Hunting and Gathering New Opportunities

In our early years, JAKKS Pacific depended on the top five toy retailers for 67 percent of our sales. While we knew that having solid relationships with these retail giants was key to our success, we also believed that complete dependence limited our growth potential. As part of our diversification effort, we set out to increase our distribution networks.

We’ve made significant progress: today, those top five toy retailers, which include Wal*Mart, Target, KB Toys, Toys “R” Us and Kmart, account for 55 percent of our sales. Through acquisitions, we have gained entry into other retail channels including discount stores, club stores, office and school supply outlets, drug and grocery stores, sporting goods dealers and online merchants, and through our innovative product design, we’ve expanded our shelf space within these new distribution points, as well.

Never satisfied, we have also pursued customer diversification through internal development efforts.

The most significant and recent example was our ability to turn someone else’s big idea—mint strip breath fresheners for adults—into an appropriate and highly desirable candy product for children. With the introduction of Tongue Tape™ in January 2003, not only did we gain additional shelf space with our major retailers, we believe we’ve also opened the door on new opportunities with convenience and grocery stores across the country. We also proved our innovative capabilities in a highly competitive new market segment.

Beyond opening up new retail channels within the United States, we continue to pursue international opportunities. Through our 2001 acquisition of Kidz Biz Ltd., a leading United Kingdom toy distributor, we gained a foothold for expansion in Europe. Similarly, our agreement with Funtastic Limited expands existing opportunities for us to distribute our products in Australia and New Zealand. Despite volatile global markets in 2002, we made marked progress in our plans for international expansion—progress we believe will continue in the coming years.

As we evaluate and work to proactively identify new growth and diversification opportunities, accessing new retail channels will continue to be a key priority.

Products featured in the Autumn section: Tongue Tape™, Dora the Explorer™ Activity Suitcase, SpongeBob SquarePants™ lunchbox, The Storm™ plane, Creepy Crawlers® Bug Making Oven, Hello Kitty® cell phone, Fireworks® Glitterz® Pencils, UltraColor™ markers and a SpongeBob™ notepad.