Bringing up Bratz

He is as admired for his business acumen as he is disdained for his gutsy—occasionally impolitic—outspokenness. No matter. Isaac Larian made toy industry history and no doubt sent shudders of envy through competing toy designers and toy company executives when sales of his company's Bratz dolls came an eyelash-length from dethroning Mattel's nearly 50-year-old Barbie franchise this past holiday season. Along the way, Bratz became a more than $2.5 billion worldwide property, Larian says.

Now entering into its sixth year, more than 120 million Bratz dolls have been sold and—accounting for licenses, presently numbering more than 400—that number extends into the hundreds of millions of additional branded products, according to Larian, the founder and CEO of MGA Entertainment. The Bratz brand still has plenty of wind at its back, says Larian, who doesn't miss a chance to extol the opportunities even as he takes a swipe at the competition.

“I don't think we have a living competitor—she is on her deathbed,” he says, then laughs before becoming more serious. “[Mattel] has a lot more distribution than we do internationally, but we are closing that gap fast, and we are catching up.”

Indeed, MGA has opened direct sales offices in Mexico, Canada and the Benelux region, and will be opening in Germany and France later this year. The effort is a tacit acknowledgment that Larian and MGA were dissatisfied with some of its distributors and felt the need to step in.

“[Direct sales] definitely adds a lot of expense but it puts our destiny in our own hands,” he explains. Some distributors, like Vivid in the U.K., did a terrific job and MGA will likely stay with them for at least another year, he says. Others, to put it mildly, did not. The company was doing about $2 million in business in Mexico when it took the sales effort back from Hasbro, according to Larian.

“All I can tell you is that MGA will become the third largest toy company in Mexico after only two years,” Larian says. Between its international growth and remaining traction in the U.S. marketplace, the full potential for Bratz is probably another three or four years away, he says. At this point, he claims the sales curve has shown no signs of flattening.

But that day is likely to come, and Larian knows it. Privately held MGA doesn't publicly share its financial data but Larian acknowledges the obvious: Bratz accounts for a huge portion of the company's volume. If it doesn't begin broadening its business now, it could be caught painfully short when trends change. And it is far better to manage that change from a position of strength.

“Worldwide, [our volume] is very top heavy in Bratz. I think we want to grow that and certainly we're not going to abandon it. It's got a long way to go,” says Larian, adding that he extrapolated first quarter NPD estimates to show the brand with a 10 to 11 percent sales growth this year.

“But are we looking for the next home run? Absolutely. Everybody is. But we are happy with a lot of singles and doubles,” Larian says. To that end, the company has become the master toy licensee for Shrek, the master vehicle license for Marvel and is building its own brands such as Yummy Land, Soda Pop Girls, Rescue Pets and others.

Larian sees MGA as much more than a toy company. He emphasizes it is a consumer products company—ranging from entertainment, with a number of movies and more on the way, to sporting goods, bikes, scooters, stationery, soft goods and even home decor.

“We are trying to take aim rather than take a shotgun approach,” Larian explains. “So we look at our core competencies and see where we are strong. Design and electronics are our key areas of core competency and that's what we are focusing on.”

Larian was in the consumer electronics and textiles businesses years ago. After a challenging beginning, he says MGA has also figured out the entertainment component and will build on that.

The company's consistency comes from its customer base: tweens. They are fashion conscious and seekers of style. As they get older, those sensibilities broaden and they acquire another critical attribute: disposable income. “We want to tap into that,” says Larian.

Assuming success in product development, that still leaves a fickle and, in the toy industry, a somewhat fragile retail environment. There's little in the way of retailer loyalty, and merchants often view suppliers only as good as their last products.

“Rightfully so,” Larian says, “because retailers are in the real estate business. They want to maximize the return on investment they get from their real estate, so if you have a good product they'll give you the shelf space. If you don't, they'll move on. Some will try to do their own private label. But I think brands are what are driving the business in the toy industry and we are fortunate to have some good brands.”

At the same time, innovation is something the toy industry could use a lot more of, he says. It is simply lacking, largely because of knock-offs and look-alike products. The issue resonates particularly for Larian, who is still in federal court suing Mattel over alleged infringement of Bratz by the My Scene line of dolls.

Combined with what he identifies as a lack of industry leadership, Larian says industry knock-offs threaten to stifle creativity and innovation, and tamp down companies' willingness to take risks. His “no risk, no reward” attitude drove the early entry of MGA right up until today, he says.

“I think it was a combination of things,” Larian says of MGA's success. “Certainly luck had a lot to do with it but, more important was the passion; having a lot of people with passion putting their souls and lives and time into it. And we took a big gamble...putting our resources into risk.”

When did it dawn on Larian that his company had made it—that the Bratz had arrived? He claims that realization still hasn't struck.

“We're not there yet,” he says. “Even at $5- to $6 billion, if and when we get there, we'll still be a lot smaller than Microsoft.”