When former toy salesman Ty Warner introduced a line of small stuffed animals called Beanie Babies to the world in 1993, there was no indication that over the next few years the cute plush toys would be at the center of one of the oddest economic bubbles that coincided with the rise of the internet. No one imagined adults would be scrambling madly to collect as many of the toys as they possibly could - especially the rarer versions like Peanut the Royal Blue Elephant - in the belief that their value would reach thousands of dollars.
By the end of the 1990s, supply was starting to outstrip demand for Beanie Babies, and when the "bubble" burst a few years later, many speculators and collectors were left with a huge stock of stuffed animals that were cute but basically worthless as anything more than a toy for a child to cuddle or play with. While Warner became - and remains - a billionaire, and some of the earliest collectors were able to successfully cash in on the craze, many others lost their savings.
Now, when many of these original toys are not even worth the $5 they originally cost, the Beanie Babies craze can be looked at as a cautionary tale. But what were the factors that led to the adorable, understuffed toy animals becoming such a phenomenon in the first place?
Every Beanie Baby Was 'Retired' After Short Periods Of Time
The idea of "retiring" Beanie Babies was not, at least at first, a planned strategy. In 1995, one of the Ty company's non-Beanie Baby toys, a stuffed lamb named Lovie, was discontinued because of issues with the company's distributor in China. The decision to discontinue the toy caused an angry uproar with Ty's customers, as Lovie was a big seller, especially in hospitals.
Having learned of a strategy used by an earlier toymaker who had told customers that discontinued toys had been "retired," Warner and his sales force decided to use this strategy with Lovie. Soon, instead of being angry that the toy was no longer being made, buyers were excited at the idea that the Lovies they already had might be worth much more than they had paid for them.
The success led Ty to start deliberately "retiring" various Beanie Babies. By early 1996, "retired" Beanie Babies that had originally sold for $5 were going for $10 or $20. The company used its website to make "retirement" announcements and to speculate about which toy would be next. Some sellers would even change the price of the various Beanie Babies throughout the day based on these hints.
By the end of 1996, Ty's sales were approximately $280 million, or about 10 times what they had been the previous year.
According to Zac Bissonnette, author of The Great Beanie Baby Bubble: Mass Delusion and the Dark Side of Cute, at the height of the Beanie Babies craze, Ty was shipping more than 15,000 orders per day to retailers. But the company limited each retailer to just 36 toys of each style or animal.
"That’s actually why they were able to work as a collectible: People just had no idea how many of them he was shipping."
Ty Sold Each New Beanie Baby To Independent Businesses In Small Batches
In order to try and build the Beanie Baby brand, Ty Warner, the founder and sole owner of the Ty company, focused on working with independent stores rather than larger retailers. There were several benefits to going this route.
For one thing, because small shops needed to build up their inventories, Warner could ask them to pay for the toys upon delivery, while larger retailers could afford to ask for an extended payment in which they might not pay Ty until 60-90 days after shipment.
"[Warner] did not want to take out debt within his business," Bissonnette told the Chicago Tribune. "He was adamant about that. He wanted to be as debt-free as possible." By not taking on debt, Ty was able to sell the Beanie Babies at lower prices than other similar toys.
"There was no one doing the quality he was doing at the price point he was doing it at," Bissonnette claimed.
Another benefit to dealing with smaller independent businesses was that Warner and his sales force could speak directly with the store owners and influence them on things like how the toys were displayed. Warner thought that the value of the Beanie Babies would be destroyed if the stuffed animals were jam-packed into bins.
"He wanted them displayed on shelves with their hair fluffed, looking pretty," Bissonnette explained.
Finally, by dealing with a large number of smaller retailers, Ty's business wouldn't be as badly affected if a store or two decided to stop selling the toys as it would have been if a large retailer that accounted for 40-50% of the company's sales suddenly decided to stop stocking the toys.
Beanie Babies Were Not An Immediate Success When They Were Introduced In 1993
The first line of Beanie Babies was introduced at the 1993 World Toy Fair in New York City. But even though they were priced at just $5, the line of plush toys was not an immediate success. In fact, sales were so poor that many retailers told Ty that they would only order six toys at a time - not the 12 packs the company was pushing.
But company founder Ty Warner was undaunted. "Most retailers don't know what they're doing," he stated in a note sent to one of his employees. "When retailers are angry with you, it means you have a good product."
Changing The Color Of 'Peanut the Elephant' From Royal Blue To Baby Blue Could Be Credited For Causing The Value Of The Toys To Skyrocket
Sales of Beanie Baby toys were still struggling when the company introduced a royal blue elephant named Peanut to the line in June 1995.
At first, this new Beanie Baby had little impact on the company's fortunes. But four months after it was introduced, Ty Warner decided to change Peanut's color from royal blue to baby blue. Because only a few thousand orders of the royal blue version had been shipped to retailers, it became very hard for buyers to find. When the early collectors of Beanie Babies noticed this, the value of Peanut the Royal Blue Elephant skyrocketed - one 1997 price guide listed its value at $2,500 and predicted that by 2008, the royal blue version of Peanut would be worth $7,500.