The BCA Line

BIG JAKK ATTACK

A doll company can come out of nowhere to become an overnight sensation. This is one.

By Ann Marsh

UPSTART TOYMAKER JAKKS PACIFIC OWES A lot to a tough-guy wrestler named Stone Cold Steve Austin who stomps his opponents on TV after shouting them down with his signature insult, "And that's the bottom line, 'cause Stone Cold said so."

Little boys love it. So do little girls and grownups. Enough of them that the World Wrestling Federation airs seven hours of nightly programming every week on USA Networks and UPN. That's all the advertising Malibu, Calif.-based Jakks Pacific (No. 8) needs to peddle more than 50 million grimacing plastic action figures and related toys based on Stone Cold and his fellow superheroic marauders.

Jakks, founded only four years ago, has hit on a solid growth strategy: It ties its fortunes to big names like the WWF through clever licensing. Jack Friedman, Jakks' cofounder and chief executive, was the first to make wrestling action figures, back in the early 1980s, as president of LJN Toys. After a lackluster foray into videogaming, Friedman, now 60, decided to give wrestling toys another whirl with cofounder Stephen Berman, 34.

The two met at a fitness company Berman owned in Woodland Hills, Calif. Once they'd become friends, Friedman goaded Berman, "Is this really what you want to do for the rest of your life?" The two started Jakks in 1995 with a combined $1 million in savings. Friedman negotiated a 14-year WWF license, then leveraged his manufacturing connections in China to cut deals with turnaround times of 30 to 40 days. "We make to order," Berman boasts.

They seem to have pinned that market. Wrestling action figures and related products account for more than half of Jakks' sales, which hit $85 million last year, a 103% increase over 1997. Earnings per share jumped 70% to 89 cents. Sales could grow another 70% this year, which would make Jakks the fifth-largest toy company in the U.S.

Friedman and Berman promised the WWF that it would be their first priority. But they've also nailed down licenses with lots of other big names. There are die-cast race cars, thanks to the National Hot Rod Association and the Indianapolis Motor Speedway; toy fishing rods, courtesy of a deal with sports equipment company BASS; a construction worker outfit for boys (hard hat, plus matching tool belt) emblazoned with the Caterpillar logo; child education and infant toys; knockoff Barbie dolls that sell for less than half of Mattel's price.

The licensing fees Jakks pays to outfits like the WWF are pretty standard--8% to 12% of wholesale prices--but, thanks to those wrestling shows, it can get by with a tiny ad budget. That, plus the fact that big retailers like Wal-Mart, Toys "R" Us and Kmart get shipments directly from Jakks contractors in China, keeps wholesale prices lower than those on comparable Mattel or Hasbro toys. Berman claims that big retailers pocket an average 35% gross margin on Jakks dolls, and as low as 12% on popular Mattel items. That cozy arrangement helps explain how a new toymaker could become an instant success.

Diversifying its portfolio, Jakks has acquired Road Champs, which sells die-cast toy cars, and Remco, which makes educational toys. These deals were paid for with money raised through a private equity placement in 1997. Investors like Jakks' appetite; the stock closed at a recent $41.25, up from $7 a share a year ago.