Ty Inc. History

Company Perspectives:

Ty's philosophy has always been to create products of unique design, products of the highest quality, and to price these products so they can be easily affordable to children.

Company History:

Ty Inc. is a designer and manufacturer of stuffed toys. The company is best known for its 'Beanie Babies'--a series of small, stuffed animals, each with its own name. Beanie Babies, which are produced in limited numbers, have become a favorite of collectors, and hard-to-find models often command hundreds, or even thousands, of dollars in the secondary market. Ty keeps a low profile, with virtually no advertising or promotional efforts. It distributes its products only through specialty, card, and gift stores rather than through large chain retailers.

1985-94: Floppy Cats and Beanie Babies

Ty Inc. was founded by and named after H. Ty Warner, a forty-something eccentric who wanted to build a better stuffed toy. Warner, who was raised in a suburb of Chicago, was an old hand at the toy business by the time he started his own toy company. After graduating in 1962 from Kalamazoo College in Michigan, he became a salesperson for Dakin Inc., a San Francisco-based manufacturer of stuffed toys. Warner remained at Dakin for almost 20 years, building a successful career and a reputation for being flamboyant and eccentric.

In 1980 Warner left Dakin and the toy business behind to spend a few years in Europe. When he returned to the states in the early 1980s, it was with a plan. Using a $50,000 inheritance he had received in 1983, Warner established Ty Inc. and designed his first stuffed toy--a white Himalayan cat named Angel. The cat, which retailed for around $20, was purposely under-stuffed so that it could be manipulated into different positions and poses. Warner started making the rounds of specialty stores and gift boutiques to pitch his new product and met with success. He followed up with a whole line of Himalayan cats, each bearing a different look and a different name.

By the early 1990s, the Ty catalog featured several under-stuffed, floppy animals, most in the $10 to $20 price range. But Warner was thinking smaller. He wanted to create a quality stuffed toy in the $5 range--something that a child could afford to buy with allowance money. The result was the Beanie Baby, a $5, pocket-sized toy made of polyester plush and loosely filled with PVC pellets. Warner introduced the first nine Beanie Babies at a Chicago toy trade show in 1993. Each of the nine toys came with a short poem and its own name--Spot the Dog, Squealer the Pig, Patti the Platypus, Cubbie the Bear, Chocolate the Moose, Pinchers the Lobster, Splash the Whale, Legs the Frog, and Flash the Dolphin.

1994-96: Birth of a National Craze

In January 1994 Beanie Babies quietly went on sale in Chicago. Shunning advertising campaigns and large, national chains, Ty targeted smaller specialty and gift shops, a practice he had carried over from his years at Dakin. He explained how his Dakin experience had influenced his distribution decision in an interview with Forbes in 1996: 'That taught me that it's better selling 40,000 accounts than it is 5 accounts,' he said. 'It's more difficult to do, but for the longevity of the company and the profit margins, it's the better of the two.'

Early sales of the toys were good, but not astonishing. In the early summer of 1994, Ty increased consumer interest slightly by introducing several new Beanie designs. It also began expanding its sales territory to include the East and West Coasts, the South, and scattered locations throughout the rest of the country. Ty brought out new Beanie characters periodically throughout the year, and young customers began to look forward to adding the new introductions to their existing collections.

By the summer of 1995, the demand for Beanies was escalating, in large part because of their scarcity. As with toy crazes of the past--like Tickle Me Elmo or Cabbage Patch Dolls--Beanie Babies became hotly desired simply because there weren't enough of them to go around. The reason there weren't enough to go around was that Warner himself made sure of it. He began limiting the number of Beanies that each store could buy, allowing only 36 of each character per month. When stores sold out of a particular model, customers had to wait for the next month's delivery--which sometimes arrived on time and sometimes didn't. For the Beanie aficionado who desperately needed a certain character to complete his or her collection, the anticipation was almost unbearable--and the competition from other collectors was intense. Warner was proving a master at capitalizing on the age-old principle of supply and demand.

