Irwin Toy Limited Business Information, Profile, and History

History of Irwin Toy Limited

Based in Toronto, Irwin Toy Limited is a leading Canadian developer, manufacturer, marketer, and distributor of toys. Irwin sells its own products and the goods of foreign companies, under license, to toy dealers in Canada, which accounts for about 90 percent of company sales. It also licenses its products to foreign companies and sells some products directly to the United States. In the mid-1990s the family-operated company was working to significantly expand its presence in the giant U.S. toy market.

Although Irwin Toy was not incorporated until 1954, the company's beginning can be traced to the 1920s. It was 1926, to be exact, when Samuel Irwin started a small business selling souvenirs out of his home. He eventually built up a healthy enterprise selling wholesale souvenir items to retailers. In 1949 Irwin handed the relatively small venture off to his two sons, Arnold and MacDonald (Mac). Under their tutelage the company became engaged in the toy wholesaling business. Indeed, they began adding toys to the souvenir lines during the 1950s, and by the 1960s were selling an array of traditional toys and sporting goods like baseball bats and balls, dolls, and arts and crafts items.

Throughout the 1950s and 1960s Irwin remained a completely family-owned business. The company enjoyed healthy sales gains during the postwar baby boom of the 1960s. In fact, the company's toy sales eventually surpassed revenues from souvenirs. Arnold and Mac recognized that the growing market proffered potentially lucrative opportunities. Their relatively small company lacked the resources, though, to fully take advantage of thriving markets. So in 1969 they decided to take the company public. Their goal was to raise funds for expansion without giving up control of the company. That and subsequent offerings helped Irwin to became a dominant player in the Canadian toy industry. The Irwin family maintained ownership of more than 50 percent of the company and continued to do so into the mid-1990s.

In addition to injecting growth capital into Irwin Toy, the 1969 initial public offering succeeded in starting an engaging tradition for which the company became known. At the first annual shareholders meeting after the company went public in 1969, Arnold Irwin noticed a man and his six-year-old daughter sitting in the audience. After the meeting, Irwin went down to speak with the pair and to find out why the man had brought his daughter to the meeting. The gentlemen turned out to be the senior financial officer of Imperial Oil. He had purchased shares of Irwin for his daughter as a way to get her interested in business. "The newspapers reported that and the child shareholders situation just grew from there," Arnold recalled in the October 1984 issue of Executive. "The company never did anything to encourage it." Parents throughout Canada began buying Irwin shares for their children, and the annual shareholders meetings were soon packed with kids. Youngsters regularly accounted for about half of the audience, making for some interesting meetings. "One young lady wanted to know why she couldn't be a director," Arnold remembered about one gathering. "She was quite disappointed that, at her first annual meeting, she wasn't proposed to the board."

Following the stock sale and throughout the 1970s Irwin's toy business surged and the organization established itself as one of Canada's top toy companies. Irwin diversified during the decade, adding a wide array of toys to its lineup. It also became involved in other businesses. Its Irwin Specialties division, which was founded by Samuel Irwin in 1926, was selling about 5,000 different souvenir items. The Irwin Sports division marketed Rawlings sporting goods, and a unit dubbed Irwin Leisure sold lawn furniture and barbecue grills and gear. By the late 1970s Irwin was generating a fat C$50 million annually in sales from its diversified operations; about 75 percent of that revenue was attributable to the import, manufacture, packaging, advertising, and distribution of toys. The company was primarily manufacturing goods that had been developed in foreign countries. Profits at the end of the decade were in the C$1 million to C$2 million range.

Although Irwin had racked up heady gains during the 1970s, its period of greatest growth would come during the early 1980s. Indeed, between 1980 and 1983 Irwin's revenues rocketed to a whopping C$120 million annually. The reason for the rapid rise was Irwin's entrance into the burgeoning home-video game market. In 1980 Irwin sought and won the license to sell the California-based Atari home-video line of game products to the Canadian market. The license was a major victory for Irwin at the time because Atari was a smash hit. Sales across North America exploded during the early 1980s and Irwin watched its sales and profits climb to record levels. It seemed as though everybody with children owned an Atari system or knew someone who did. Sales in Irwin's toy division more than doubled within three years. To keep up with the growth, new staff was added and distribution capacity was increased. By 1983 Irwin was churning out a hefty C$5.1 million in profit annually.

The Atari fortunes were short-lived. In the mid-1980s other companies began offering their own video games to compete with Atari. As competition intensified, prices dropped. The price of the Atari system plunged from $220 to just $50 within a few years. Atari, as well as distributors like Irwin, were left holding the bag. To make matters worse, Atari was owned at the time by Warner Communication. Warner managed Atari poorly and severely overestimated demand. "So they ended overproducing the product, and all of a sudden it came to a dead end.... We took a pretty good rap on that one," Arnold Irwin recalled in the October 1988 issue of Canadian Business. "It's what happens when you're a $60-million company but start to believe you're a $120-million company. We were victims of our own success."

The Atari debacle forced Irwin to post its first net loss in seven years when, in 1985, it endured a $2.6 million deficit. Atari scrambled to replace lost revenues and to shore up losses. It reemphasized its leisure products, textile, and sporting goods lines and began chasing new growth opportunities in its core toy business. In fact, during the early and mid-1980s Irwin had realized several breakthroughs in its toy division aside from Atari. Importantly, Irwin attempted its first toy development venture. In 1984 Mike Bowling, a 20-year veteran of the Ford assembly line in Cincinnati, had an idea for a new toy--a doll of a wrinkled mutt packaged as a Humane Society foundling.

