JAKKS Pacific BUS599 Module 1

1. Introduction
Founded by Jack Friedman, JAKKS Pacific “designs, produces, markets and distributes toys and related products, pet toys, consumables and related products, electronics and related products, kids indoor and outdoor furniture, and other consumer products” (Reuters, 2018). The company’s current CEO is Stephen Berman. Being a licensee to a number of well-known trademarks including, but not limited to, Nintendo and Star Wars, JAKKS Pacific remains a key player in the toys and related products marketplace.
2. JAKKS Pacific Vision and Mission
The mission statement of the company highlights three areas of relevance – the development of products that not only bring about fun, but also encourage interaction and promote learning. The mission of the company is stated as:
“JAKKS engages children in creative play with products that encourage learning and interaction, and most importantly – fun!” (JAKKS Pacific, 2018).
The company’s vision statement, in addition to indicating the entity’s ambition, also provides a framework for its strategic planning. Towards this end;
“JAKKS seeks to be a billion dollar company through organic growth of its core product lines, dynamic partnerships and strategic alliances, as well as through strategic and accretive acquisitions” (JAKKS Pacific, 2018).
The relevance of a clear vision and mission statement such as the one highlighted in the case of JAKKS Pacific cannot be overstated. The two statements above define the core business of JAKKS Pacific and state some of the company’s objectives and how it is likely to achieve them. The clear and concise nature of the declarations is in this case laudable.
3. Current Performance
3.1. Revenue
The revenues of JAKKS Pacific have been on a sustained decline within a three year period. With the company having registered a figure of 810 million as total revenue for the year 2014, the most recent financial data available indicates that the company posted revenues of 707 million in 2016. This represents a 12.7% decline (see figure 1.1). It is also important to note that over the last three years, the company has seen its share price sliced by more than half.
Figure 1.1: JAKKS revenues from 2014-2016
3.2. Debt to Equity Ratio
The company’s debt to equity ratio has also not been impressive over the last three years. This ratio, according to Moyer, McGuian, and Rao (2017), “measures the proportion of a firm’s total assets that is financed with creditors’ funds” (p. 78). During the three year period under consideration, the company’s debt-to-equity ratio stood at above 1. This, in essence, means that most of the assets of the company were funded using debt. Although a high debt to equity ratio is not necessarily a problem in some instances, in the case of JAKKS Pacific, the ratio raises eyebrows. This is more so the case given that prior to the three years under consideration, the company had maintained the said ratio under 1 (see table 1.2.). The increase in the ratio at a time the profitability of the company is suffering and its share price declining makes the company financially unstable. At this point in time, most creditors would find it risky to fund the company, effectively exposing the company to further decline.
Figure 1.2: JAKKS Debt to Equity Ratio from 2011-2016
4. Analysis of the Business Environment
In seeking to define and develop the appropriate strategy in any marketplace, the relevance of analyzing the business environment in which one operates cannot be overstated. This way, a business can measure a specific strategy’s chances of success. The best way to analyze JAKKS Pacific’s business environment would be through Porter’s Five Forces.
4.1. Competitive Rivalry
Some of JAKKS Pacific’s main competitors include, but they are not limited to, Mattel Inc., Hasbro Inc., and Marvel Entertainment, LLC. Mattel Inc. is the most dominant player in the toys market. One of its most popular products is its top seller, a fashion doll by the name Barbie (Mattel Inc., 2018). Other of its top sellers includes Matchbox Cars and Polly Pocket dolls. It is important to note that just like is the case with JAKKS Pacific, Mattel Inc has within the last the three years experienced a decline in sales, from 6.02 billion in 2015 to 5.43 billion in 2016. This represents a 9.42% slump (Mattel Inc., 2018). Hasbro Inc., on the other hand, occupies the number 2 slot in the toy market, after Mattel Inc. Some of its most popular brands are My Little Pony and Transformers. Like Mattel and JAKKS, the company also works with Disney in the production of some of the entertainment corporation’s brands (Hasbro Inc., 2018). Unlike its two main competitors, JAKKS and Mattel, Hasbro’s financials over a three year period have been impressive. The total revenue figure for the company in the years 2014, 2015, and 2016 was $4.3 billion, $4.4 billion, and $5.0 billion respectively. This represents a revenue growth of 17% over the three year period. Lastly, we have Marvel Entertainment Inc. The company has managed to protect its market share over time, thanks to some of its character’s marketability – with some of the best sellers in its stable being the Incredible Hulk, Spider Man, and Iron Man (Marvel Entertainment, 2018). The company also has a significant market share of the Commic Books Publishing Market.
From the analysis above, it is clear that JAKKS Pacific faces worthy competitors. However, the fact that the company makes a wide range of entertainment items for kids, including kids’ indoor and outdoor furniture, means that it does not face an immediate threat from competitors. Also, being a licensee to a number of popular trademarks including, but not limited to, Nintendo and Star Wars, JAKKS Pacific is still a key player in the toys and related products marketplace – despite the competitive nature of the said market.
4.2. Supplier Power
In essence, toys comprise of many parts and features. Further, there are numerous suppliers for the said parts. This effectively means that no single supplier occupies a dominant market position or is powerful enough to make switching costs prohibitive.
4.3. Buyer Power
This particular industry has low buyer bargaining power. This is more so the case given that traditionally, the toys market has had numerous distribution channels through which companies like JAKKS can offer their products for sale (Hill and Jones, 2012). Further, the fact that consumers (i.e. children) are not the actual buyers, but demanders, makes this market insensitive to minimal price changes. It is parents who execute the purchase of their price-insensitive children.