While Warner's inventory-limiting tactic would probably have created a stir on its own, it was his decision to 'retire' Beanie characters that delivered the coup de grace. In 1996, when Ty began announcing on its Web site that it would stop making certain creatures, it whipped the Beanie community into a frenzy. Collectors and dealers realized that some of the retired characters could become truly valuable. An extremely active secondary market sprang up, with buyers willing to pay outrageously inflated prices for the rarer Beanies. Some of the hardest-to-find characters commanded up to $6,000 in the aftermarket--more than 1,000 times their original selling price. Beanie fans began looking at their collections as serious investments.

The character retirements and the explosive growth of the Beanie aftermarket had an extremely positive impact on Ty's sales. Unsure of which Beanie might be retired next--and therefore become much more valuable--customers were determined to get their hands on all the characters. Stores that carried Beanies began to get hundreds of calls each day to find out which, if any, were available. Dozens of shoppers lined up outside on days when new shipments arrived. And stores that maintained Beanie Baby waiting lists routinely had more than 1,000 names of customers waiting to get the characters they wanted.

As Beanie fans proliferated, they built a whole network of information sources and events dedicated to their hobby. Dozens, if not hundreds, of individual Web sites were built to offer news, rumors, pictures, and descriptions of the growing number of Beanie characters. Beanie Baby fairs, swaps, and conventions held all around the nation gave devotees the chance to ooh and ahhh over each other's collections and to buy, sell, or trade the creatures. Hastily produced books and magazines appeared in bookstores, cataloging the various characters and their' estimated secondary market prices.

In the middle of all the frenzy, Warner and his company began to assume almost mythic proportions. Since Ty's inception, it had been something of a mystery. In the competitive toy business, where most companies did their best to out-advertise each other, its absence of blatant self-promotion was an anomaly. And the company's low profile wasn't limited to advertising. Warner kept Ty's headquarters in Oak Brook, Illinois, as insulated as possible, with no signage, no listed street address, and no listed telephone number. He rigorously avoided the media, almost never granting an interview, and forbade his employees to answer questions about him. This enigmatic approach inflamed the public's curiosity--and engendered myriad rumors and speculations about the company and its founder.

1997-98: New Products, New Distribution Channels

Ty continued to periodically introduce new Beanie characters and retire others. By early 1997, approximately 100 characters had been introduced and 25 had been retired. The company had experienced tremendous growth, quadrupling its employee count between 1995 and 1996. Although Ty was characteristically tight-lipped about finances, analysts estimated that its sales had grown from $25 million to $250 million during the same period.

In the spring of 1997, Ty made its first venture into conventional toy marketing when it teamed up with McDonalds for a Beanie Baby Happy Meal promotion. The five-week promotion, which began in April, offered one of ten Ty creations with the purchase of every McDonalds Happy Meal. The Happy Meal toys were smaller versions of the originals, and were called 'Teenie Beanies.' Explaining why he decided to partner with McDonalds, Warner cited the promotion's potential for reaching new markets. 'We really did it to expand our product to children who wouldn't be shopping in upscale shopping malls,' he said in a 1997 interview with Reuters Business Report. 'We saw McDonalds as the best avenue to get these kids to see them.'

Ty finished 1997 with an estimated $400 million in sales and a demand for Beanies that showed no signs of abating. Just to be sure, however, Warner unveiled a new initiative designed to rekindle any flagging consumer interest. In early 1998, Ty partnered with Cyrk Inc., a Massachusetts-based promotions company, to develop the 'Beanie Babies Official Club.' Simultaneously, Warner made a $10 million investment in Cyrk, which gave him approximately seven percent ownership in the company.

Beanie Baby mavens who wanted to join the official club had to buy a $10 membership kit at one of the specialty stores that carried Ty products. The kit included various Beanie paraphernalia, such as a character checklist, a membership card and certificate, stickers, and a newsletter. Once enrolled in the club, members were eligible to order special Beanies that were produced exclusively for the club and were not available in stores. Members also received periodic newsletters, access to password-only sections of the Ty Web site, and 'top secret news and info about Beanie Babies and authorized Ty products.'

In late 1998 Ty attempted to build on the success of the wildly popular toy by introducing a line of auxiliary products. The company began offering calendars, collectors' cards, card binders, and protective containers designed to store the heart-shaped 'Ty' tags found on all Ty products. The new merchandise line, like the Beanie Baby Club kits, was handled by Cyrk.

1985:Ty Warner founds Ty Inc.

1993:Ty exhibits Beanie Baby toys at Chicago trade show.

