Nick Mowbray, the entrepreneurial brains behind the brand that brought us Robo Fish, X-Shot and Bunch O Balloons, talks to Jihee Junn about YouTube, sustainability (or lack thereof) and the $27 million loss caused by the collapse of US retailer Toys ‘R’ Us.
At last week’s Better by Design summit at Villa Maria Estate, Nick Mowbray, Zuru’s charismatic co-founder, spoke not once, but twice, to a group of awe-inspired marketers and entrepreneurs. At the end of the event, he left as inconspicuous as ever – in a private, high-end helicopter.
“I don’t like traffic,” he says with a shrug, a response befitting for a man who’s helped build a multimillion dollar empire from the ground up. No doubt he’s off to relax in his 12-bedroom Coatesville mansion – previously rented by internet mogul and political dilettante Kim Dotcom – which Mowbray bought with his siblings and business partners, Mat and Anna, for $32.5 million.
Together, the Mowbray siblings rank among the country’s richest elite with their estimated worth around $300 million. It’s not hard to see why: their company, toy manufacturer Zuru, makes upwards of $500 million in annual revenue, employs 3,000 staff (13,000 if you include outsourced manufacturing) and distributes to 121 countries, with the US being their largest market. Several of their products – RoboFish, X-Shot, Bunch O Balloons and Fidget Cube – have become some of the most popular toys with kids over the past few years which, if you’re a parent, you probably already know all about.
As Mowbray often likes to recall in his interviews, the Zuru story is a “total start-up cliche”, one that began back in 1993 when his brother Mat won the New Zealand Science Fair aged just 12. He won thanks to a miniature hot air balloon kit set which Nick then went on to sell door-to-door in their hometown of Cambridge. The invention later went on to become known as the Airaloon and was sold in a few select “Mom and Pop” stores. Years later, they decided to take it up a notch. In 2005, they packed their bags – with a handy $20,000 loaned from their parents in hand – and moved to China. At the time, Nick was just 18, his brother 24.
Continuing the “start-up cliche” origin story, Mowbray the younger also recounts how the first few years in China were a constant hustle: sleeping in bushes outside Chinese airports, living in shoebox apartments for $20 a month, and setting up ad hoc showrooms for clients in Hong Kong. Furthermore, Zuru’s first two products had major problems – they’d been plagiarised off someone else. “You have to understand, we were so naive. We didn’t even know what a lawsuit was. We didn’t even know what a patent was! We just thought ‘Oh, that’s a cool idea – let’s do that!’ Which we did. Then we got a lawsuit.”
Nowadays, it’s more often than not the other way around, with the company having doled out a total of 16 lawsuits of their own to date. Its most recent was against Telebrands for copying its popular Bunch O Balloons product. In December, the courts ruled on the side of Zuru with the company awarded more than $12 million USD in damages and losses.
“It’s like an evolution of learning, right?” Mowbray says with a smile.
“It’s an amazing time to go and disrupt categories,” Mowbray tells the crowd on day two of his talk at Better By Design. “If you look at the world six years ago, you weren’t able to advertise in the way you can now. The power of social and digital has transformed the way we consume brands.” And while Mowbray was referring more to some of the FMCG companies he’s taken a stake in (Hamilton-based diaper brand Rascal & Friends is one of them), Zuru is certainly no exception, with the company shelling out big figure sums to influencers with big figure followings.
Take Ryan, of YouTube’s Ryan ToysReview, for example. He makes approximately $11 million USD a year and boasts more than 12 million subscribers. He’s the eighth highest-paid YouTuber in the world and he makes a fortune from reviewing, unboxing and playing with various toys.
Ryan is also seven years old.
In one sponsored video for Zuru, Ryan annihilates hundred of tiny red plastic balls to promote Smashers, the figurine collectable that you can only get by, well, smashing them. In another sponsored post, Ryan and his parents cover the walls of their house with Zuru’s Mayka Tape (aka Nimuno Loops) which transforms virtually any surface into a base for brick toys like Lego. And in another video for Zuru’s hit product Bunch O Balloons, Ryan and his family jump around on a trampoline with hundreds of colourful water-filled balloons bouncing along with them.
“Kids have really shifted from watching linear and pay TV to more consumer content online and on mobile, so it’s really important for us to be where the kids are, which is on YouTube,” says Mowbray. “We do a lot of digital advertising with YouTube and we use a huge amount of kid influencers that are making millions of dollars a year. We pay them to effectively do unboxing videos of our products.”
But YouTube isn’t just a place to sell your ideas – it’s a place to keep track of them as well. Like most consumer industries, trends move fast. “In toys, we call that ‘fashion plastic’. There are still those core toy play patterns that never go anyway and make up the bulk of the business, but then there’s trends and fads that happen every year. So last year it was the fidget trend while this year it’s the slime trend and the surprise trend. Staying on top of all these trends is really important,” he says.
