The Children's Mass Market Business
Sally Lodge -- 12/1/97
A tale of hot licenses, healthy sales volume and an expanding marketplace
Low end. High volume. Low margin. High profit. These are some common buzz words in the children's mass market publishing business: a volatile, license-driven game of lows and highs, ups and downs. Yet its players seem to be experiencing some decidedly high points at a time when sales of children's books overall are relatively flat.
Conversations with those involved in creating, selling and buying kids' books and book-related products for the mass market -- generally defined as toy chain, supermarket, drugstore and mass-merchant outlets -- revealed several notable areas of expansion. These include growth in the number of companies aggressively seeking a share of the market, in the diversity of their products and in the variety of retail locations in which consumers can find these items.
While asking not to be directly quoted on the subject, several publishers suggested that the turmoil affecting the mass market giant Western Publishing over the past several years opened some doors for competitors, most conspicuously the Ohio-based Landoll, Inc., which has just been acquired by Tribune Education. Landoll's net sales leaped from $52 million in 1995 to an estimated $71 million in 1996, marking a 36.5% increase and earning the company the number eight spot on PW's current list of the top 15 children's book publishers. Now that Western has been restructured as Golden Books Publishing (which, with estimated net sales of $162 million last year, headed up that same list), this company is still a major force in children's mass market publishing, though industry insiders believe that Landoll has eaten away at Golden's share of the mass market pie, especially educational workbooks.
Insisting that "we don't focus our energies on our competitors, but rather on providing great products and customer service," Landoll's president Marty Myers reported that his company will release 700 new titles this year and is projecting $100 million in sales for the year, an astounding 809% increase since 1992. Sales of Landoll products, which encompass such formats as bath and pop-up books, puzzles and flash cards, are being propelled by the kid-pleasing licensed characters that adorn many of them. Landoll's 2500 licenses include such popular lines as Warner Bros.'s Looney Tunes and Animaniacs and Nickelodeon's Rugrats. According to Myers, activity books featuring these licenses are "literally flying off store shelves."
New Ventures, Renewed Efforts
With 100 children's titles in print two years after its debut, GT Publishing -- a division of GoodTimes Entertainment -- is a relative newcomer to the mass market scene. Yet VP and publisher Tom Klusaritz, for many years a marketing executive at Western Publishing, is no stranger to the business, nor to the risk of entering what he labels "a very, very overcrowded market." Succeeding in this marketplace requires, in Klusaritz's view, "that each publisher carefully carve out a unique niche. It's difficult to be all things to all people."
Describing his company's niche, Klusaritz acknowledged that "we are somewhat of a hybrid." He bought the rights to publish (in certain formats) books starring such celebrities as the Berenstain Bears, Mercer Mayer's Little Critter, Curious George and Superman, knowing that high-flying licenses have sales impact. And, though one of his company's goals was to have a wide distribution in such outlets as Kmart and Wal-Mart, Klusaritz remarked that "it became obvious that the strength of our licenses, a good percentage of which entail characters that originally appeared in books, is as much trade-driven as mass market-driven and that we fall into that middle road, appealing to both markets, which is not at all a bad place to be."
Inchworm Press, GT's children's imprint, seems to be aiming at the high end with a significant portion of its releases, which fall under the "book plus" category and carry relatively sizable prices more often associated with trade than mass market books. A case in point are what Klusaritz called his company's "number-one selling product in terms of dollar volume," Super Sound packages, which contain two 24-page paperback storybooks, a cassette player, headphones and an audiocassette. With a suggested retail price of $14.95, these packages have been picked up by bookstore chains as well as mass merchants, yet Klusaritz noted that the latter bring in "the big numbers in terms of sales."
Another Western alumnus, Bob Lutz, divisional VP of sales for mass markets and supermarkets for Random House Children's Publishing, is overseeing the sales end of that company's recently revamped mass market program, which follows in the wake of the defunct Happy House imprint. Like a number of GT's inaugural titles, Random House's first releases are based on a license linked to a beloved author -- The Wubbulous World of Dr. Seuss -- and have sold successfully to both bookstores and traditional mass market accounts.
