LeapFrog Expands Distribution to Barnes & Noble, Bigger Best Buy Presence

LeapFrog expects to return to profitability this year through growth partly from expanding distribution “to other footprints” beyond conventional toy retailers, CEO William Chiasson said Tuesday at the Piper Jaffray Consumer Conference in New York. The expansion includes a greater presence at Best Buy, which is “going to be carrying a lot of our mobile learning electronic devices,” and Barnes & Noble, he said.

LeapFrog learning devices to be carried at Best Buy include the new, touch-screen-based Leapster Explorer (CED May 5 p7), demonstrated to reporters in New York this week. The device “goes beyond gaming” and offers “more of the functionality of an iPad or an iPhone in terms of download capability,” Chiasson said. But at $69.99, the device will cost much less than the Apple devices when it ships July 12. Software cartridges for the device will also be sold at retail, for $24.99 each. The device features a 3.2-inch 420x420 touch screen, 512 MB of onboard storage and greater processing power than its predecessor. LeapFrog is making a significant investment to market the device, with ads starting in “the September time frame,” it said, without elaborating on the cost of the campaign.

LeapFrog said its challenges include that consumers are “staying relatively cautious.” But Chiasson said, “We feel very good about where our product line is this year compared to even last year” and 2008. The company said its learn-to-read business was up more than 50 percent at the end of Q1 from a year earlier and is “growing very rapidly.” Its learning-toy business is also growing, and its mobile learning business is “ready to take off,” it said. The LeapFrog brand “continues to grow,” and it had about a 44 percent market share in the electronic learning toy category at the end of 2009, up about 4 points in a year, it said.

LeapFrog sees growth coming especially from consumers who buy its devices and then connect to the online community for them, Chiasson said. There were about 1 million connected LeapFrog customers at the end of 2008, a figure that increased to 3 million at the end of last year, he said. “We expect by the end of this year for that to double or even more than double to 6 to 7 million connected consumers,” he said. Connected consumers tend to buy 30 percent more software than other customers, and their orders at LeapFrog’s website average 60 percent larger, he said. It’s harder to gauge the percentages of sales from retailers, Chiasson said, but he guessed that the trend was similar.

The manufacturer is also “looking at what’s happening in the broader mainstream category of electronics and how that might be applied to our own category,” Chiasson said. The company is “already capitalizing on a lot of that” this year, with the Explorer, he said. It’s also “looking at what the future of an e-reader type of product would be and how that would apply to the learn-to-read category,” he said. But he said such a device would “have to do more than just be a reader” -- it would have to help kids learn in general, he said.

Toys “R” Us remains “an extremely important retail partner” for LeapFrog, Chiasson also said. Toys “R” Us and LeapFrog’s other two large retail customers together account for about 75 percent of U.S. sales, the dealers’ shares “fairly evenly split,” Chiasson said. “We expect that to continue” if Toys “R” Us goes public as the retailer plans (CED June 1 p7), he said. Also at the conference, Jakks Pacific Chief Financial Officer Joel Bennett said Toys “R” Us going public would likely provide his company with “better insight into what they're up to” on “a regular basis.” Jakks had less insight into what KB Toys was up to once it went private, and “you know what happened” to that retailer, he said. KB went out of business. Toys “R” Us has “done some very good things” in merchandising and reformatting stores, and “we've actually increased business” with the retailer, he said. It’s “a very good customer and we expect that to continue,” he said. Bennett also said some retailers, including Wal-Mart, have recently cut shelf space for toys. But he said Jakks expects its to gain shelf space at retail thanks to new products.