We interviewed the two top officers of WizKids, president Lax Chandra and executive vice president Joe Hauck, to talk about their move to exclusive distribution for the hobby channel (see 'WizKids Goes Exclusive').  In Part 1, we talked about the impact on access to product for Internet discounters, the company's expectations for the impact on its sales over time, and possible changes in how WizKids interacts with retailers.  In Part 2, we discussed the industry context and effects of the exclusivity deal, the potential impact on inventory levels of WizKids product, WizKids' plans for returnability, and its staff levels for retailer service (see 'Interview with Chandra Lax and Joe Hauck, Part 2').   


Is one of your goals to control access to your product by Internet discounters?

Chandra:  Our products are best served when they're sold in brick and mortar stores because of the interaction that that venue provides.  One of our biggest directives is to make sure that we create a closer alliance with these retailer stores.  We have a policy, and we're going to make sure that we implement the policy that Alliance and Diamond are selling to brick and mortar stores.  That doesn't mean that our products will not end up being on the Internet.  If we can extrapolate going forward, our products might be sold a little bit differently on the Internet--maybe at a little bit different prices, because I think the access to this product will be a little bit different.  Right now they can get it through multiple sources; in the future they can really only get it through Alliance and Diamond.   


Our goal is to leverage the information that we have; to leverage the access that we have; to leverage the efficiency and profitability that we have; to create promotions; to create interaction with the retailers so that we are incentivizing customers to go into that retail store--so I do think the result will be a change in the way they are sold, but I'm not saying it's going to eliminate it. 


We asked because we were wondering whether the better access to information that Berg spoke of made it easier to regulate.  Do you have an official policy not to sell to Internet discounters?

Hauck:  I think you're familiar with the legalities around price and how we can conduct ourselves:  we can't dictate price, but we can define channels of distribution.  We are very committed to making sure that our products are sold through brick and mortar stores, and part of this arrangement is to be able to define with Alliance and Diamond what is or is not a game or a comic book store in terms of a storefront, a physical location, significant storefront hours, and so on, and we can go ahead and define that and we can make sure that is what their channel of distribution is, and they're on board with that.  So the ability to have that transparency to see how they're conducting that business allows us to make sure that product is going to that defined store location, which is helpful to the industry. 


Take us out the next year to two and tell us what you think the impact will be on WizKids' sales through the hobby channel?

Chandra:  We firmly believe that this is going to work in our favor, but we have to make it work in our favor.  It's not that the distribution just takes care of everything else and we just hand it off to Alliance and Diamond and they do the sales then we're done, and we're out and we don't take responsibility.  What it comes down to is leveraging what we are gaining from this relationship and rolling it out to successful plans and executing those plans in a more efficient and better way. 


So for example, we're going to come up with an announcement about what I think is an unprecedented HeroClix tournament this summer.  It would be almost impossible to execute something like that from a profitability standpoint without this kind of deal.  That's an example of a first step of what this deal provides. 


In the past, we've been hamstrung as to what we can actually do and what we can actually think about.  This is the tip of the iceberg.  As we start having this relationship roll out and we actually start seeing the advantages, what will end up happening is that we'll start thinking more aggressively; we'll end up thinking in a more optimal way to try to produce programs to try to increase our business overall. 


This is not a decision intended to consolidate our business and shrink it.  It's a decision that allows us to grow our business.  If we haven't grown our business, then this will be a failure.  But I really believe we're going to be able to leverage this deal, leverage the relationships with the retailers, the information, the profitability, etc. to really grow our top line.


That's the medium- to long-term impact.  Do you expect a short-term hit?

Chandra:  It's unclear. There's going to be a lot of noise.  There's going to be a lot of reaction.  Some people that are carrying our products might react negatively to the deal.  Ultimately, this wasn't a deal that was made with the short term in mind; it was made with the long term in mind.  The short term, I don't know.  It might have no effect because the loss of business from retailers that have been carrying our products on a marginal basis might be made up by the retailers that have been carrying our products on a bigger basis and they have a more consistent message from us on what we're trying to achieve with the products.  Maybe we can put some more marketing things out there quickly.  I'm not as sure about the short term as I am about the long term. 


Berg talked about how this will improve your efficiency in getting out promotional materials by avoiding overlap, and so on.  Will this change how you get things like demo kits to stores?  In other words, will you send more of those materials through distribution than you have in the past, or are you going to continue to have about the same level of that kind of interaction with stores that you've had in the past?

Hauck:  The whole point of making this change is to get a closer relationship with the retailers.   We want to make sure that we can take those dollars that we're saving and have better promotions or more frequent promotions. 


Our whole goal is to be able to look at the market and ask if we have 70% penetration on a product, why is that 30% not carrying that product not carrying it. Let's solve their issues for them, and if that means we need to send an envoy or a volunteer out there to help those folks with demos three times in a month to kickstart things, or we need to get them a special kit to help them get off the ground, we can give them the support they need.  Our intention is that you'll actually see an improvement in that level of service and an improvement in the level of frequency on those kinds of things. 


Chandra:  And sometimes we're going to be able to leverage Alliance/Diamond in order to accomplish those things in a more efficient manner.  So absolutely, they will be part of that process.  This is what that deal allows us to do. 


I want to set expectations correctly.  It's not like we're going to be able to turn on a switch, and everything's going to change just like that.  It's a process over time in which things are continuously getting better for the retailers.  But over the course of the next few weeks and months, we're going to have a number of announcements, some of them very significant, that will suggest why we did this deal.  We'll be able to do things that we haven't been able to do in the past, and you'll see that pretty quickly. 


What effects do you think this might have on the overall industry?

Chandra:  I can only say this:  this is a long-term decision and if the industry is weaker as a result of it, then it's bad for us.  This is something that we took into consideration on all accounts.  That's not to suggest that there won't be any changes; that's just to suggest that we think that our retailers will be stronger as a result of it, and we'll be stronger as a result of it, and in that regard the industry will be stronger as a result of it.  If we did this and our projections were that the industry would be weakened, we wouldn't have done it.


Click here for Part 2 of this two-part interview.