Amid all the bluster about competitive conflict with China and noise about reshuffling global supply chains, one Atlanta consumer products company is doubling down on the country, both as a market and a sourcing hub for its worldwide expansion.
Kids2, a nearly 50-year-old maker of toys and children’s products based in Atlanta, last year opened a new 75,000-square-foot factory and four-story office building in the city of Jiujiang employing more than 1,000 people. This March, it unveiled a swanky new design center and office in Shanghai, complementing offices in Hong Kong and a few other locations.
The Buckhead company has been sourcing from China since the early 1990s, when CEO Ryan Gunnigle started traveling there to forge sourcing partnerships for the company, which he eventually acquired from his parents. China quickly became the central hub in a network of distribution centers the company gradually opened in new markets as it grew.
Now, Kids2 products like Baby Einstein educational gear, Bright Starts toys, walkers and activity centers, and Ingenuity swings and high chairs are made in China but sent to logistics hubs in Europe, Japan and the United States to start their sales journeys into the 90 countries where Kids2 products are sold.
That distribution model remained largely untested until the China-U.S. trade war began in 2017, when a tit-for-tat tariff spat gave many the impression that the winds had permanently shifted in the bilateral relationship. Even those that weren’t planning to leave China began looking at a “China plus one” strategy to diversify their risk portfolio. The pandemic’s emergence in China in 2020 added fuel to the fire, and many companies began fleeing to places like India or Vietnam.
Mr. Gunnigle faced those same pressures at the height of the uncertainty in February 2020, when Chinese New Year was interrupted by a strange new virus.
“We certainly paused and have a few conversations, and I have flashbacks from my board going, ‘What are we doing?’” Mr. Gunnigle told Global Atlanta, but over three decades he had learned to ride out political crises and look intently at fundamentals. “It was our belief that there are not a lot of other infrastructures in other countries to be able to do what we do.”
Those that chased the trends into other markets? Some ended up chastened by inflated asset prices and ended up returning to China, especially in the garment business, Mr. Gunnigle said.
Another factor in the decision was that, in Kids2’s view, China was not only the best manufacturing location, but also a growing market, a fact that reduced the risk of investing there. While its products may face a higher tax coming into the U.S., having a Chinese factory would mean tariff-free access to the domestic Chinese market.
“When you really step back and think about it from a 30,000-foot level, there was really not a lot of benefit right now to moving,” Mr. Gunnigle said in an interview. “We have fantastic employees there. We’ve got a wonderful global team, and manufacturing and selling into that market is a big part of our strategy, so from that standpoint, the factory was not a risk.”
Not only did the company stay put, but it also opened both the Shanghai office — a beachhead for Kids2’s entree into Chinese middle-class homes — and the sprawling new factory as part of a complex with seven buildings, all while pandemic restrictions prevented travel to the country. Mr. Gunnigle saw that as a testimony to the company’s Chinese workforce.
“A lot of late nights, middle-of-the-night Zoom calls — but our team in China and in Hong Kong have been just absolutely phenomenal. Throughout the pandemic, it’s just been really great to see people come together and accomplish extraordinary things. Just opening that factory was certainly one the great highlights of the year.”
Only in October 2020 did the company finally take a breath and resume planning strategically for the future.
“We just parked for eight months, managing through the chaos.”
A Flexible Approach in China
Kids2 is “definitely bullish on China,” in part because the company is also moving into higher-value segments that blend its expertise in brand licensing, digital content and manufacturing.
Baby Einstein, which started at Disney as a set of educational DVDs, is now a bona fid brand with a suite of digital content available via apps and streaming, to go along with its physical products.
That combination has helped Kids2 think strategically about the Chinese market, where the brand just launched on massive e-commerce platforms Alibaba, T-Mall and JD.com.
“What’s really important in China is the partnerships. You really have to have an ecosystem of partners to have a winning approach. If you just kind of go in by yourself and try to do it maybe like we handled the U.K., that’s not going to be a successful approach in my opinion,” Mr. Gunnigle said.
Kids2 has linked up with Hape, the largest wood toy maker in the world, on a musical toys joint venture under the Baby Einstein brand, and is working with Phoenix International, China’s largest publisher of children’s books, to make inroads on the content side.
“We’re in it for the long haul, just like we were in Europe. You have to adapt and be flexible to what works and be open to different business models, so that’s how we’ve approached China,” he said.
Designing the Future
The China approach dovetails with the Kids2 Group’s larger focus on innovation and design, which hearkens back to its origins but has become more structured in recent years.
Kids2 started a product company, specifically a foam wedge that helped mothers bathe newborns. That was the product Mr. Gunnigle’s parents bought before moving their company and lives to Atlanta after “one earthquake too many in California.” Mr. Gunnigle joined in 1990 after graduating from Emory University, became president in 1998 and acquired the company in 2005. It had grown from a few products to more than 500 SKUs and a bevy of patents.
Especially in the last five years, the company has gone from a “reactionary” manufacturing and private-label partner for toy companies and licensors to predicting where demand is going and innovating to meet it — with its own core brands.
“We kind of transitioned from a product company, where we made products that we thought people would like, to being design- and insights-focused and really bringing an experience that is a solution for consumers. That was a pretty big pivot, and we really have seen our sales skyrocket over the last few years.”
The company made it through the pandemic with no layoffs and predicts 10 percent growth this year.
Kids2 Group now has three main lines of business — its three core toy and product brands, a licensing arm called Kids2 Partners that works with the likes of Sesame Street, Disney, Ford and John Deere, and Kids2 Direct, which manages joint ventures like the one with Hape.
As owner of the company, Mr. Gunnigle has also started a venture fund to help other toy and consumer products companies bring their ideas to market with the help of Kids2’s experience and scale.
“What we bring to the equation is a global footprint, a very strong insights machine that understands the consumer — not only the baby but also the parent trends, and globally,” he said, noting that the fund has made six investments so far. “We’re able to bring global relationships and make introductions to those founders to really help and support and grow their business.”
In its 12 offices outside of China, Kids2 has more than 300 employees.
Learn more at Kids2.com.