Founder returns to his old company with Shrek in tow, but hold the Applause for now Since Robert Solomon’s return in March to what he affectionately refers to as “the love business,” he’s beefed up staff at his Woodland Hills-based plush toy and gift company, Applause LLC. And, just a month into the first full quarter since his return, he said sales have doubled over the same month in the previous quarter. Good news for Solomon, considering just months ago the company was on its deathbed nearly $100 million in debt and, as its founder, had come out of “retirement” to buy the company back. Solomon will tell you the turnaround is due to his take-no-prisoners restructuring plan that sent eight of a 10-member executive team packing. But at the same time, it’s awfully hard to ignore the little green ogre in the corner: Solomon’s first significant partnership following his return was to market the character product line for DreamWorks’ highly successful film, “Shrek.” Just a few weeks before his return, DreamWorks SKG released “Shrek,” a full-length animated feature about an ogre who makes candles from his own ear wax. And, since the film was taking the box office (and Disney) by storm, it looked like there might, just might, be a hot toy market for the little guy and other Shrek characters. It turns out there was. “I hit the marketplace telling the world that Applause got Shreked,” said Solomon. Within 30 days of Solomon’s return, Applause had landed the licensing contract for “Shrek” and had a lineup of incarnations ready to hit store shelves in cities stretching from Tarzana to Taipei. Solomon won’t release sales figures just yet, but it’s clear that, with the success of the film (As of Aug. 6, the film had grossed nearly $260 million/ update), renewed contacts with old licensing partners like DreamWorks, The Walt Disney Co. and Warner Bros., and a top-to-bottom company makeover, he has hit the ground running. “Sales doubled (in the beginning of the third quarter) because I’ve nearly doubled the sales force in the last 45 days,” he said. “And, I’ve set a tempo for the company that I’m measuring sales every day, so there is a new accountability here that had not been a part of the landscape during my absence.” Solomon declined to give revenues for the company since his takeover because, he said, “it would be like comparing apples to oranges.” “Honestly, I don’t even have my arms around it yet,” he said. Solomon also declined to give sales projections going into the next quarter and the holiday season, but conceded it would be unrealistic to think they would hit the previous year’s figure of roughly $125 million. “I think the interruption will make it difficult to reach that,” said Solomon. “But I don’t measure myself by revenue. This is a year that I’d rather make the wholesale changes I need to make and revamp the product lines, the people and the systems. And to say I turned the company upside down is an understatement. I would say I put it in a blender.” But it could have gone the other way. According to Diane Cardinal, public information manager for the New York-based Toy Industry Association, toy and gift product licensing is a risky, trend-driven industry. She said Applause’s possible revival is due in part to Solomon’s expertise and connections, but added that the revamped entity got a major shot in the arm from DreamWorks. “Their timing was excellent, but if Shrek hadn’t done so well at the box office, they would have had a ton of merchandise on their shelves to unload,” said Cardinal. “But he (Solomon) knows what he wants and he knows the market so well, it makes perfect sense that he’s come back and doing well.” Solomon had to read in the Los Angeles Times earlier this year that the company he launched more than two decades ago and sold in 1995 had been driven into foreclosure. He left Applause Holding Co. six years ago, bought San Francisco-based competitor Dakin, later sold Dakin to the new owners of Applause and “got out of the business for good.” Then he read the newspaper, and within weeks was back in the toy business his toy business. Solomon has also rehired three former Applause executives who left the company during the tenure of the previous ownership. But he insists this is a new company, not just the next chapter of the previous company. He said the previous owners acquired the company through a leveraged buyout and, before they were done, wound up owing banks roughly $85 million. In addition, they racked up another $25 million in vendor debt and had trouble pushing sales through. “When you’ve got that kind of debt service, you have to chase sales,” said Solomon. Since the previous company was in foreclosure, and he bought the company and changed it to Applause LLC, he did not inherit that $100 million in debt; that the banks took on. While he insists his goal is to keep a balanced portfolio of products, with film deals representing no more than 3 percent of the business, the Shrek deal launched a string of film-related ventures that clearly helped kick-start the new business. Earlier this month, Applause secured licensing agreements for the characters in an upcoming trilogy of films for New Line Cinema. The company will make products derived from the Middle-Earth characters in J.R.R. Tolkien’s The Lord of The Rings. “The Fellowship of the Ring” premiers in December, “The Two Towers” and “The Return of the King” in December 2002 and 2003, respectively. According to David Imhoff, executive vice president, worldwide licensing and merchandising, for New Line, his company had worked with Applause only briefly during Solomon’s first reign, then on and off with the previous management. Imhoff said that, although the financial troubles Applause got into did create some frustration, the company is still New Line’s top choice for licensing partnerships because of its broad market penetration. “There is no other company like an Applause that exists today,” said Imhoff. “When you look at the kind of licensing they have had, their contracts are usually long term and very profitable. Yes, the limbo period was very frustrating for us and our Applause contacts and there was a period of time where we did not know if we were going forward. “But we are pleased to be working with (Solomon) again because Applause has an ability to penetrate the smaller mom-and-pop shops, not just the big three (Kmart Corp., Wal-Mart Stores Inc. and Target Corp.) that most other companies focus on. And that’s the market reach that we were looking for exactly.” Applause is also working on products for DreamWorks’ 2002 release of “Spirit,” and has signed a licensing deal for Nickelodeon’s Bob the Builder character line which resulted in a new nickname for Solomon. “Around here, they call me ‘Bob the Re-builder,”‘ he said. Sales for Shrek products, said Solomon, will likely only account for 2 to 3 percent of the business this year. What’s more significant, he said, is the fact that this is the first partnership between DreamWorks and Applause since his departure six years ago. “So many of the relationships I’ve had for many years have all come back in and supported the new old Applause,” said Solomon. “The last thing on my mind six months ago was that I would be back at the helm of the company I’ve been associated with for 25 years, but I’m back home and deeply settled in the saddle.”
