How Amazon Can Make or Break Holiday Retail

The Wall Street Journal

Toy maker Wonder Workshop is mapping its retail strategy for its $200 Cue robot around the online giant

Wonder Workshop expects Amazon will be the biggest retailer of its new $200 robot, Cue, which is on Amazon’s and other top toy lists this year. But fluctuating demand and pricing on Amazon can also make it hard to predict sales, as Wonder Workshop learned the last two years with Dash and Dot, its first robots.
To get it right, Wonder Workshop is working with Launchpad, a program run by Amazon, to forecast demand, boost marketing and plan for Black Friday, when discounting plays a significant role in the onset of the year’s most critical shopping period. The toy maker expects sales to as much as double this holiday season.
In the past, brick-and-mortar retailers were the cornerstone of a brand’s holiday retail strategy. And while Wonder Workshop is selling Cue in chains such as Target Corp., Best Buy Co. and at Apple Inc. stores, Amazon will make or break the toy maker’s holiday season.
A surge in holiday shopping online has made Amazon a kingmaker. Amazon is expected to drive as much as half of all U.S. retail sales growth this year during the holidays, according to Morgan Stanley estimates. About 42 cents of every dollar spent online year-to-date went to Amazon, up from 38 cents during the holiday period a year ago, according to Slice Intelligence, which tracks a panel of more than 5 million U.S. online shoppers.
With a small product lineup, “it is tough for us to create visibility for our products in stores like Target and Best Buy,” says Vikas Gupta, co-founder and chief executive at Wonder Workshop, a 5 year-old startup based in San Mateo, Calif. The only way to do that would be to invest more in displays, and that is “very hard for a small company.”
Target and Best Buy declined to comment.
Companies are using Amazon’s online reviews and marketing on the site as an alternative to persuading traditional retailers to add a new item to store shelves. In addition, the 2,100 startups that participate in Launchpad get special visibility on Amazon’s website, dedicated pages that include information about the company and founders and inclusion on gift lists. Amazon also buys inventory from the startups and sells the products directly on its site.
Amazon handpicks and invites startups to join its free Launchpad program based on a number of factors, which can include existing customer reviews, online sales performance and outside awards. For Amazon, access to early-stage brands gives the company exclusive or new, hot products and a bigger selection than rivals.
Sateesh Srinivasan, director of Amazon Launchpad, which started in 2015, said the program can “get customers to look at all these products in one place.”
Other hot-selling holiday items that have taken off on Amazon include the car-racing game Anki Overdrive and the Star Wars BB-8 droid in 2015, both also Launchpad participants.
That first year, Amazon says two of its best-selling toys from across the entire site stemmed from Launchpad. Since then, customer visits have increased and more than 85 startups have each surpassed $1 million in sales since the program launched.
But online retailing brings new hurdles, including predicting consumer demand across different websites and in brick-and-mortar stores and instant price fluctuations as online retailers race to match each other.
Even before the holiday-shopping season officially starts this year, Amazon and other retailers have already sold out of the WowWee’s Fingerlings Interactive Baby Monkey toys. The monkeys, which grab fingers, blink and babble, were gone almost as soon as they hit the market. The company has had trouble keeping it in stock due to the surprise demand, says Davin Sufer, chief technology officer of WowWee. “We didn’t realize the kind of response we were going to get,” he added.
An Amazon spokeswoman says customers should check back for the products in coming weeks. Wonder Workshop has faced a similar situation. In 2015, when its $150 Dash robot was relatively new to the market, it sold out by Dec. 15 as both Wonder Workshop and retailers underestimated consumer demand. The startup had begun working with Launchpad, which was also in its first year, and the Amazon program also struggled with forecasting, according to Mr. Gupta. When Wonder Workshop went to reorder, its manufacturing partners couldn’t make more robots in time.
Last year, Wonder Workshop over compensated when it manufactured Dash and its $50 Dot, resulting in extra inventory they had to sell off earlier this year.
Wonder Workshop said that for this holiday season, it worked with retailers starting in January—earlier than in previous years—to come up with forecasts. It then put in its manufacturing orders.
“It is very hard to predict,” Mr. Gupta says. “We have a new product this year, which makes it harder.” Cue is intended for ages 11 and up and offers four different personality profiles, the ability to chat with it and to write advanced code for it.
This year, Wonder Workshop allocated about 50% of its wholesale inventory to Amazon, and the rest are divided among the other retailers. It held back shipments to one of its previous retailers, Toys ‘R’ Us Inc., which filed for chapter 11 bankruptcy protection in September. The toy maker also sells some of its products directly on its own website.
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Despite the surge in online sales, toy makers still need to have a physical presence for shoppers who want to walk in and buy something now, Mr. Gupta adds.
Discounting the robots for Black Friday and Cyber Monday is critical, Mr. Gupta says. Wonder Workshop decided to mark down Cue by $20 across the board—in stores and online—while Dash is $30 off.
“It’s spectacular over the years how the Black Friday deals and the Cyber Monday deals drive demand,” he says. “We want to be part of it, because it creates more visibility.”
Of course, the youngsters who may put Cue on their wish lists already know where to get the toy. Kevin Sayers, a middle-school teacher in Burnsville, Minn., bought two Cue robots for the school. “When we did our first coding week, some of the kids were like, ‘Where did you get this? Amazon?’” said Mr. Sayers, who also has a fifth-grade son into coding.
Yes, he replied, he had.
Three of his students told him last week they are getting Cues for Christmas.