4.4. Threat of Substitution
It is important to note that customers in this particular market are an interesting lot – in that they demand specific products. For instance, a child who wants an Iron Man is not likely to settle for some other similar product. The threat of substitution in this case is therefore mild. Licensing deals, such as the one Disney has with some of the key players further reduces this threat.
4.5. Threat of New Entry
The risk of potential competitors gaining entry and slicing away a portion of the market is minimal. This is particularly the case given the significant consolidation in the toy market. Thanks to economies of scale, the key players in the market are able to maintain competitive process and still make a profit. A new entrant would find it difficult to sustain such a pricing structure. The brand loyalty associated with this industry, whereby children demand specific characters, is also likely to discourage a new entrant from making forays into the said market.
5. Internal And External Analysis
In seeking to determine the nature of JAKKS competitive abilities and whether the company ought to adopt a new strategy, it would also be appropriate to evaluate its internal strengths and weaknesses, while at the same time highlighting some of the threats and opportunities the company ought to be aware of.
5.1. SWOT Analysis
5.1.1. Strengths
One of the key strengths of the company is a diverse range of products. In addition to kids’ indoor and outdoor furniture, the company also has in its inventory various action figures and dolls. This ensures that the company does not depend on a single revenue stream. The fact that the company has licensing agreements with a number of top trademarks (such as Nickelodeon) is also strength.
5.1.2. Weaknesses
From its income statement, it is clear that the company’s spending on the research and development cost is minimal in comparison to that of its competitors like Mattel. This could get in the way of the company’s innovative abilities. The company has also kept some of its products running even when the feedback received from the market indicates they are obsolete. This is the case with a number of the company’s plug-and-play games.
5.1.3. Opportunities
There are expansion opportunities within the industry, i.e. comic book publishing. These would offer the company protection against any volatility in its primary market. The company could also revamp its plug-and-play games segment by introducing some offerings that could appear to the current generation of young gamers. Wii is one product the company could learn from in this endeavor.
5.1.4. Threats
In the plug-and-play games segment, the company would have to contend with major players such as Sony. It is also important to note that expansion into the international markets is likely to be complicated by the infiltration of entities offering low quality counterfeit products.
6. Recommendations
The decline in the company’s profitability over the last three years is a worrying factor. This is more so the case given that the company’s relatively high debt to equity ratio, as has been highlighted earlier on in this text, may complicate the company’s access to finances to pursue revenue generating activities. From the look of things, some of the company’s products have lost popularity – effectively having a downward pressure on its bottom-line. As it has been pointed out in the weaknesses section of the SWOT analysis, some of the company’s plug-and-play products are largely obsolete. Further, other like Monsuno and Pokemon continue to lose popularity. Combined with the company’s poor showing on the R&D front (as has been highlighted in the weaknesses section of the SWOT analysis), this makes the company ineffective in the development of new products as the old ones become obsolete. Therefore, the company ought to revamp its innovative team and seek to spend more in the determination of what the market wants.
Also, to save its sales from further decline, the company should enhance its online presence. As it has been pointed out elsewhere in this text, the toys market has had numerous distribution channels through which companies like JAKKS can offer their products for sale. Enhancing its online presence on the sales front would make JAKKS further expand its reach while effectively reducing its overreliance on these brick-and-mortar channels of distribution. The company could also, in addition to enhancing online orders, also implement its own catalog.
To limit its exposure to occasional shocks in the market, mostly as a result of decline in the level of economic activity, JAKKS ought to diversify its operations into other areas within the same market. The company could for instance consider entry into comic book publishing. In this market, its biggest competitor would be Marvel Entertainment which at the moment controls 40% of the said space. With the right marketing strategy, JAKKS could manage to compete efficiently in this arena, in a move that would see the company spread out to eliminate overdependence on a single revenue stream, i.e. from licensed products – in which case a product from a licensing deal, the Taylor Swift doll, recently failed to excite the market. Expanding into other segments could insulate the company from such occurrences. In recent times, the company has brought into its stable children skin care and cosmetic products, in a move that could see the company further enhance its bottom line. Towards this end, and true to its mission statement, JAKKS Pacific acquired C’est Moi, which is a well-known and respected child makeup (for performances) and skincare products maker (Business Wire, 2016). To a casual observer, the move does not seem to be of much significance from a strategic point of view. This is more so the case given that makeup/skincare products seem incompatible with toys. However, it is important to note that the target market for both products in this case remains the same, i.e. children. Therefore, with the acquisition, the company essentially expanded its market.




References
Business Wire. (2016). JAKKS Pacific Acquires C’est Moi™ Professional Skincare and Performance Makeup Brand. Retrieved from https://www.businesswire.com/news/home/20161017005224/en/JAKKS-Pacific-Acquires-C%E2%80%99est-Moi%E2%84%A2-Professional-Skincare
Hasbro Inc. (2018). Hasbro: Brands. Retrieved from https://www.hasbro.com/en-us/
Hill, C. & Jones, G. (2012). Strategic Management: An Integrated Approach (8th ed.). Mason, OH: Cengage Learning.
JAKKS Pacific. (2018). Jakks Pacific. Retrieved from https://www.jakks.com/
Marvel Entertainment. (2018). Marvel. Retrieved from http://marvel.com/
Mattel Inc. (2018). News Room. Retrieved from https://news.mattel.com/
Moyer, R.C., McGuian, J.R. & Rao, R.P. (2017). Contemporary Financial Management (14th ed.). Belmont, CA: Cengage Learning.
Reuters. (2018). JAKKS PACIFIC Inc. (JAKK.O). Retrieved from https://www.reuters.com/finance/stocks/financial-highlights/JAKK.O