He brought the idea to Irwin, which dubbed the toy the Pound Puppy and sold the doll complete with adoption papers and instructions for care and handling. It was the first toy Irwin had developed in-house. Sales were slow at first, but by 1987 the line had been expanded to include five models that were ringing up sales of $8 million annually in Canada. Furthermore, in the United States, where Tonka had purchased the license to sell the toy, Pound Puppy shipments topped $150 million, of which Irwin kept between four and eight percent. Over a period of five years Pound Puppy generated sales of $300 million in 35 countries.

Thus, Irwin launched an important new profit center during the mid-1980s: product development. Among other efforts, in 1985 Irwin developed and started marketing a toy called Zaks (Ziegler's Animated Konstruction System). Zaks was invented by Calgary designer Jim Ziegler. Ziegler approached product manager Dave Irwin with his concept. In fact, Ziegler had built a virtually complete product that had required about $75,000 of his own money. Dave called on his brother George, and the two Irwins decided to give the toy a shot. Zaks was a hit during its first Christmas season, and Irwin was able to quickly sell licenses to companies in the United States and Australia. Other successful product development efforts at Irwin during the mid-1980s included Yawnie, a doll with a gaping mouth, and My One and Only, which was a line of guy dolls marketed to young girls as a sort of fantasy boyfriend.

The success of Irwin's product development initiative provided an important boost to the company during a rough period. In fact, besides the Atari setback, Irwin was reeling from the loss of its contract to manufacture and market toys in Canada for Kenner Parker Toys Inc. of the United States. Prior to 1986 Kenner Parker toys had represented as much as half of Irwin's total annual toy sales. When Kenner ended the agreement in 1986 and bailed out of Canada, Irwin was left with a gaping hole in its toy business. Proprietary products helped to fill the void. Irwin managed to squeeze out a thin C$636,000 profit in 1986, despite the fact that sales had crumbled to just C$66.5 million. Sales careened back up to C$81.7 million in 1987 and then to a healthy C$93.7 million in 1988, about C$1.8 million of which was netted as income each year.

Although the mid-1980s were brutal for Irwin, management would later credit the difficult period with making it the successful company that it would become during the late 1980s and early 1990s. Having learned from the Atari and Kenner experiences, Irwin was able to avoid the pitfalls many other toy manufacturers encountered and to post relatively steady sales and profit gains in a notoriously volatile industry. Assisting Irwin Toys to success during the 1980s was the third generation of Irwins to fill the executive ranks. Of import was George Irwin, Mac's son. George, who had originally pushed for Irwin to branch out into product development, had started working for Irwin part-time in the 1960s. After getting his degree in economics from the University of Western Ontario, he started full-time in 1971 as a retail person; he visited stores and counted inventory. After stints as a territorial salesperson and product manager he became a vice-president in 1983. Other Irwins who eventually joined the executive ranks included George's uncle Bryan and cousin Scott.

Irwin sustained steady sales and income growth during the late 1980s. Revenues peaked at about C$95 million in 1990 while net income climbed to C$3.1 million. The gains were partly the result of successful new product introductions. One example was The Twins, a pair of electronic dolls that giggled when they were together and cried when they were apart. In 1991 George was elevated to president of the company. The promotion came just as the economy was diving into a recessionary slump. Sales dipped slightly but surged in 1992 and 1993. In fact, in 1993 (fiscal year ended January 31) Irwin's revenues soared back to C$120 million, the same level at which they had been during the Atari craze. Again, the increase was attributable to the video game industry. Indeed, Irwin realized big gains as a result of sales of Sega video games (Irwin had signed an agreement in 1987 to represent Sega Enterprises of Japan in the Canadian market).

Just as it had in the mid-1980s, the bottom fell out of Irwin's video game business. Irwin actually decided to end the relationship with Sega because of the high risks and relatively low profit margins characteristic of the video game business. Instead, the new management team announced its intent to focus on more traditional toy industry segments and to try to increase its exposure in the United States. Largely because of Irwin's exit from the video game business, sales tumbled to C$76 million in 1994, only C$617,000 of which was profit. Coming to Irwin's rescue in 1994 and 1995, though, were the Mighty Morphin Power Rangers. Irwin won the Canadian license to market the Power Rangers, which became toy world's biggest hit since the Teenage Mutant Ninja Turtles. Irwin's revenues whistled up to C$111 million in 1995 (fiscal year ended January 31), a record C$6 million of which was netted as income.

Going into the mid-1990s Irwin Toy was emphasizing its toy business, although it was still engaged in sporting goods, textile, and souvenir businesses. In the sporting goods arena, Irwin marketed Cooper baseball products and Winnwell hockey gear. Most of the company's toys were manufactured overseas or licensed to other companies for production, although Irwin maintained a small plant in Toronto. Irwin-developed products were being marketed, usually under licensing agreements with other companies, in 35 countries going into 1995. Chief among the company's long-term goals was to boost the percentage of revenues attributable to U.S. sales from ten percent to 50 percent.

Principal Subsidiaries: Irwin Sports Inc. (United States).