Zuru, for the most part, has done a pretty good job of staying on top of this fickle world of ‘fashion plastic’. It was quick to pick up the rights to manufacture both the Fidget Cube and Bunch O Balloons after coming to the attention of multiple toy companies via Kickstarter. Its latest product capitalises on the surprise trend, which features a ‘blind bag’ capsule toy that combines the thrill of unboxing and the addictiveness of collectables. “We’re always tracking retail data, talking to customers, talking to kids, looking on YouTube,” says Mowbray. “We’re creating this big funnel trying to get all this intel in, trying to work out what’s bubbling up underneath and what’s going to come.”
The toy business is hurting. Not because parents have less reason to buy, not because the market is shrinking (the global toy industry last year was the largest it’s ever been) and not because kids are ditching toys for tablets (the rise of video games and electronics, however, is certainly something to dwell on). It’s hurting because the last few months has signalled the end of an era: in September, major US retailer Toys ‘R’ Us filed for bankruptcy. In February, in announced it would be closing down all its US and UK stores.
Hasbro, Mattel and Spin Master (Hatchimals, Paw Patrol) will feel the brunt of the collapse, having relied on Toys ‘R’ Us for 9-11% of their sales annually. For Zuru, the retailer constituted just 5% of its turnover. But the collapse is still costly one, forcing the company to deal with a $27 million financial hole. “Toys ‘R’ Us perhaps didn’t see e-commerce becoming as important as it did and it teamed up with Amazon who obviously became their biggest competitor when they broke up,” explains Mowbray. “But the bigger problem with Toys ‘R’ Us was that they had this leveraged buyout. So it was saddled with $6 billion USD in debt. That was probably their biggest issue.”
As Zuru seeks ways to fill the $27 million hole left behind by the failed retailer, Mowbray adds that while there’s “absolutely a financial component to it”, its flow-on effect on toy innovation will also be deeply felt. “Not only have we lost one of our biggest customers, but consumers have lost an outlet to have more variety and more choice, which goes directly back to the manufacturer,” says Mowbray. “Whereas some of the bigger [US] retailers are a bit more risk averse in that they want to see that a toy is proven and working, Toys ‘R’ Us was always the one, without question, to support new innovation. Now, manufacturers will have to have less tendency to take risks on certain innovations. Maybe we won’t have that outlet to test them as much. So it’s going to have a really important domino effect.”
While several of Zuru’s most popular products are licensed from outside the company – such as the two it picked up from Kickstarter – Mowbray is keen to emphasise the company’s innovation credentials. “We have over 400 people at our head office in Shenzhen now,” a city that in recent years has become the ‘Silicon Delta’ of China. “We’ve got a lot of original innovations. We have a massive design development team, a massive engineering team and a massive automation team.”
So, if we’re talking innovation, what does that mean for say, making the traditional toy industry more sustainable? The adoption of electronics from an increasingly young age has been a worrisome point for many parents, but at least a tablet loaded with a hundred or so games produces a lot less plastic than something like an L.O.L Surprise (or the Zuru equivalent, 5 Surprise) which seems to have “enough plastic to clog a landfill”.
Approximately 90% of toys are made from plastic, and Zuru is no exception to this plastic-heavy output. Its Fidget Cubes are plastic, its X-Shots are plastic, and its Bunch O Balloons are an explosion of plastic – the straws that fill up the balloons aren’t even reusable (Mowbray, however, points out that the straws are recyclable and the balloons are “100% biodegradable”, taking around 6-12 months to biodegrade, a timeframe which is somewhat scientifically debatable).
“We have people in our team that are really passionate about sustainability. We actually have a group chat about sustainability in our company,” says Mowbray. “I keep saying to them ‘Go away and have a conversation and give me ideas. How can we be more sustainable? Can we build a whole product line or brand around sustainability? What can we do in this area because it’s clearly becoming more relevant for new generations.’”
“Lego’s just done a great thing by making all of their Lego that are little plants and trees actually out of sustainable plant-based plastics. So that sort of started more of a conversation in our company in terms of how can we do more to be more sustainable.”
“But the funny thing is,” Mowbray adds, “every consumer cares about sustainability, but when it comes to them getting their wallet out and paying for sustainability, those two things aren’t necessarily always adding up.”
Maybe, like Lego, plant-based plastics will be Zuru’s next big thing. Or electronic apps, which it has already incorporated with products like Smashers, will go on become an integral component for all its products. Smart toys might become a greater part of our ever-connected lives as well, with companies like LeapFrog and VTech already offering parents online “report cards” for their educational toys.
Cracking the top ten toy companies in the world is a big goal for Zuru in 2018, which could be a challenge if the Toys ‘R’ Us collapse turns out to be more detrimental than expected. But the past few years has shown that Zuru has the muscle to fight its way to the top, beating out competitors like Hasbro and Mattel for highly-sought after licences and obtaining the rights to produce toys for Disney and Marvel.
“We get ideas from crowdfunding, inventors, retail data, competitors, speaking to kids, and YouTube. We get ideas from speaking to a very broad spectrum. An idea doesn’t just come from one place – its very much a process and an evolution,” Mowbray adds.
So then, when it comes to ideas, what exactly is the next big thing?
“If I told you, I’d have to kill you,” he laughs.
The Spinoff’s business content is brought to you by our friends at Kiwibank. Kiwibank backs small to medium businesses, social enterprises and Kiwis who innovate to make good things happen.
Check out how Kiwibank can help your business take the next step.