Until 2015, practically nothing was known about the Prague businessman Petr Homolka. Even then, in addition to his company Elanor for payroll software, he also had a toy wholesaler, but he became known to the public only with an acquisition “hat trick”, when he quickly bought three toy chains – Bambule, HM Studio and Sparkys – into his Wormelen Group. It suddenly became the largest retailer in the field.
However, last year he switched gears. He sold approximately thirty, i.e. half, of the stores and kept only the Bambule network. He describes the reasons in an interview for SZ Byznys.
The Sparkys chain, the Pompo toy store and the Dráčik chain now operate independently on the Czech retail market. If the EPEE wholesaler and the 4kids.cz online store are included, Petr Homolka still remains the Czech king of toys with a turnover of approximately two billion.
In the time of covid, there was a problem with the availability of some interactive toys with chips. There is enough of everything on the market this year, but some customers have started saving.
Last year, you sold the network of toy stores HM Studio and Sparkys to the original owner of the HM studio network, Jan Mařík. Was it a way to get out of the problems brought by covid?
Rather, it was a way to save nerves and worries, because we had to decide whether to finally merge the two brands Bambule and Sparkys, because of course it is expensive and inefficient to support both. Becoming one brand and rebranding all stores would cost a lot of effort and money. We solved it elegantly – the network of thirty Sparkys stores, where there are also former stores of the HM Studio brand, passed to Mr. Mařík.
Wasn’t there a disagreement with Mr. Mařík, who managed and originally also owned HM Studio?
No, Mr. Mařík was happy and I was happy too. We still cooperate in business and we play ping-pong with Mr. Mařík, but now we each manage our business in our own way. We parted after mature consideration. It wasn’t that we didn’t get along.
How Wormelen Group fared
The company does not yet have consolidated results for 2022. However, it provided results for Bambule stores and EPEE wholesale.
Net turnover: CZK 263.5 million (+20%)
Profit: CZK 6.1 million (+35%)
Alltoys (Bambule brand)
Net turnover: CZK 1,066 million (+ 21.4%)
Profit: CZK 3.8 million (-86%)
Your group Wormelen Group, which also includes the EPEE Czech wholesaler or the 4kids.cz e-shop, lost almost 81 million crowns in the first year of covid 2020. Isn’t it the case that the whole operation lacked money?
It’s not so much about money, because it will be saved over time thanks to the merger. Yes, it costs a lot of money, but consolidation mainly takes a lot of work and the whole process takes a year or two. In any case, it means an upheaval in the company and you always end up annoying someone. You spend years building loyalty to each brand and suddenly half of the company, that means about three hundred people, you have to say: “Now you won’t wear a Bambule or Sparkys t-shirt.” You will logically upset half of the company.
Did you lose the imaginary title of king of toys on the Czech market by selling?
For us, it means a drop in turnover of about 500 million crowns. Dráčik will probably be a bigger company in retail.
This also reduced the bargaining power of the group…
This is of course the negative of this move.
So the original idea of consolidation, with which you built the group, did not come true?
Yes, instead of picking up something else and consolidating the business completely, selling part of the company goes against this effort. In that sense, it is a disempowerment. On the other hand, we still have a turnover of almost two billion crowns in the family toy business and we are a significant company. Only Alltoys in the Czech Republic (the Bambule chain) has a turnover of approximately 800 million crowns, the EPEE wholesaler has another 300 million, e-shops generate 300 million and Alltoys in Slovakia has another 300 million in turnover.
How did you do financially last year?
From the point of view of profitability, it is becoming more and more complicated, because energy prices rose enormously last year, the shopping center increased rent prices by 16 percent because it exercised inflationary clauses. We couldn’t make the toys more expensive, we don’t sell food that people have to buy.
How do new internet marketplaces enter the toy business, especially Polish Allegro with its aggressive pricing policy?
Time is too short to evaluate. Of course we are watching. Allegro will have an impact on the online world. For us, there is still an important segment of customers who do not buy on the Internet, as well as toys under 200 crowns, which are not sold on the Internet.
Did the online channel strengthen you during the pandemic?
Yes, the trend is worldwide and there is certainly room for e-shops to grow. But some predictions that people will definitely leave brick-and-mortar stores have not come true. Unfortunately, consumer demand is weaker today.
Is the cooling evident in toy sales? I thought it was a segment where they spend despite the crises much like pet gear.
You can definitely tell. Last year there was no problem in consumer demand, but some costs jumped up senselessly. The price for transporting a sea container rose from three thousand to 18 thousand US dollars. Just before Christmas, we will bring a hundred containers of toys, which will cost you 30 million crowns more. Add to that huge increases in energy prices, etc. That’s why our profitability has fallen. This year, fortunately, the containers cost thousands of dollars again, but unfortunately, our rents and other costs have increased. The signs of slowing down are here, people will definitely buy toys for Christmas, but you can buy two instead of three. I expect customers to save.
You also have a network of franchises, how are they doing?
Yes, we have about 40 franchised stores. They are in a similar situation, they also struggle. Our philosophy is that we want to have our own Bambule stores in the cities, and in the countryside and smaller towns we want to be through franchises.
Prague was the most affected by covid because there were no tourists who had previously come on a business trip and bought a toy for a child. Today, many things are done online via video calls, and that is also why we have lost customers. I am afraid that now the impacts in the countryside will be higher than in Prague, where consumers have more money. Household savings rates have risen enormously, and it will be important for Christmas whether they keep saving or start spending. It also depends on the weather.
What effect does the weather have on toy sales?