The first six paperbacks, which were shipped in May, fall into formats commonly associated with the mass market: color and activity books, paint-with-water books and sticker books. Yet the Seuss license, Lutz said, makes these books "crossover products that are selling into the trade as well as in the mass market." Random House also expects to ship to both markets with its forthcoming activity and coloring titles featuring another license with book roots -- Thomas the Tank Engine.
Similarly, the company plans to span the trade and mass markets with its Jelly Bean imprint, a line of hardcover storybooks, some generic and some based on licensed characters, due to launch in 1998. Described by Lutz as "high-quality stories by some well-known authors," these titles will retail for less than $2 each. Promotion for the line will be built around the importance of reading aloud to children, which will likely make the program all the more appealing to booksellers.
The relaunching of a mass market line is also taking place at Golden Books, as the company is reviving its Marigold Press imprint to publish activity, coloring and sticker books, as well as puzzles, flash cards and workbooks. Stephen Weitzen, president of Golden Value Books and special markets, described the imprint as "a value-oriented line that will give us a greater presence in the seasonal, promotional and opportunistic markets. Marigold will enable us to aggressively compete in such second-tier markets as dollar stores." The line debuts in January and includes generic titles as well as those based on such licenses as Sesame Street and Disney.
More Flexibility in Formats, Price Points
The fact that these new efforts represent publishing programs at both the low and high ends of the pricing spectrum, and are largely aimed at both the mass and trade markets, points to a revolution in the notion of price points -- in particular the once-firm rule that any book retailing for more than $5 will not make it in the mass market. This opens the gate for a much wider variety of book products, including GT's book-and-merchandise packages and technologically sophisticated books with sound chips, long a staple of Golden Books's list and, more recently, a briskly selling category for Publications International (an Illinois publisher whose company policy prohibits employees from talking to the press).
On the subject of price sensitivity, store buyers were split. Not all believe that the $5 price-point ceiling has been shattered, including Douglas Miller, buyer of books and magazines for Kmart's 2085 stores, who asserted that this is, indeed, the top price that his chain can ask for a book -- with a few exceptions. "For some book formats based on certain licenses, like Barney or Winnie-the-Pooh, people are willing to pay a slight premium," he observed. "The price resistance breaks down somewhat in the fourth quarter and then I do buy some jacketed hardcover books that sell for $15 or $20. But I avoid these price points for nine months of the year."
Alison Weinberger, book buyer for Toys 'R' Us, explained that while the chain's 700 stores sell low-end items such as coloring books and educational workbooks in significant volume, they also do very well with board books and higher-priced hardcovers, especially those that tie into toy licenses. According to Weinberger, "We really don't have a problem with higher-end books, since we have the ability to create small boutiques within the book area, showcasing the work of popular authors like Eric Carle. And we have the advantage of displaying books with our toys based on The Little Mermaid, Arthur or Rugrats. This cross-merchandising gives our books double exposure."
As they described the diverse book product mix in their stores, buyers generally confirmed publishers' assertions that the dividing line between trade and mass market product is blurring. At Golden Books, Richard Collins, executive VP for sales and retail marketing, observed that "there is clearly now a breaking-down of the stereotypes that have existed in the mass market, and we are definitely seeing the end of the strict delineation between the trade market and the mass market in terms of price points and book formats."
Illustrating this point, Patty Sullivan, executive VP and publisher of Golden's Children's Publishing Group, relayed the saga of the company's 1942 foray into the children's mass market, with its signature Little Golden Books line. "The concept behind these books, which initially sold for 10 cents was to put books into the hands of all youngsters in a time when children's books were very high-priced and considered precious," she remarked. "Fifty-five years later, the imprint is alive and well and Little Golden Books now sell very well, at a retail price of $1.99, in bookstores as well as supermarkets. And we recently released hardcover editions of some of these books under our Little Golden Storybooks format, at $3.99 each, which are also having great success in both markets. Both series have transcended the labels of 'trade book' or 'mass market book' that once existed."
