The once-struggling toymaker's Takeo Takasu lopped off 15% of his huge roster while putting the others ever more in the faces of kids of all ages.
You're the president of a financially troubled toy company in Japan, where the child population shrank 15% in the past decade. What do you do? Clean house, sell to grown-ups, and infiltrate the U.S. with kids' TV shows that function like giant toy ads. Most important of all, you go back to the company's roots as a character business. That is how Takeo Takasu saved Bandai, the world's third-largest toymaker after Mattel and Hasbro.
Bandai made record profits of $200 million on sales of $2.1 billion in the year to March, culminating a five-year turnaround engineered by Takasu, 58. Its shares, though still trading at a forward-year price-to-earnings multiple of 12, is one of the Japanese stocks to have gained new life this spring.
In 1998, when Takasu was sent in by Sanwa Bank, Bandai's primary lender (now part of UFJ bank), the company was a casualty of poorly planned aggressive expansion. It had been devastated by three grand failures. First of all, Tamagotchi--those annoying little digital pets in egg-shape containers that beep to remind you to play with them on a small screen--was a sensation that had fizzled. Bandai sold 40 million of these toys for over $15 a pop around 1996 and 1997 but had misread the market and invested heavily in new production capacity in China just as the boom went bust. A cash cow dwindled into a $50 million loss.
While Tamagotchi was booming, Bandai invested in a second big bust, Pippin, an Internet-based connected game device that it made in partnership with Apple Computer. This flopped miserably, partly because it was way ahead of its time. The final blow came from Wonder Swan, a portable game player that was supposed to appeal to a slightly older crowd than Nintendo's Game Boy line but never got more than a 5% market share.
Since Japanese custom dictates that Takasu could not fire any of his 844 employees, he instead laid off the least popular 15% of its roster of 8,000 fictional characters. The rest, including Power Rangers, Tamagotchi, Sailor Moon and Digimon, are being reassigned to new jobs.
Bandai's main strength, what Takasu calls its "corporate DNA," has always been its rights to a wide array of characters from Japanese TV shows and comic books. With Japanese animation now booming worldwide--accounting, for example, for half of the programming on Aol Time Warner's Cartoon Network--Takasu saw an unexploited opportunity. "Characters are becoming an important buzzword around the world now, because the same product has a totally different image if it is associated with one," he says.
Bandai introduced bath salts shaped like eggs in 2002. As the egg dissolves into the bath, emitting a nice fragrance, a plastic toy character emerges. Shades of Tamagotchi--but, by adding the toy to the toiletry, Bandai in barely a year has sold 4 million at $2.50 each, in a new product category. The Bandai characters are also, of course, being slathered all over such items as T shirts, cakes, pens and mobile phones. Network business and sales of animated characters for display on mobile-phone screens generated $68 million in profits for Bandai in 2002, in a market where few have figured out how to stop bleeding red ink.
Characters such as Gundam fighting robots can be used to sell what would otherwise be generic and not terribly original videogames. Bandai's total game software sales were $302 million in 2002. It both sells its own game software and licenses its characters to independent game developers.
Bandai is still focused on its specialty, though, which is linking kids' programs to products. "As soon as a new cartoon program gets started, Bandai starts interfering," says Kenji Mori, professor at the Digital Entertainment Academy in Tokyo. For example, there are now 13 "main characters" in a show called Kamen Riders because they are the ones whose toys people buy, Mori notes. "A 30-minute TV program is like a big Bandai advertisement: We get to sell dolls as well as their weapons. The commercial has a story, so the kids get into it," Takasu admits.
In Japan, Bandai sponsors about 30 such shows. It plans to expand in the U.S., where it is a bit player. Already, in large part thanks to its Power Rangers toy license (the visual rights belong to others), Bandai has grabbed a 16% share of the U.S. action figure toy market.
Markets outside Japan account for only 26% of Bandai's profits and less than 20% of its sales, but Takasu aims to bring both those percentages to 50 within a few years. However, Bandai is still a tiny global presence with less than a 2% share, and a Mattel official in Tokyo dismisses the threat: "They are not a serious competitor for us in America."
All the while, Bandai struggles to sell, under license, Mattel Toys in Japan. But Barbie dolls and Hot Wheel cars have had a hard time. "Japanese girls only play with dolls between the ages of 2 to 4, and by the time they are 6 they lose interest in toys, a much earlier age than in the U.S. Instead they imitate their mothers by getting interested in makeup, fashion and mobile phones," Takasu says. "Only grown-ups play with Barbies [as collectors] here," he adds.
Takasu hopes to sell Hot Wheels by associating them with Gundam or other characters and turning them into Robowheels. Also, Fisher-Price toys, owned by Mattel, which are just too big for Japanese houses, might get a boost from being shrunk and having Hello Kitty or some other cute Japanese character added, he says.
Another Bandai plan is to try to market toys to adults. One item soon will feature a band whose dolls play instruments in a way that makes it seem they are producing the music coming out of a juke box. Bandai is already reaching out to an older clientele with dolls called Primopuel that entertain the elderly by talking.
Japan has a market of reclusive grownups called otaku who obsessively collect figurines of their favorite TV characters. Many even opt to dress like them.
To help market to grown-up kids, Bandai employees are encouraged to read comic books and play with toys on the job. They have a good role model to follow: "When it is quiet in the chairman's [Yukimasa Sugiura] office, I sometimes peek in and see him playing with toys on his desk," Takasu says. If only more of us would follow his lead.
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