Meet the Ooshies. They're superheros, only smaller, cuter and squashier. And there's a small army of these little guys headed for a Christmas stocking near you.
Dreamed-up as a collectable set of ''pen toppers'' based on comic characters, the increasingly popular kids collectable has thrust Australian toy company Headstart International into the global playground, where it's vying for popularity alongside superstars Shopkins and the top selling Hatchimals.
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Shopkins: the world's most popular toy
With over 600 million units sold in countries all over the world, we asked kids what they liked about the South Melbourne designed plastic toys.
By the time most of us are cramming the Christmas wrapping paper into the rubbish and regretting that third serve of turkey, more than 2 million Ooshies will have been sold through Australian retail chains, as well as US and British retail behemoths such as Target and Walmart and Amazon.
But the real power of these tiny comic book collectables is what they represent, an Australian business that has adapted to a rapidly changing retail landscape.
It's responded to a retail revolution spearheaded by tech giant Amazon that threatens to unpick the fabric of traditional retail and stitch it back together as a consumer-led movement peopled by companies and brands that most of us have never even heard of yet.
What the toys can teach retail is the value of agility and that big rewards are the pay off for big risks.
From shipping to shaping
Headstart International's Ooshie toys are proving a Christmas hit.
Ooshies only hit the supermarket shelves in May but Headstart's creative team is already working on new accessories, including "environments", which will be quickly developed and distributed around the world.
"Because of our success we have committed to another four concepts and we are well under way with that," Headstart International's executive chairman David Hendy said.
"Internationally this has suddenly given us credibility ... and in the next six months we will be selling Ooshies to the rest of the world."
What's even more interesting than the Ooshie phenomenon is how these shrunk superheros fit into the evolution of Headstart, a business that up until three years ago was a distributor for the major licensed brands such as Teenage Mutant Ninja Turtles, StarWars and Bratz.
The turning point for Headstart was Guy Russo's transformation of the Kmart chain, a turnaround that radically reduced the number of brands the chain carried and also increased its direct sourcing of product.
JB Hi-Fi, Harvey Norman and Myer are most at risk from Amazon's launch in Australia.
Citi research note
It's a trend that has permeated the entire discount department store sector as well as the broader retail market, as supermarkets, department stores and apparel chains battle the rising tide of costs.
At the same time, Headstart, along with competitors such as Hunter Products, was watching the big toy companies take back control of their international distribution operations. They set up their own Australian offices and turned off the commission tap on big-name brands.
Hendy saw the writing on the wall and established an in-house design team to create toy concepts and nurture a new revenue stream.
"Prior to a couple of years ago, all we were doing was distributing [toys] for Australia," Hendy says. "When all the retailers made major changes, we thought perhaps we should make some changes too."
The creative department is now Headstart's biggest team and Hendy is convinced the business is on the right track, despite the intense focus on price at Australia's major supermarket chains Coles and Woolworths as well as concerns over the future of the discount department store chains.
"I'm sure a lot of people want price but when you get to toys it's more than just price," Hendy says. "It's about the product, it's about the brand, and in Australia compared to other parts of the world we've moved more quickly into price."
Hunter Products distributes merchandise for some of the leading children's brands, including pester-power favourite Peppa Pig and Paw Patrol as well as sporting and outdoor lines such as Lance Franklin's Buddy Ball.
However it's also investing in its own product lines and nurturing an overseas client network to diversify its revenue base.
"We have learned to adapt to the requirements of the major retailers in Australia and maximise our opportunities here," Hunter's James Hunter says.
"In addition, we have taken significant steps to diversify and develop our own products for the world market.
"We have successfully shipped product to over 35 countries around the world and we were thrilled to ship our first products to customers in the United States in 2016.
"There is no doubt tough times require businesses to think outside of their own small backyard and we are continuing to do that in looking at new opportunities and ideas."
Endangered discounters
Moose Toys CEO Paul Solomon. Photo: Simon Schluter
Target's decision to abandon its toy sale this year had an impact on all of Australia's toy operators, who relied on the annual sale to get a "read" on the hot products for Christmas and adjust their order and supply chain accordingly.
At the release of its first-quarter sales in October, Wesfarmers department store chief Guy Russo revealed the decision to cancel the annual toy sale cost it $75 million in lost toy sales at Target, as well as sales from adjacent categories such as kidswear.
Target lost $50 million in 2016 and it's on track to post another big loss in the 2017 financial year after its same-store sales plunged 22 per cent in the September quarter and total sales fell 17 per cent to $643 million, suggesting the turnaround had stalled.
