Lifestyle

How the Beanie Baby craze was concocted — then crashed

In the late 1990s, Ty Warner, creator of the wildly popular Beanie Babies series of plush toys, had a 370,000-square-foot warehouse filled with his beloved collectible animals for kids. All told, the merchandise there represented “more than $100 million worth of product.”

“The Great Beanie Baby Bubble:
Mass Delusion and the Dark Side of Cute”
by Zac Bissonnette (Portfolio/Penguin)

Not one of those toys would ever see the inside of a store or home.

That’s because part of the reason for the incredible success of the Beanie Babies — which had sales of $1.4 billion in 1998, making Warner a billionaire in the process — is that Warner would retire specific animals at whim, creating scarcity in the market and inspiring collectors to pay up to $5,000 for a plush toy that originally retailed for $5.

Journalist Zac Bissonnette’s new book “The Great Beanie Baby Bubble” shows how Warner’s brilliance in this area created an investment bubble as unstable as — and occurring simultaneously with — the Internet stock bubble of the late 1990s. People neglected other areas of their lives to spend all day trading, and some even invested their children’s college funds in toys that they believed would bring an astronomical return on investment.

It worked for a few. The rest were left with beans.

Beanie Babies creator H. Ty Warner in 1996.Getty Images

In the late 1970s, a company called Dakin was the market leader in the world of plush toys, selling almost 70 million toys a year, and Ty Warner was their best salesman.

But while he had a keen instinct for plush toys, his sense of how to treat people was sorely lacking.

“He was a smart-assed s–thead,” one former co-worker tells Bissonnette. “I would guess you’re gonna be hard-pressed to find anybody who liked him.”

The book is filled with examples of Warner’s miserly cruelties. When his father died, Bissonnette writes, he waited five days to tell his sister so he could clear out his father’s antiques collection. Once, during the peak of his wealth, he took a friend’s young daughter out for ice cream but made the girl get money from her parents to pay for it.

Legs the Frog, the first official Beanie Baby, born April 25, 1993.

His hubris ended his 15-year career at Dakin when he began to secretly create his own toy line on the side. When his bosses found out, he was fired.

Pinches the Lobster, born June 19, 1993.

He formed a company called Ty in a suburb of Chicago called Oak Brook and released “a line of Himalayan cats [with] thick hair, a light texture, and a certain floppiness that made them cuddlier than anything else on the market.” There were “beans in the buttocks and feet to provide weight,” creating what Warner referred to as “poseability.”

Cubbie the Bear, born Nov. 14, 1993.

In 1996, Warner told People magazine that “no one had put the combination of understuffed with beans. All [other stuffed] animals were stiff and hard.”

This would prove a crucial innovation, as Warner’s new poseable toys, unlike most stuffed animals, could be made to “wave, dance and cuddle.”

Ty’s sales doubled every year, topping $6 million by 1992 thanks to several shrewd moves on Warner’s part, including selling only to mom-and-pop stores, which were more likely than chains such as Walmart to highlight his toys. He also frequently changed his product line, “always tinkering and always discontinuing old products, changing existing ones and adding new ones.”

The Beanie Baby line took Warner’s “poseable” strategy one step further, with even less stuffing.

He introduced the nine-item line — including Brownie the Bear, Chocolate the Moose and the very first Beanie, Legs the Frog — at a Tennessee gift show in November 1993. At first, the toys were met with little excitement, as retailers feared the “thin pile and bold colors” would “cheapen their stores.”

But Warner was convinced his toys would find favor, and introduced 20 new Beanies, including a bear available in multiple colors six months later, and five more Beanies six months after that.

During that release, he “changed the design on the colored teddy bears, making the faces less flat and, incidentally at the time, creating the first discontinued Beanie Babies.”

“Soon,” writes Bissonnette, “ ‘New Face Teddy’ and ‘Old Face Teddy’ would be household names among collectors, and a pair of Old Face Teddies would be worth enough to pay for a semester of college.”

Warner retired a stuffed non-Beanie in 1995, which started to drive demand for the Beanie Babies.REX USA

In 1995, a stuffed non-Beanie lamb from Ty called Lovie had to be discontinued because of problems with the company’s Chinese supplier. While discontinuing toys was not unusual, the response was. For the first time, Warner was faced with angry customers, as Lovie was a big seller in hospitals.

One of Ty’s distributors recalled an earlier toymaker who sold gnomes and would occasionally break the mold for one of his lines, telling customers the piece had been “retired,” and driving up demand.

Instead of mentioning supply problems, Warner and his reps told store owners that Lovie had been retired and found it completely changed the response. Disappointed buyers were suddenly delighted at the prospect that the Lovies they already had might be worth more than what they paid. Seeing this, Warner began intentionally retiring specific Beanie Babies.

Beanie Baby collectors mob a gift shop in 2000.Getty Images

By early 1996, the scarcity strategy was working, as parents began paying up to $10 or $20 for retired Beanies that originally went for $5.

Queen Elizabeth is given a Beanie Baby, Scorch the Dragon, during her visit to RAF Marham in 2000.Getty Images

Around this time, two pairs of women in the Chicago suburbs — school teacher Becky Phillips and her friend Becky Estenssoro, and Dr. Paula Benchik-Abrinko and her sister, Peggy Gallagher — became the first serious Beanie Baby collectors. As retirings made certain lines scarce, these women became experts at tracking them down.

Benchik-Abrinko noticed that her hospital’s gift shop sold the toys. Whenever she talked with other hospitals, at the end she asked to be transferred to their gift shop and would buy all the Beanie lines she couldn’t find.