Another indication of these markets meshing for Golden Books is the house's recent acquisition of R.L. Stine's Fear Street series and its two spin-offs from Pocket Books. This marks the company's first step into middle-grade and young-adult trade publishing, a program Margery Cuyler has recently been hired to develop as v-p and director of trade publishing for Golden's Children's Publishing Group. "Fear Street has built up its customer base through bookstores," Cuyler stated. "And now our sales force can place these books into nontraditional book outlets and extend the series into new territory. We'll be developing other middle-grade and YA series as well."
Still another way that mass market publishers have made inroads into the trade market is through "bind-up" editions of such low-end products as paperback coloring and activity books. This tactic works especially well with the right license, reported Larry Steinberg, president of Modern Publishing, which releases some 250 titles annually. "Our business hasn't been built with bookstores," he observed. "But when you have an upscale license, especially one like [Alexandra Day's] Carl the Dog, it can mean much more to Borders and Barnes &Noble than it d s to a Target store. So if you publish that license in a coloring-book format, and beef it up so you have 200 pages and build up the price point so it sells for about $5, you have a book that sells in the book trade as well as at Toys 'R' Us."
But, Steinberg cautioned, the bulking-up of books is not always a wise tactic, especially in the case of a generic title. "When you have an ABC or a Mother Goose activity or coloring book," Steinberg said, "you have to realize that it's not a trade book. If you can price it under $2, you can get terrific numbers in the Targets and the Kmarts."
The Thriving Low End
Virtually all publishers agreed that, despite the greater margins and significant profits derived from higher-ticket items, volume is still the bottom line in mass market publishing. And it certainly behooves publishers to keep cover prices of their "value-priced" sticker, fill-in and coloring books at $1.99, $1.29 or lower in order to ensure that they become "impulse buys." Observing that this is a price -- rather than product -- driven business, GT's Klusaritz said, "To be a tonnage mass market publisher today, one has to provide the low-cost formats that mass-merchant buyers want, since they need to offer their customers the best prices. And these buyers have tremendous buying clout, given the fact that an incredible number of consumers walk through their doors daily."
While repeatedly describing this as a "high-volume" business, company spokespersons were reluctant to specify sales figures for their products. Yet as a barometer of just how well the ever-popular coloring-book format can sell with the right handle, Myers cited the remarkable success of Landoll's Rugrats titles in one chain-Kmart-through which the publisher is currently selling between 30,000 and 35,000 coloring books every week.
Though this may be an atypical success story, fed by the fact that, with an estimated 21 million viewers, Rugrats is Nickelodeon's top-rated show, publishers threw out "ballpark" numbers in the hundreds of thousands when asked to estimate potential sales for a value-priced product based on a hot license. And if a license is truly sizzling, those numbers can reach into the millions.
Such figures may help to explain the enormous sums publishers are willing to pay for licensing rights, most markedly the $47.7 million in royalties that Golden will reportedly pay the Walt Disney Co. over the next four years for its recently extended licensing agreement. Though Golden's competitors -- some of whom have purchased the rights to publish Disney tie-ins in specified formats -- expressed amazement at this sum ("Only in America!," joked one publisher), the consensus was that, in a business where licensing is truly the name of the game, the Disney logo and characters certainly help make one a winning player.
But mass merchandisers leave plenty of room on their shelves for non-licensed products, a market that is less precarious than putting large sums of money behind potentially short-lived movie or toy licenses. At Kmart, Douglas Miller estimates that his selection of titles in the big-selling coloring-book category is split 50/50 between licensed and generic titles, giving him a balanced mix of product and margin. He noted, "It's important to have the 32-page coloring books featuring The Little Mermaid, Rugrats and Barbie. But we also want to offer customers the jumbo, 96-page generic book that is a great value at 99 cents. I wouldn't trade one for the other, since both do so well for us."
One of the most rapidly growing lower-priced categories is that of educational workbook series. Golden Books has an extensive line of Step Ahead Plus workbooks, priced at $3.49, which teach math, phonics and reading skills. Very bullish on this genre is Landoll's Myers, who calls his house's Brighter Child line of educational products, geared for grades K-6, "one of the main lines driving our success." He noted that the program encompasses a spectrum of price points, making it attractive to a wide variety of store buyers and helping to hike Landoll's trade sales to approximately 40% of the company's business. In his words, "The sales of our line of 40 workbooks, at a low-end price of $2.25 each, have sold phenomenally in virtually every type of store, from discount mass merchandisers to bookstore chains to wholesale clubs."
