Yahoo Finance’s Alexis Christoforous and Brian Sozzi discuss Build-A-Bear earnings and toy industry outlook with The Toy Insider Senior Editor, James Zahn.
BRIAN SOZZI: It was a tough quarter for Build-A-Bear. The company posted a second-quarter loss, as it felt the impact of COVID-19-related store closures. At the same time, the company is set to unveil tomorrow its new Harry Potter line that should bode well for the toy seller.
Let's bring in The Toy Insider senior editor James Zahn. James, always good to speak with you here. Listen, is there a place in the mall for a Build-A-Bear?
JAMES ZAHN: There is, because malls are still a fun destination for families. As they're reopening, of course, there's a lot of different opinions on how these places are going to evolve into entertainment spaces. And Build-A-Bear has been pioneering that for years. Kids love it. It's a magnet.
But beyond the mall stores, there is a space for all this external licensing that Build-A-Bear is getting into. Not only are they bringing in licensed products from outside, but they're also putting the Build-A-Bear brand into stores like Walmart, with premade kits and different things. They just did a deal with a company called Create-On for these little magnet tiles. So there's some opportunity out there for Build-A0Bear to expand beyond what we know them as.
ALEXIS CHRISTOFOROUS: Yeah, you've got the Harry Potter line coming out as well, which can certainly help. But I've got to get to this Squishmallow. And Baby Yoda Squishmallow, I understand you have it. We need to see it, James.
JAMES ZAHN: So yeah, so switching gears from Build-A-Bear to another plush company, Kelly Toy has this line called Squishmallows. And they have sold more than 55 million Squishmallows in a variety of different characters, about 500 characters. And starting September 24, exclusively at Walgreens, you can get a child.
ALEXIS CHRISTOFOROUS: Aw, he's adorable.
JAMES ZAHN: Baby Yoda-- this is a 10-inch plush. And he is so adorably squishy. And you can hug him like a pillow. And these sold out. The presale online, they sold out in less than 48 hours this week.
So there is a huge demand. And this is unique, because Squishmallows are available at a multitude of different retailers. You can get them at independent stores, gift shops. But even the big mass retailers, like Costco and stuff, are carrying them.
But this is a licensed Squishmallow, which is something new for them as well. Kelly Toy was acquired by Jazwares back in April. So you're going to see the Squishmallows brand expanding. And it's making a-- it's making an impact at the register. But this little guy here, September 24-- he's going to be, I think, under a lot of trees this holiday season.
ALEXIS CHRISTOFOROUS: I think so. You're really-- I want to squish that little guy. First off, two questions for you. How much does it retail for? And are you surprised Walgreens of all places stepping in here with this licensing deal?
JAMES ZAHN: Yeah, so $12.99-- so this is a very affordable toy. It's an awesome, good quality toy. Really just showing it doesn't do it justice, because they really have a distinctive texture. It's like a proprietary material.
But as far as Walgreens goes, they have been upping the toy game the last couple years. They've been building out a toy aisle that is filled with exclusive products. They've got deals with Mattel and Hasbro for different things, and now Kelly Toy. They've been stocking the Squishmallows. And now they're the first to debut the Star Wars Squishmallows, which is under license from Disney and Lucasfilm.
BRIAN SOZZI: Yeah, I-- obviously, I don't know this one for sure, but I suspect gross profit margin on that doll about 99.9%. But James, I do want to ask you about toy shortages. We're seeing right now-- and I'll point to appliances, as it may be a good example.
A lot of factories in China not able to get products out of the factories. They're either not open or not up to capacity. How is this holiday season shaping up for the toy industry?
JAMES ZAHN: Toys are in pretty good shape. A lot of the product has already shipped, which is important because, again, these orders are always placed far in advance. The factories for the toys are up to mostly capacity, which they have been for a couple months.
What we have seen a little bit of, too, is that some of this stuff, the production has moved a little bit beyond China. So we've got stuff coming out of places like Vietnam and Malaysia and whatnot. So we're in pretty good shape on the toys. Those shortages we talked about around toy fair season never really came to be. But on the same time, there are some instances, too, where specific retailers may fare better than others because of how those shipments have landed, essentially.
BRIAN SOZZI: And James, I was thinking, I was driving past where my former Toys"R"Us used to be. Is there a place for a toy store. Especially in this type of environment where we all need a break, there's really no place to get toys other than Target. It's just not the same experience.
JAMES ZAHN: There is a place for a toy store. And I think eventually, someone will step up and fill that gap. Of course, we know the folks at Toys"R"Us are trying. They opened two stores last fall. And, of course, the COVID hit just four months later. Couldn't have opened a new store at a worse time.
And then you've got a company called CAMP. They're experiential retail. They've got five locations. They started there in New York City-- very cool stores that are a destination because of all the other experiential aspects that they offer. They've kind of changed the game by partnering with Walmart to bring store experiences to those stores this summer.
And then you've still got looming interest from basically overseas. Hamleys, which is a legendary UK toy store, they've gone through some issues as well. They're owned by Reliance now out of India.
They're still looking at the possibility of entering the US market, which has been talked about for a couple years. And they're still thinking about it. And they were talking about it more before COVID hit. So we might see that happen.
And then, of course, FAO Schwarz. They have one store back open in New York. Families love it when they go there. They have flagship locations in other countries. Basically, I think had the pandemic not hit us this year, we would have seen some other toy store start to gain some traction here.
And then we can't discount all of the thousands of independent toy stores across the country, as well as smaller chains, like Learning Express and the Hobby Towns and stuff, that really zero in on their local communities. And they serve these communities by being hyper-focused. And they tap into the schools. And they use the Facebook marketing and FaceTime and Instagram Live to connect with people and show off what's new and hot. So I think part of the future is going old school with it.
BRIAN SOZZI: All right, let's leave it there. The Toy Insider--
JAMES ZAHN: All right.
BRIAN SOZZI: --Senior Editor James Zahn, always good to see you. Really appreciate your product reveals live on Yahoo Finance. We'll talk to you soon.
JAMES ZAHN: Hey, thanks for having me. Bye.