Gallagher, meanwhile, started buying them from Ty’s German distributor, which allowed her to pay retail price for lines that had virtually disappeared from Chicago shelves, such as the 30 Chilly the Polar Bear dolls she bought for about $7 each, and later sold “for more than $1,800 each.” All told, Gallagher ordered $2,000 worth of toys from Germany. A few months later, those toys were worth more than $300,000.

Between Gallagher and her sister and the two Beckys, who were buying every Beanie Baby they could find in the Chicago area, interest soared as the toys became scarce. They began calling friends throughout the country to ask them to seek out specific pieces, and in doing so, help spread Beaniemania nationwide.

A woman in Chicago bought Chilly the Polar Bears wholesale for about $7 each and later sold them for more than $1,800 each.

(Oddly, Warner came to hate these women and all the big collectors, finding them “totally nuts,” even suing several despite their key role in helping make him a billionaire.)

Gallagher put an ad in a collectors magazine offering a Beanie price list. She was creating the market, but, she told Bissonnette, was setting the prices based on nothing.

“In the beginning,” he writes, “she simply decreed that most retired Beanie Babies were worth $10 or $20 each, and then watched in amazement as the market went there.”

For those who played this market right, the profit was enormous.

“Benchik-Abrinko,” Bissonnette writes, “quietly sold a few of her rarest Beanies and used the proceeds to adopt her first child.” One Ty sales rep sold a rare Beanie to finance braces for her daughter.

By the end of 1996, Ty’s sales had risen tenfold, to $280 million. Warner’s personal income that year, pretax, was $90 million.Getty Images

Of course, those were in the minority. The book introduces us to Chris Robinson, who had played Dr. Rick Webber on “General Hospital” until about 10 years prior. At a time when his work was scarce, Robinson invested around $100,000 in Beanie Babies, hoping the winnings would pay for his kids’ college educations. In the end, he lost every penny and still has over 20,000 Beanie Babies in his home.

All told, there were a lot more Robinsons than Benchik-Abrinkos.

But for those profiting from the Beanies, life was golden. By the end of 1996, Ty’s sales had risen tenfold, to $280 million. Warner’s personal income that year, pretax, was $90 million.

Chris Robinson, who played Dr. Rick Webber on “General Hospital,” invested about $100,000 in Beanie Babies to eventually pay for his kids’ college education. He lost every penny.Getty Images

Ty’s website further fueled the phenomenon, as the company used it to make retirement announcements and to speculate on possible retirements, dropping hints that drove collectors to buy or sell different lines. Some sellers even began changing prices throughout the day based on website updates.

Warner was constantly approached by companies seeking to collaborate or co-brand and refused almost all, including five major television studios and Steven Spielberg. The one licensing agreement he entered into was with McDonald’s, which he thought could help introduce Beanies to less-affluent people.

In 1997, McDonald’s manufactured 100 million Teenie Beanie Babies, which were to be included in a special Happy Meals promotion. They expected enough demand to be able to sell “one for every household in America within a span of just a few weeks.”

Even this expectation was pummeled by reality. From day one, McDonald’s stores were inundated with “15 to 20, sometimes 25 calls every half-hour” inquiring about availability.

“Some customers,” writes Bissonnette, “ordered a hundred Happy Meals and asked the cashier to keep the food.” So many calls came in that one store in Ohio had employees answer the phone with, “Good morning, McDonald’s. We have the moose and the lamb.”

The promotion was scheduled to last five weeks, but all 100 million toys were gone in two, with McDonald’s canceling all scheduled television advertising over worry that “massive crowds were putting employees’ safety in jeopardy.”

That year, a “USA Weekend poll found that 64% of Americans owned at least one Beanie Baby.”

In 1998, Warner’s pretax income was more than $700 million, and Ty’s sales, over $1.3 billion. At year’s end, every Ty employee received a bonus equal to their annual salary.

Warner signs autographs to celebrate the 10th anniversary of Beanie Babies in NYC in 2003.Getty Images

The first signs of decline came in January 1999, when, after Ty announced a series of retirements, prices stayed relatively stable. It was the first time since the beginning of the craze that prices did not soar for a retired item.

Ty also announced the release of 24 new Beanie Babies that same day, and this was the true beginning of the end, as the release overwhelmed collectors. Wholesale shipments fell by 20 percent over the previous year, and Beanies were seen selling at flea markets for $3. Supply was finally eclipsing demand, and retired issues were suddenly easy to find on store shelves.

By early 2000, newly retired Beanie lines were selling three for $10, and by later that year, the toys were available in dollar stores nationwide.

Sales declined by “more than 90%” in subsequent years, and “in 2004, Warner claimed losses of more than $39 million on his tax return.”

Warner, who pursued “a 20-year odyssey of plastic surgery,” Bissonnette writes, and “used black-sheep embryo injections to maintain his youth,” wound up buying a slew of hotels, including the Four Seasons in New York. In 2013, he was arrested for tax evasion for keeping over $100 million in a “secret Swiss bank account.” He paid a $53.5 million civil judgment and was sentenced to “two years’ probation and 500 hours of community service.” (The US government is appealing the sentence.)

He’s still working on toys and hotels, still attending trade shows and brainstorming new ideas. But whether or not he ever makes lightning strike again, Warner’s innovation guarantees that whatever happens going forward, he’s pretty set.

The people who threw their money into adorable plush toys provided Warner with a lifetime of security, even as, in some cases, they were destroying their own.

“In a court filing related to his tax case,” writes Bissonnette, “Warner reported a net worth of more than $1.7 billion.”