The results have not shifted Russo's commitment to an every-day low price model at Target, the same model he instigated at Kmart. For now, insiders report it's working on a hybrid high-low, everyday low pricing model and making slow work of moving to the new pricing structure.
Suppliers tell a slightly different story, reporting Target buyers were "highly motivated" to drive sales in the vital Christmas period and use any measure to move stock off the shelves, including discounting.
Analysts are sceptical about whether Russo can turn Target around, with or without a toy sale. One retail insider has urged him to return Target to its "fashion roots" in 2017 and create a distinctly different identity to its fellow discount trader Kmart.
The discount department stores are the "most endangered" species in the retail ecosystem, according to retail analyst Steve Kulmar, especially with Amazon on the horizon.
Toy distributors claim Big W is enjoying a late surge in Christmas toy sales, but the outlook for the chain is uncertain after the jarring departure of chief Sally Macdonald in November, less than one year into the job.
The star of Australia's toy sector is Moose Toys, which has turned its wildly popular Shopkins collectable into a global empire that's poised to take new territory as it rolls out licence agreements across multiple retail sectors, including apparel and even food.
Co-chief Paul Solomon is confident there's a big role for bricks and mortar retailers but he believes the innovation that is at the heart of Moose can also future-proof Australia's big name chains.
"Online is having a big impact on what's going on out there as have the international arrivals," Solomon says.
"There's definitely a role for bricks and mortar retailers and a market for them but they've got to have a reason for being, a point of difference, something that's going to set them apart from the competition.
"And that's the same for us."
Shopkins phenomenon
Moose's wildly popular Shopkins characters were named the Toy Industry Association's Girl Toy of the Year in 2015 and its Little Live Pets "Snuggles" puppy was the No.1 selling toy in Australia last week and destined to be sold out by Christmas Eve.
Not bad for a business that was teetering on the brink of collapse in 2007 after it was engulfed in a scandal over traces of a "date rape" drug in its Bindeez craft kit toy.
Nine years later, it's transformed Shopkins into an international lifestyle brand with a global following and significant growth potential but it's not chasing growth at any cost.
"It's not necessarily about being everywhere, it's about being with the right retailers," Solomon says.
"We are focused on creating great toys and helping our retail partners.
"The industry we are in is truly magical, we are selling our toys to adults who get to give those toys to kids and that makes adults smile as well."
Solomon said Moose prides itself on its partnerships with its retailers, including the major supermarket chains and discount department stores in Australia as well as US giants, including Target, Walmart and Toys "R" Us.
Moose's financial results reflect the runaway success of its Australian-designed products, supporting a $57 million full-year net profit in fiscal 2016, a big jump from its $21 million net profit result a year earlier.
The genius of collectables is they bring kids (and their parents) back to retailers again and again to expand or update their collection, building ant trails to the major bricks and mortar retailers as well as online operators like Amazon.
Bring on Amazon
The digital giant is expected to make landfall in Australia as early as next February and take a $4 billion bite out of Australia's retail revenue, a sector already under pressure from the exchange rate, labour costs as well as competition from online and international brands.
Amazon Web Services staff have been working out of an office in Sydney for the past six months and some analysts claim Amazon could launch its Prime service as early as February next year followed by fresh food later in the calendar year.
But not everyone is frightened of the US behemoth. Suppliers are excited, not anxious. They're counting down the days until they can sell through another major channel in what is a highly concentrated market.
Headstart already sells its lines, including Ooshies, through Amazon in other parts of the world and Hendy believes an Australian launch is an "opportunity".
"From my experience with Amazon in other countries, they buy locally and have depth in their range," Hendy says. "In Australia for a long time we've just had retail monopolies."
The collapse of Dick Smith, the closure of Masters and the sale of The Good Guys have concentrated retail ownership across a number of influential sectors in Australia.
JB Hi-Fi's $870 million purchase of The Good Guys chain in September reduced the appliance and electronics markets to an arm wrestle between JB Hi-Fi and Gerry Harvey's Harvey Norman.
Woolworths' decision to finally draw a line under its massive losses from its disastrous Masters hardware chain left Wesfarmers' Bunnings in charge of the hardware market as Metcash finalises the integration of its Mitre 10 store network with the Home chain.
Australia's grocery sector is where the concentration of ownership hits its high notes. This might explain why Coles' owner Wesfarmers and its chief Richard Goyder have been so vociferous in their commentary about Amazon.
Coles' same-stores sales grew at their lowest level in seven years in the September quarter, and after years of double-digit gains, earnings growth has also slowed.
