COLLECTIBLES–E-wok Commerce

entertainment earth has one of the few profitable Web retail sites out there, selling toys from ‘star wars’ and other hits When he was 7 years old, Jason Labowitz became fascinated with “Star Wars.” And like other kids his age, he started collecting action figures based on the George Lucas movies. While his peers moved on to other interests, however, Labowitz continued collecting the figures into high school and even at college. His parents thought it a bit odd; his friends laughed. But no one is laughing now. With a $9,500 investment and the help of his brother Aaron, Labowitz parlayed a fascination with collectibles into a rather unusual e-commerce business one that actually has been profitable from the start. “My hobby was always the source of a little bit of teasing in college,” said Labowitz, now 29. “But the first few months after we started out, and we began getting a lot of orders, I knew I wasn’t the only (adult action-figure collector) out there.” From its Web site, www.entertainmentearth.com, the company sells a selection of more than 700 action figures, toys and other memorabilia related to films like “Star Wars” and “Austin Powers,” television shows like “Buffy the Vampire Slayer,” and popular childhood toys like G.I. Joe. The least expensive items are action figures selling for $6 or $7 each. The most expensive is a full-size replica of the “Star Wars” robot, C3PO, that goes for $11,000. In its first year, 1996, Entertainment Earth had revenues of $125,000. Sales grew to $1.5 million in 1999, and Labowitz says his firm is on track to post $3 million in sales this year. The company, which started out in a Sherman Oaks garage and later graduated to a 4,000-square-foot office in Sun Valley, is now in the process of moving to a 17,000-square-foot warehouse in North Hollywood. Most customers aren’t kids Entertainment Earth caters mostly to adults, from 18 to 40, who love to collect action figures and other toys but no longer have the time to search stores and garage sales for pieces missing from their collections. “We have a huge customer base that buys ‘Star Wars’ action figures, and I can tell you most of them aren’t kids,” said Labowitz, whose company racks up 40 percent of its sales from overseas buyers. “For people under the age of 16 (what the company sells) are considered toys. Over 16, they’re considered collectibles.” Action figures industry-wide generated $907 million in wholesale revenues in 1998 and $1.1 billion in 1999, said Terri Bartlett, spokeswoman for the Toy Manufacturers of America. “Keep in mind, the increase reflected the release of (the latest) ‘Star Wars’ episode,” said Bartlett. “You have a lot of collectors buying them, but you also have a lot of children.” For Labowitz, the decision to launch an Internet site specializing in collectibles was a natural career progression. Interested in computers early on, he started his own computer consultancy in 1993 after graduating from UC Santa Barbara with a dual major of pre-law and philosophy. At the same time, he stayed active as an action-figure collector and was heavily involved in an Internet news group dedicated to “Star Wars.” When he learned in 1995 that Hasbro Inc. was re-releasing “Star Wars” action figures, the news group began pooling its resources to place a large order. When Labowitz learned the group had amassed $50,000 in just two weeks, he knew he was on to something. “That was the spark for starting my business,” he said. As a tiny startup, Entertainment Earth didn’t have the buying clout to get much attention from major toy makers. In fact, he says a sales rep assigned to his business at Hasbro wouldn’t even return his calls. Fortunately, a new rep took over, and Labowitz immediately sent him a box of candy. “It worked. Guess who he called first out of all the new accounts he was assigned?” Labowitz said. Bulk business Instead of selling action figures individually, Labowitz eventually decided to sell them by the full case, giving buyers a wider assortment. The strategy quickly helped boost the company’s order volume, allowing Entertainment Earth to shed its mom-and-pop status. Still, Entertainment Earth faces tough competition. Seema Williams, a senior analyst with Forrester Research Inc., said finding a strong niche in e-commerce is tough because larger players quickly follow suit. That’s happening already to some extent, as eToys works to boost sales of collectibles, and big toy makers like Hasbro and Mattel are working to increase their reach into the market as well. “It’s not hard to break into collectibles. Mattel has done quite well doing that with Barbie,” said Williams. Labowitz knows his company faces tough competition but is convinced that large retailers and toy manufacturers don’t do a good job of catering to collectors. “Collectors want a perfect box and package for the items they buy. That’s an important part of its worth,” he said. “We promise to get them collectibles that are in mint condition. If they’re not satisfied, we’ll absorb the cost.”