This genre has also been a significant growth area for Modern, which has licensed the rights to produce a number of educational workbooks featuring familiar faces, including those of Barbie and Mickey Mouse, as well as a line of Fisher-Price activity books for younger children. Larry Steinberg reported "terrific initial sales" for the company's most recent release in this category, Mickey and Friends Christmas Activity Workbook, quipping that "even with the big hullabaloo about Golden's deal with Disney, there are still some cracks open for the rest of us."
Reaching the Consumer
In addition to focusing more closely on the trade market, some publishers are making moves to reach other under-tapped outlets -- or to expand their presence in existing ones. Golden has recently reorganized its sales force to, in Richard Collins's words, "make our sales operation more customer-focused." The restructuring creates some 20 sales teams, including one for each major store account. To head up these teams, the company has recruited sales executives from outside the book business: recent hires include Paul Paschal, who moved from Ralston Purina to head the Wal-Mart sales team; and David Griscom, who came from Minute Maid to lead the Kmart sales team. Each sold to these respective accounts in their former positions.
Other publishers also organize their sales force by major account, though some are organized by region. Most have separate reps for their mass market and trade businesses. The industry's increasing use of electronic data information, which provides publishers with weekly sales reports from major accounts, has streamlined the reordering process for some companies, while others reported that they were still working on implementing such a system.
On the subject of which markets present the greatest possible growth for mass market books, a number of publishers point to the supermarket and drugstore chains, largely serviced by independent distributors, as key targets of their sales efforts. Also cited as expanding venues for books are "category killer" superstores that are increasingly stocking books related to their specific consumer focus. And several publishers mentioned the dollar-store business as a potential gold mine for mass market publishers. Modern's Steinberg stated, "Sure, this is the low-rent district, but it's a group of stores that in sheer numbers sells a staggering number of units."
The international market is a frontier that Landoll has been exploring particularly energetically during the past year. In Myers' view, the fact that his company is "vertically integrated" ("we do everything -- from the creating of the books to the manufacturing -- ourselves") gives Landoll a financial edge overseas. "Since we write, translate and produce the books here we can deliver finished goods at very competitive prices to Indonesia, Australia, Europe and the Eastern bloc countries, which are all growing markets for us," he said. The company is in the process of increasing the size of its international sales force.
About half of the publishers queried responded that the school book club and book fair markets were a significant and growing segment of their business. This is the primary market for Troll, which publishes some 100 titles annually, and is now, in the words of publisher Roy Wandelmaier, "trying to leverage the strength we have in the school market and use it in both the mass and trade markets." The company is putting a great deal of marketing effort behind its line of "book-plus" craft, science and activity kits, which it has sold successfully in polybags in the school market and is now repackaging in gift boxes for distribution to bookstores and mass market outlets.
And what do mass market store buyers view as the most promising of publishers' offerings? Board books are among the bestselling book products at Toys 'R' Us, said Weinberger, who praised this format's durability, small trim size and moderate price point. Kmart buyer Miller observed a big demand for children's inspirational and religious titles in the coloring and activity formats, especially around religious holidays. And, noting the success Kmart has had with Candlewick's Giggle Club series of $3.29, 8x8 paperback storybooks by well-known authors, Miller issued a plea for other trade publishers looking to sell into the mass market: "I have been approached by a number of large trade publishers who want to sell me books, but they need to realize that I can't sell books that are as high-priced as most of the books they are issuing. I would love them to publish for me, too, but right now few trade publishers are doing this."
But luckily plenty of companies are providing product to fill the book aisles of mass merchants, driving what Wal-Mart buyer Charles Ritter called "steady, across-the-board growth" in children's books in his stores. Though the shape, size and price of products that sell well vary widely, the essential keys to success in this arena are child appeal and perceived value. "The bottom line," stated Myers at Landoll, "is that every item has to say, and say loudly, 'I'm a good deal. Buy me.' " And if the impish faces of Rugrats happen to grace that item, and if a $5 bill will easily cover its cost, consumers are likely to do just that.
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