It has a major impact. When it rains on the weekend, sales at the store are about half as high as when the weather is nice. When the sun is shining and it’s twenty degrees, I’d also rather go play golf than hang out at the mall. In December, when you simply have to buy gifts, the weather doesn’t matter. But this is not good for us, because it is difficult to restock at the last minute.
Is the lack of toys no longer a problem like it was two years ago?
Back then there was a problem, for example, with the lack of toys with chips, but the cycle is now standard.
We are currently selling for Christmas this year, but we are already preparing for Christmas 2024. We need to close the toy orders by January at the latest so that it can go into production in the factories. We need it to be loaded onto ships in Asia, for example in May, so that we have the goods in the Czech Republic in July or August and are ready to sell the toys.
You think a year ahead. But how do you estimate that you will sell a toy from Mattel or anyone else for example 10 thousand pieces, especially if it is a novelty?
Expertly, according to developments from the past or perhaps according to the sales of other toys. There are different methods for this. Of course, we can organize groups where you can show the toys to them, demonstrate them and find out how they like them. It’s alchemy and hard to guess.
Have you burned yourself in the past?
Many times. We are always deeply convinced that the chosen toy is the best, but sometimes the market will show that what we didn’t really believe in is a hit, and on the contrary, the toy we thought was a flop and the market doesn’t want it.
Last year we had a beautiful shark that rides, moves its mouth, and bites, but it was a flop because we had more than half left in stock. Now we’ve launched a fifteen-year-old game and it’s the megahit of the season, beating even Lego and Pokémon lately.
Artificial intelligence probably won’t help here.
It won’t help. We have the most wonderful customers in the world – children. This is wonderful and terrible at the same time. They are amazing in that when they like something, they go after it. Conversely, if they don’t like it, they just don’t want it.
But in groups you test toys on children or not?
Yes, but it just might not work out in the end. It is not possible to test a toy in a group of one hundred thousand children. We have maybe thirty, forty children there.
And then what about the five thousand sharks that remain in stock?
Well, that’s the problem. We have to make them cheaper, resell them. With a lower price, it might sell out. There are also companies that specialize in the purchase of warehouse goods. A product may not be liked in the Czech Republic, but it may be popular in another country. We are selling it at a loss, as a result no toy is lost, but all are sold.
What will be a hit among toys this year?
In addition to traditional toys such as Lego or Pokémon for many years, it will be an Everest game. Another popular toy is from EPEE’s competitor, Spin Master, the supplier of Bambule, who have come up with an innovative hologram toy with a sort of Tamagotchi. It looks like it will be a big success.
How much do Czechs spend on toys for Christmas on average?
Over the course of the year, spending is about 350 crowns, in the Christmas peak the average rises to about 600 crowns. Spending doesn’t increase that much over time. The bad thing is that the customers are dwindling. Children age faster, we try to replace them, but it is difficult. The age of play is getting shorter and shorter, as soon as children get hold of computers and mobile phones, playing with Barbie ends. And today we even see three-year-old children with cell phones, it’s terrible. Of course, it does not benefit us.
Manufacturers are responding to this, there are more interactive toys, toys controlled by mobile applications, etc.
It is true. At the same time, we are trying to sell toys to adults as well, and we see that, for example, sales of Lego sets for adults are still growing. But the main article is toys for children – a toy car, a doll, a stuffed animal, etc.
Do you have your own development department?
I wouldn’t call it so noble, but we modify toys from China by, for example, putting a Czech chip in them, modifying the design, localizing the toys, etc. The production of toys would mean an investment in molds, and then it makes no sense to produce them only for the Czech market, but for the whole world . It is not simple. Only a few companies in the Czech Republic have such a development, for example Efko, the manufacturer of Igráček, or the kit manufacturer Seva.
You also supply cosmetics with licensed characters. How successful are you at this?
Yes, we sell baby shower shampoos, baby bath bombs and we have the best selling perfume in dm drugstore, the sales of which are higher than Adidas cosmetics. It’s really good. You’d be surprised how many boys around the age of eight to ten buy a perfume with Spiderman on it. It is an advantage that it is a year-round business, we do not wait for the last two months of the year. But even here today you can see a slowdown in sales. Of course, we do not produce cosmetics, but we will buy licenses, make packaging and someone will fill it. We pay about ten percent of the selling price for licenses.
Christmas is approaching, can you tell by the intensity of checks by the Czech Trade Inspection?
It is a fact that the frequency of inspections has increased significantly.
How do you explain that?
Undoubtedly, the state cares for the welfare of its citizens. Controllers are only interested in trivial things. For example, in Slovakia, we wrote “Varovanie” on the toy, which they said was completely wrong, because “Warning” should have been written that way. That’s why we got fined, pulled all the merchandise and redid it. I understand that it is necessary to monitor the market to a certain extent, but there are too many checks and in this case it is a matter of words, I think that all consumers in Slovakia understood what we mean by this.
It is similar in the Czech Republic. They are binding regulations and maybe the European Union is making them up, but I think the times are bad enough to chase us like this. I would like them to let us work, especially before Christmas, so that we don’t have to be constantly delayed by registrations and inspections.
Previously, it was enough to mark the manufacturer on the box, but today, according to the regulations, the mark must be directly on the toy car or other toy. This means for the Chinese that they have to change molds, and that is expensive. I don’t understand what it will bring to the consumer that it is on the car and not on the box.
Do you get fined for it?
We have already received fines many times. Sanctions amount to thousands, tens of thousands of crowns, that’s different. Controls only increased under the current right-wing government. From my point of view, the cancellation of electronic records of sales was total nonsense. EET leveled the conditions on the market. Small toy sellers at the fairs did not pay taxes.