lee program, and Time and Popular Science magazines helped boost sales through the roof. By the end of the Christmas shopping season some 400,000 of the $50 Air Hogs had been sold in Canada and the United States.

In the days following the holiday the firm was plunged into crisis, however, when thousands of customers called to complain that their plane's Styrofoam wings had broken during the first flight. Spin Master responded quickly, sending out 100,000 strengthened replacement wings and reinforcing those not yet sold with Mylar strips. The plane was later completely redesigned.

With the Sky Shark selling via such mass-marketers as Toys 'R Us, its sales topped one million units in March, and it was ranked the third best-selling toy in North America over $20 by an independent survey. Its success drove the company's annual revenues from $8 million to more than C$45 million during 1999. Other air-powered toys were soon under development, including several additional planes, a car, and a submarine, as well as the water-powered Hydro Rocket and the battery-powered E-Charger plane. Spin Master handled its own distribution in North America, and licensed its toys to companies including Japan's Bandai for foreign markets. The firm was expanding the Air Hogs line and cutting overseas deals as quickly as it could, in an effort to reduce the impact of the inevitable counterfeit and knock-off versions in the highly competitive global toy marketplace.

Gearing up for the next Christmas sales season, in the fall of 1999 Spin Master unveiled a line of collectible toys called Flick Trix Finger Bikes. The 21/2 inch tall bicycles were licensed copies of popular BMX models made by such companies as Mongoose, Redline, and Huffy, and had working brakes, steering, and even tiny U-locks. The design had been licensed from a pair of Chicago inventors, who were inspired by the recent success of miniature skateboards called fingerboards. Along with the bikes, which were priced at less than $10 each, related items such as ramps and platforms were also offered. The Flick Trix line proved popular, and over the next year some six million were sold.

The year 2000 saw Spin Master address organizational inefficiencies that had arisen out of its rapid growth. Over a fourmonth-period the company hired seven new vice-presidents to help streamline its operations, including the former head toy buyer for Wal-Mart Canada and the former vice-president in charge of Mattel's Canadian distribution system. An office was also opened in Hong Kong to oversee the firm's manufacturing, which was largely done in China. By year's end Spin Master's employment ranks had risen to more than 100, and annual revenues had grown to top C$103.5 million. The company's toys were now available in more than 25 countries.

The following year started off well for the firm, which procured exclusive rights to sell plush character toys from the Disney/Pixar movie Monsters, Inc. to U.S. specialty stores, and introduced a new line of toys for girls called Key Charm Cuties. However, in the spring Spin Master was sued by American Greetings Corporation of Cleveland, Ohio, over a new toy called Don't Free Freddy, which the latter firm claimed had been copied from a cartoon character it owned. Several months later the suit was settled out of court, but Don't Free Freddy, a furry talking monster doll that uttered insults when released from handcuffs, proved a dud sales-wise. The spring of 2001 also saw Spin Master voluntarily recall 108,000 Splash Blast Water Rockets, a handful of which had fired erratically and struck children. The company offered free replacements to buyers of the $30 toy.

Shrinky Dinks Revival for Christmas 2001

In August Spin Master began a major re-launch of Shrinky Dinks, a popular toy of the 1970s and 1980s that had not seen widespread distribution since 1993. The activity toy utilized a special plastic that could be drawn on and then baked until it dramatically metamorphosed and shrank. The re-issued version, which was licensed from its co-inventor Betty Morris, came complete with a new light bulb-heated oven to perform the shrinking. The revived Shrinky Dinks became a major Christmas season success story when nostalgic "Generation X" parents who had played with the toy as children bought it for their own offspring. By late November Spin Master had sold out of the initial run of 400,000 units and was working hard to obtain more of the toys, which retailed for under C$40. The company was now the 14th largest toy maker in North America, and it had also been designated one of the 50 best-managed companies in Canada by Deloitte & Touche.

Early 2002 saw Spin Master add more new items to its lineup. In addition to winning a license from the Jim Henson Company to make character toys based on the television program The Hoobs, the firm also signed a deal to market a new, longerlasting bubble solution called "Catch-A-Bubble" in North America. This product, which had been developed by a Chinese inventor, had already been a runaway success in Australia, and when Spin Master brought it to the annual New York toy fair, it came away with orders for four million bottles of the inexpensive fluid. Catch-A-Bubble would go on to be a steady seller.