Analysts suggest Coles may be on track to endure its first decline in earnings since Wesfarmers added the supermarket chain to its conglomerate in 2008, as the Woolworths turnaround gains momentum and competition from Aldi's new territories intensifies.
But the business that successfully saw off Woolworthss epically unsuccessful assault on hardware cannot be underestimated.
Goyder has been warning Australian retail to shape up for Amazon's arrival for years and Woolworths chairman Gordon Cairns revealed at its recent annual meeting that Australia's biggest supermarket chain had set up an internal "unit" to analyse this significant shift in Australian retail.
The Woolworths Food Digital unit includes Tristan Butt, a former Amazon staffer, who moved to the team in November after heading up Woolworths' health, beauty and baby team for two years.
In a letter to suppliers, Woolworths said Butt would help to "strengthen the collaboration" between its increasingly important online business with its commercial team.
A recent Citi recent research note suggests JB Hi-Fi, Harvey Norman and Myer are most at risk from Amazon's launch in Australia, with the broker's head of research Craig Woolford suggesting JB Hi-Fi's earnings before interest and tax could track backwards by as much as 23 per cent.
You won't hear any of this fear-mongering on the supply side of retail, especially not the grocery suppliers who are eagerly awaiting the arrival of the master disrupter.
One supermarket supplier, who would only talk on the basis of anonymity, said he had already appointed a staff member to determine what Amazon might do to the Australian grocery market.
He plans to take a look at Amazon's high-tech Seattle store as soon as possible, to get a clear idea of its bricks and mortar strategy.
"Amazon's motto is 'your margin is our opportunity' and Coles and Woolworths are still the most profitable supermarkets in the world," the supplier says.
He is optimistic about partnering with Amazon but he knows the supermarkets will have their game plan too and they're not going to get caught out by underestimating the global retailer.
"They've learnt from the issues they've had with Aldi, which now has 12.5 per cent market share," says the supplier.
The supermarkets won't make the same mistake they made with Aldi, they're not going to get caught out by underestimating Amazon.
"If it doesn't happen in 2017 or 2018, it will happen sometime soon without a doubt and everyone from suppliers to retailers are reacting."
Shopping for change
The timing of Amazon's expected arrival coincides with a significant shift in social values in Australia and a move away from an era of social conservatism, according to research group Colmar Brunton.
Research director Peter Kenny says the move to the so-called "rebellion" phase has big ramifications for retailers, particularly given the focus on price at the major retail chains in Australia.
"There's a lot of discussion around price with campaigns like Coles' Down Down but people are not feeling like their products are getting cheaper," says Kenny.
"We are going to see a willingness to change ... the next point on the [social] clock is the word 'better' and so people will look for a better way to do things.
"It's already creeping into advertising with companies offering better financial services, better insurance, better milk products."
Kenny says retailers need to think about another way to meet consumers' needs that is not just about price, including the supermarkets.
"There's a battle about to come between Amazon, Alibaba and other new players that haven't even got to the market yet," Kenny says.
"It won't be 2017 but in the years ahead there will be so many alternative channel options and they will be providing all sorts of new services.
"And when they come, we will be very much in a period of reshaping the establishment model, which will affect all the retailers."
Kenny claims too many of Australia's big retail brands have been doing too much of the same thing for too long. But former David Jones chief Paul Zahra argues these are big ships to turn around.
Zahra, who is PwC's global retail adviser said both Target and Big W had to decide where they wanted to "play" in 2017, in a market where Wesfarmers' Kmart has already staked a claim on the lowest prices.
"Suppliers complain retailers are myopically focused on price but that's because price is where the customer is as well," Zahra says.
"It's much easier for a supplier to react than a retailer with a large workforce."
SourceHub operates in the electronics market, developing and distributing private label product that is sold through traditional retail and online channels.
The business has pushed into the international market in the past few years and offshore customers now represent about 40 per cent of its sales.
"We pushed into Walmart because of the changes to retail in Australia," chief Vanessa Garrard says.
"For us the growth had to come from leveraging into other countries."
SourceHub has also focused on developing its own apps to sell to retailers along with popular consumer products.
Garrard says for retailers like the discount department stores to survive they have to collaborate with suppliers and recognise that consumers are hungry for unique products.
"It's naive [for the retailers] to think sourcing the same products from the same trade shows is a sustainable model," Garrard says.
"I'm working through a major supermarket submission at the moment and the range is exactly the same as what's going into every other retailer, so it's just price fighting."
And this is the challenge for Australian retail as Christmas bleeds into the new year, Boxing Day sales and the launch of yet another new season.
Price alone will not buy consumer loyalty and that's a problem even a pocket-sized super hero can't solve.
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