1994:Beanie Babies go on sale in Chicago specialty shops.

1997:McDonalds offers Ty Teenie Beanies as part of a Happy Meal Promotion.

1998:Ty starts the Beanie Baby Official Club.

1999:Ty announces that all Beanie Babies will be retired.

2000:Company decides to keep producing Beanie Babies, as well as new line of Beanie Kids.

Ty also introduced a line of nine 'Beanie Buddies.' The Buddies were similar in appearance to the Beanie Babies, but larger&mdashound eighteen inches, as compared to the eight-inch Babies. They were also more expensive, retailing for around $15. Ty expanded the line of Buddies by periodically adding new characters

Meanwhile, retailers were still contending with customer stampedes every time a new shipment of Beanies was delivered, and Ty's sales were ratcheting ever higher. When total Beanie sales reached $1 billion, Warner celebrated by giving each of his employees two special-edition, autographed 'Billionaire Bear' Beanies. The bears were estimated to be worth $3,500 if sold on the secondary market.

1999: The End of the Beanie Empire?

By the middle of 1999, it looked as though the Beanies' popularity was finally beginning to wane. The number of sales and the prices in the secondary market started to fall off, and the frenzied demand at the retail level began to cool. Consumers, always on the lookout for the latest thing, were turning their attentions elsewhere. This decline in consumer interest was not in itself shocking. Almost everyone--except perhaps diehard Beanie fans--expected the stuffed toys to eventually be eclipsed by the next fad. Most industry experts were only surprised that their vogue had lasted as long as it had.

As it turned out, however, Warner wanted a more dramatic send-off for his Babies. On August 31, 1999, Ty posted a brief message on its Web site, stating that all Beanies would be retired at 11:59 p.m. on December 31, 1999. The message also introduced ten new characters--the last one a black bear named 'The End.' The announcement sent shock waves through the Beanie community, prompting hundreds of calls to retailers from upset collectors. Ty refused to elaborate on the Web site message, leaving its customers guessing at whether the retired Beanies would be replaced by new ones or the whole line would be discontinued.

Many collectors and dealers chalked the announcement up as a marketing ploy--a way to revive dwindling consumer interest in the creatures. They believed that Ty was merely clearing the way for a whole new generation of Beanies. Others familiar with the industry, however, believed that the Beanies really were on their way out. Some applauded Warner for being shrewd enough to end Beanie-mania with a bang, rather than a slow fade.

2000 and Beyond

From the most savvy toy industry expert to the youngest Beanie fan, no one could be sure what the future held for Ty. Many predicted that the company would release a brand-new line of collectible toys in the hopes of duplicating the Beanie Baby frenzy. The company itself remained characteristically secretive about its plans. Then spokespersons announced that the company would hold a consumer vote to determine the fate of Beanie Babies. To no one's surprise, fans voted to keep Ty in production; and the company complied, introducing a new line in early 2000 as well: Beanie Kids. With Warner's knack for toy design and his genius for marketing, Ty was very well positioned for continued success.

Principal Competitors:Applause Enterprises, Inc.; The Boyds Collection, Ltd.; Hasbro, Inc.; Mattel, Inc.; Russ Berrie and Company, Inc.; Play by Play Toys & Novelties, Inc.; Vermont Teddy Bear Co., Inc.

Further Reading:

• Baglole, Joel, 'Beanie Babies Born into Wealth,' Toronto Star, November 11, 1998.
• Faust, Fred, 'Ohhhh Babies No Fee Fi Fo Fum, Just Toys after This `Beanie' Stalk,' St. Louis Post-Dispatch, February 24, 1997, p. 1A.
• Mannix, Margaret, 'Beanie Bubble,' U.S. News & World Report, August 3, 1998, p. 53.
• Palmer, Ann Therese, and Alex Tresniowski, 'Up Front: Bean There, Done That,' People, September 20, 1999, p. 72.
• Precker, Michael, 'Beanie Baby Boom,' Dallas Morning News, March 8, 1997, p. 1C.
• Samuels, Gary, 'Mystique Marketing,' Forbes, October 21, 1996, p. 276.
• 'Trends: Beanie-Mania,' People, July 1, 1996, p. 84.

Source: International Directory of Company Histories, Vol. 33. St. James Press, 2000.

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