Company Perspectives:

Despite the increasing size of the company, the spirit in which it was founded remains very much intact—a young, hip, energetic organization, willing to take risks, eager to innovate, and always looking to identify and develop new and exciting ideas.

In May the company announced a voluntary recall of 137,000 Air Hogs planes, a few of which had burst and caused minor injuries. Free replacements were offered. August saw the introduction of a line of toys based on The Wiggles, an Australian musical group popular with small children whose act included the characters Dorothy the Dinosaur and Captain Feathersword. The line, which featured a Wiggles guitar for example, was a hit with parents who saw the group as an appealing alternative to the omnipresent, Barney the Dinosaur. Other products introduced in time for the Christmas gift-giving season included the radio-controlled, battery-powered Air Hogs Helicopter and the ICEE Maker, an activity toy with which children could make slushy snow-cone drinks. Sales were strong for the latter, which vaulted to number two in the food toy category behind the venerable Easy-Bake Oven.

Shortly after Christmas Spin Master acquired the Sky Bugz line of compressed-air flying insects from cash-strapped Canadian rival Irwin Toys, and in January 2003 the firm unveiled the $25 McDonald's McFlurry Maker, which children could use to replicate an ice cream dessert found at the fast-food chain's restaurants. It was the first toy developed under a four-year licensing agreement with McDonald's, which CEO Harary hailed as the company's largest such pact to date.

New toys introduced by Spin Master in the spring of 2003 included Strobe F/X, a $10 pulsating multicolored light wand that could create patterns on a wall or ceiling, and Bounce 'Round, an eight-by-eight foot home version of the air-filled "moon walk" familiar from carnivals, which retailed for less than $200. The firm also launched a touring Air Hogs promotional van that would travel to air shows, festivals and shopping centers to promote its products, in conjunction with the 100th anniversary of the Wright Brothers' first flight.

In August Spin Master took on North American distribution of Stink Blasters, a collection of 24 action figures, "each sold separately," which carried such names as Porta Potty Paul and Barfin' Ben. When squeezed they emitted convincing (though harmless) odors that matched their descriptive names. The firm also began to distribute an updated version of the Teenage Mutant Ninja Turtles line to capitalize on a new series of TV episodes that featured the pizza-eating, fighting martial arts characters. In the fall the company launched the Crash Zone Regenerator, a 15-inch long radio-controlled SUV that, when crashed, could sustain heavy "damage." When a button was pressed on its controller, however, it was restored to normal appearance. It was priced at just under $60.

Mighty Beanz Creating Stir at End of 2003

The fall of 2003 also saw Spin Master introduce an Australian import called Mighty Beanz, small plastic capsules decorated with cartoon characters that contained ball bearings. The wobbly Beanz sold for about $8 for a pack of six, and became popular with children who sought to "collect them all," as the ads implored. The toys, which were advertised on The Cartoon Network and Nickelodeon, were especially popular with preteen boys. By Christmas many stores had sold out of their stock, and Spin Master was forced to restrict distribution to the larger toy chains. At year's end more than $40 million worth had been sold, making Mighty Beanz one of the firm's best sellers ever.

The company was continuing to aggressively seek new hits, having recently moved its director of global licensing to the fertile toy-development country of Japan, and was solidifying ties to key inventors with such perks as an annual golfing, rafting, and biking trip to British Columbia. By early 2004 Spin Master was referring to itself as a "children's entertainment consumer products company," rather than simply a toy maker, and was laying plans for an expanded product line that would include non-toy items for children's bedrooms, including convertible couches decorated with licensed character designs. It was now ranked the ninth largest toy maker in North America, and had annual revenues estimated at more than C$200 million.

After just a decade in business, Spin Master, Ltd. had evolved into a major player in the toy industry. Its success had come from developing innovative new product lines as well as through a series of astute licensing agreements. Under the guidance of its still young founders, the company was undoubtedly capable of reaching even greater heights in the years to come.

Key Dates:

1994:: Anton Rabie, Ronnen Harary, and Ben Varadi begin marketing Earth Buddy.
1995:: Company has success with Devil Sticks, becomes known as Spin Master.
1998:: Introduction of Air Hogs Sky Shark plane brings firm into mass-market stores.
1999:: Flick Trix Finger Bikes make debut.
2000:: Sales top $100 million.
2001:: Spin Master re-launches 1970s sensation Shrinky Dinks to strong demand.
2002:: Company finds success with Catch-A-Bubble and ICEE Maker.
2003:: Firm licenses McFlurry Maker from McDonald's; Mighty Beanz prove hit.