Ty Weans Itself From Beanie Babies

Ty Weans Itself From Beanie Babies

Ty Weans Itself From Beanie Babies

Moneybox
Commentary about business and finance.
Sept. 1 1999 1:59 PM

Ty Weans Itself From Beanie Babies

I have no idea whether Ty Inc.'s promise that as of Dec. 31 it will make no more Beanie Babies is true. If it isn't, it's a great way to spur short-term sales, since now the flagging Beanie Baby market will be enlivened by the desire to get in while you can. (Along the same lines, a friend of mine thinks George magazine should keep labeling each issue "the last issue of George" for as many months as it can.)

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But short-term sales aside, if Ty's promise isn't true, it should be, since it represents a very rare thing in the business world: a recognition that things actually come to an end. (A similarly smart decision was made, oddly enough, by the founders of the Lilith Fair tour this year.) Over the past year an unusual combination of oversaturation and fatigue with high prices has weighed down the Beanie Baby market (and no, I can't believe I'm actually writing this sentence). More to the point, like any fad it's fading out, displaced by the latest objects of fascination for children. Ty is rapidly reaching the point of diminishing returns. Cashing out now would be an excellent move.

What makes such a move difficult is that although Beanie Babies may have reached the point of diminishing returns, they probably have not reached the point of nonexistent returns. In other words, there's still money to be made selling Beanie Babies. It's just not enough money to justify future investment. And the fundamental problem is that if you don't move on early enough, you find yourself caught, believing that the only way to recoup the money you've put into the business is to keep going in it.

Excellent examples of what Ty doesn't want to become abound, especially within the odd industry of collectible pop culture. In the late 1980s and early 1990s, baseball cards exploded into a classic speculative bubble--there I go, sounding like the old Alan Greenspan--to which companies responded by producing too many cards that were too expensive. When the bubble burst, entire companies vanished, and the major players have barely struggled to stay afloat. The same was true of comic books, which saw a proliferation of titles and of publishers when they were hot and a dramatic downsizing when demand faded. Unfortunately, when the smoke clears, prices for these goods remain surprisingly high (an average comic book is seven or eight times more expensive than it was 20 years ago), which may have something to do with why sales growth is so slow.

All of this is almost textbook economics, of course, since any time you have a business that is reaping sizeable profits, competitors are going to enter the market and successful businesses are going to expand rapidly in an attempt to sell more goods. But in textbook economics, any competitive marketplace ends with everyone reaping no profits. That's why the discipline to move on when the market becomes oversaturated--or, alternatively, when the market simply dries up--is a necessary discipline. If the Ty announcement is real, then that's one company at least that's acquired that rigor.