E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
How e-retailer Fat Brain Toys took an idea for a new product and made it real.
Who: Fat Brain Toys LLC is an 11-year-old multichannel educational toy retailer that sells online at FatBrainToys.com, through twice-yearly catalogs and at its retail store in Omaha, Neb. It sells toys from about 150 manufacturers, and in 2006 it began developing and manufacturing its own line of toys to fill gaps it saw in the market. It has brought nearly 60 new products to market to date, and has 10 more in the pipeline for 2014. Fat Brain Toy Co.-brand toys routinely are best sellers on FatBrainToys.com. In August seven of the top 50-selling products on the site were ones the retailer had made. Fat Brain Toys generated $21.9 million in sales last year, according to Internet Retailer estimates.
The challenge: To take a rendering of a toy that arrived unsolicited in the mail and bring it to market. Fat Brain Toys founder Mark Carson and director of product development Erik Quam named the toy Squigz.
What it took: The designer supplied technical drawings for his idea and a crude, stitched-together example of what he envisioned the product looking like. After paying the designer a commission and setting up a royalty payment schedule—the designer gets a cut on each unit sold—Fat Brain Toys still had a lot of decisions to make. What to make it out of? How to find a manufacturer that could make it? How to price it?
"We knew we had to find the right combination that provided the consumer with the appropriate amount of play value at the right price, and at a price point that would allow us to achieve healthy margins as well," Quam says. Internet technologies play a crucial role in the process, from the retailer finding a key supplier through a web portal to using Skype for frequent conversations with overseas partners.
Studying the technical drawings, Fat Brain Toys decided the best material to make Squigz—a toy comprised of differently shaped, pliable units that flex and stick to surfaces and each other with suction—was high-grade silicone rubber. The retailer had never used silicone to manufacture a toy before and quickly learned that the manufacturing process for it can be costly. Molds used to shape a silicone product don't last long because silicone is injected into a mold hot and then cools down, which shortens the mold's lifespan. Fat Brain Toys learned about these nuances, Quam says, in talks it had with a silicone manufacturer it met through Alibaba.com, the business-to-business web portal owned by Alibaba Group Holdings Ltd. that helps connect companies with manufacturers in China, where most of the retailer's toys are made.
Quam says the retailer got deep into negotiations with the manufacturer but ultimately couldn't reach an agreement on pricing. "The product was outpricing itself very quickly," Quam says. After that setback, it wasn't until Carson and Quam had a meeting with a manufacturer at the American International Toy Fair in New York in September 2012 that they tried again. Quam says they had a prototype of Squigz with them and the China-based manufacturer—who does double-duty as a sourcing agent and who Carson and Quam knew from previous projects—said he wanted to try finding manufacturers in China that could meet Fat Brain Toys' price and quality requirements.
How it happened: Fat Brain Toys and the agent found a manufacturer that met the retailer's requirements and development quickly shifted into high gear. The retailer e-mailed the technical specs and computer-aided design (CAD) drawings to the agent, and shipped a primitive prototype. The manufacturer's three full-time engineers then began to interpret and refine these with Fat Brain Toys through numerous phone and web conference calls on Skype. "This is where the multitude of e-mails begins," Quam says. "'Do you like this?', 'What if we tried a different angle at the base?' These are communicated in the form of CAD drawings and photos."
Quam, who has worked in toy development since 1997, says being able to use web technologies to communicate with overseas suppliers has cut development time significantly. "Lead times have definitely been cut back," he says. "You are able to see photos and renderings instantly now." Manufacturing lead times haven't changed as much, he says, but he hopes that developments in manufacturing technology, such as 3-D printing, might shorten that in the future. "If we can cut that process down we could not only save time but money as well." An emerging medium for manufacturing, 3-D printers "print" goods based on digital models to create solid objects.
Once Fat Brain Toys and the engineers agreed on a design, the production specs were relayed to the manufacturing plant, which made test molds and produced 75 pieces of each of the eight Squigz shapes. Those arrived in Nebraska about six weeks later, Quam says, declining to name Fat Brain Toys' agent or manufacturing facility for competitive reasons.
Fat Brain Toys' staff tested—read: played with—the samples, noting what they wanted to improve. For example, it wanted to make louder the "pop" noise the Squigz pieces make when being pulled apart, so it had the agent's engineers rework the thickness of the product's rim. Quam says Fat Brain Toys and the agent swapped CAD files and e-mails nearly every day to keep on top of the development process.
As the product went into production, Fat Brain Toys again worked with the agent to find sources to make the product's other elements. The 50-piece version of Squigz, for example, comes in a plastic blow-molded container that children can suction the pieces to. That's made by another manufacturer (and went through the same design-and-refine process with CAD, e-mail and Skype calls before Fat Brain Toys gave it the green light), and the instructions are printed by another. Those firms ship their portions to the agent's manufacturing center, where the finished product is assembled and shipped to Fat Brain Toys.