Malibu-based toy company JAKKS Pacific is expected to conclude a restructuring process at the end of the year that began with layoffs over the summer, according to the company’s 3rd-quarter financial report.
The restructuring followed disappointing 2nd-quarter results for the Malibu company, which cited broad problems in the toy industry for the losses. While the company is one of Malibu’s largest employers, a City of Malibu official did not anticipate the struggles would have an impact on the city.
Tough times in toy industry
Founded in 1995 by Malibu residents Jack Friedman and Stephen Berman, JAKKS Pacific occupies most of The Enclave, the curved-top bank of office suites terraced up a hill along Pacific Coast Highway across from the pier.
The company’s early growth was marked by a dozen acquisitions of companies that manufacture toys and import them from the Far East. Toys as varied as Fun Noodle swimming pool toys and designer kites wound up in the JAKKS family as the company tried to diversify from the types of toys and games sold mostly at Christmastime.
But with the onset of the digital era, many toy companies are dealing with a changing market for toys. Children, once satisfied with simple action figures, expect more from the modern toy. Grill said that kids are “increasingly turning to smart devices for play and entertainment.” In order to compete, Grill said JAKKS has started to “cater to kids’ growing interest in digital play.”
Augus Harjoto, Associate Professor of Finance at Pepperdine University, agreed it was important to follow this market trend.
“If they don’t continue to follow the trend, they’ll experience loss,” Harjoto wrote in an email to The Malibu Times. “I believe the company was slow reacting to changes in the demand for their action figures that have become obsolete.”
2nd quarter downturn
On July 17 the company announced it lost $46.9 million in the second quarter, after posting a net income of $214,000 the year prior. After drastically revising its full-year revenue and earnings forecast, the company’s stock price fell 39 percent. JAKKS suspended its quarterly dividend and announced a restructuring plan to cut costs.
The restructuring resulted in a “substantial reduction of leased space … [and] other overhead expenses,” according to the 10Q report.
The company declined to release how many employees have been laid off, but acknowledged some were laid off in Malibu.
JAKKS Pacific employed 828 people worldwide at the end of February, according to the Wall Street Journal. The company currently employs 102 people at its headquarters in Malibu, spokesperson Anne-Marie Grill said Tuesday in a telephone interview.
The restructuring contributed to a rebound in the third quarter, when the company reported a net income of $36.6 million, compared to $30.4 million during the same period in 2012.
Effect on Malibu?
Most of the 102 employees who work at JAKKS’ Malibu headquarters live outside the city and commute to work, according to Grill.
A City of Malibu report in October listed JAKKS as one of its 25 top sales tax revenue contributors among local businesses. Most of the other revenue generators were gas stations and restaurants. Assistant City Manager Reva Feldman said the city could not reveal how much tax revenue JAKKS generated for the city.
“My assumption with JAKKS Pacific is they take orders and generate and work through their location in Malibu. And then their sales tax is owed in Malibu,” Feldman said. “But I’m not sure how that works.”
Feldman said the loss of any workers who spend money on gas, restaurants and retail establishments in town is not desired, but she was unsure of the total effect on city tax revenues.
“[Are potential layoffs] a significant impact on the city? We have 15 million [annual] visitors so I don’t know,” Feldman said. “On the other hand the city would like to be able to keep as many businesses as it could, whether it’s five employees or 50 employees.”
The Future
Heading into 2014, JAKKS has expressed excitement about their new development, DreamPlay Toys LLC. This joint venture, between JAKKS and NantWorks LLC, aims to combine “digital content with the physical product.”
Such continued sales are crucial to the company’s health since “JAKKS’ main challenge is to make up their losses in revenue in their fourth quarter (Nov. and Dec.) given their current products that are already in the market,” Harjoto said. Although this may prove difficult, “seasonality is an important factor for JAKKS (and any toy company),” and sales have traditionally increased during Thanksgiving and Christmas time, Harjoto said.