Tech 4 Kids aims for digital niche in toys
We see ourselves as creating niches
that are unique and different
IBY MASHOKA MALMONA f giants Mega Brands and Spin Master control the Canadian toy manufacturing playground, Tech 4 Kids Inc. is the small toymaker that wants to build a separate sandpit in the schoolyard.
Company president Brad Pedersen launched the predecessor of Tech 4 Kids, Dynatech Action, at 21 years of age in the basement of his Red Deer, Alta., home in 1994. The third-party toy distributor grew quickly, joining the ranks of Profit 100 Canada four years in a row at the turn of the century. It became the largest wholesale toy distribution company in Canada, a foundation that became a strong springboard for Tech 4 Kids.
In 2003, the proud Albertan made the difficult decision to pack up and move to the GTA (his other two offices remain in Hong Kong and China). “Having a toy company head office in Red Deer is like having a fishery in Saskatchewan. It’s counterintuitive based on where our customers are.”
Working as an intermediary for the production of licensed games and toys for some of the world’s largest brands, exposed the initial avatar of the company to a talented pool of manufacturers, including Spin Master. “It was an experiment opportunity to learn from other people’s brands,” Mr. Pedersen said.
But the self-starter wanted to expand beyond national borders after seeing the Canadian distribution model folding in onto itself. Dynatech Action, its original infrastructure built for distribution only, needed to be restructured.
Mr. Pedersen took the plunge and Dynatech Action was reborn as Tech 4 Kids, launching a month before the Western world swung into the Great Recession in September, 2008.
U.S. retailers stopped buying from Canadian vendors during the heat of the recession, which left Tech 4 Kids standing in a survival of the fittest race, albeit a stripped, bruised and battered version of its first incarnation. “We were losing money in distribution. We were making money in product development. We had to retrench, refocus, and reinvent our business model based on what was working,” Mr. Pedersen said.
The effort paid off. Making the Profit 500 list for the fifth consecutive year, Tech 4 Kids Inc. raked in $40-million last year from developing novelty and collectible products such as Magna Colour, Lite Force and Mash’Ems. Fifty per cent of its revenue flows in from more than 60 countries outside North America, the latest market being Kazakhstan. The company holds licences to create high-powered brands such as Angry Birds, Hello Kitty, My Little Pony and Marvel Superheroes such as Spider-Man.
“We built our business on the backs of the equity of other people’s brands with licences,” Mr. Pedersen said. The strategy allowed Tech 4 Kids to gain credibility, as building an original brand takes significant capital, time and sweat.
Now, the small company is testing the waters of original product creation by launching its own toy this summer, following three years of diligence. The digital soft-projectile blaster called TEK RECON raised nearly $60,000 on Kickstarter, with worldwide pledges from Latin America, China and Australia, among others.
Combining first-person shooter video gaming with a traditional toy blaster, TEK RECON looks to motivate couch potatoes for an active play experience and give blaster fans a digital experience.
With 50 employees (16 in their Mississauga office), Tech 4 Kids isn’t looking to joust against Goliaths Hasbro, Mattel and Lego.
“We see ourselves as creating niches that are unique and different,” Mr. Pedersen said, niches such as games that create splat effect, novelty lighting and liquid-filled collectibles.
“The day of large corporate bastions basically forcefeeding the market is gone. It’s a pull economy,” Mr. Pedersen said. Without the overflowing coffers to conduct traditional market research, he decided to engage consumers in grassroots, experiential marketing — including the Kickstarter program.
The company moved quickly to capture the Angry Birds phenomenon, which Mr. Pedersen said was a flyer when they signed the licensing deal. While his employees pegged Angry Birds as the more successful brand, the CEO bet on Moshi Monsters. “In the end, I was wrong. My team was right.” He attributes the horizontal nature of company hierarchy for Tech 4 Kids’ continued presence during trying times for toymakers.
Tech 4 Kids’ appearance at annual computer and video game trade fair E3 (Electronic Entertainment Expo) in Los Angeles last month signalled the diversification by traditional toy companies and industry to join the digital ranks. As kids lose interest in old-school plastic toys and leave the playground for video games and apps, traditional toy companies are being compelled to introduce digital properties to boost stagnating toy sales. Mattel released its Apptivity Play line last year, which combines physical figures with iPad, iPod Touch and iPhone game apps.
Toy analyst Gerrick Johnson of BMO Capital Markets said most traditional toy companies’ efforts at creating app-based toys have failed because their narrow focus on digitizing has neglected the entertainment factor of game play. “Their wounds are self-inflicted,” he said of the companies’ lacklustre response to the competitive threat of apps and tablets. The key to success in the toy industry is innovation, but the economic downturn has turned off the investment tap and forced toymakers to become risk-adverse.
Tech 4 Kids is putting its eggs into the TEK RECON basket.
“It’s something we can hang our hat on and say, ‘we’ve put a dent in the toy universe through this product,’ ” Mr. Pedersen said.
Mr. Johnson said toy companies are buoyed by hit products, such as Spin Master’s Bakugan. “It’s cyclical — these hot products will last three to five years and then you have to come up with something else to pick up where that leaves off. That’s what makes the toy industry so difficult.”
The analyst added that evergreen brands such as Lego and NERF blasters will always have a market.
The blaster category has become over-saturated after NERF’s success, however, with clearance signs on these toys across Canadian retail stores. Hasbro’s NERF Lazer Tag blaster line allows the player to pair his or her blaster with an iPhone or iPod touch (similar to TEK RECON), but sales have been low.
While the Mississauga office is expanding, Mr. Pedersen said he’s cautious of hasty growth and expansion. “It’s reasonable improvement. We know first-hand what it’s like to go too quickly and then have to pull back. It’s a lot of fun going up, but it’s not as much fun coming backwards.”