A book review: Kid Number One: Alan Hassenfeld and Hasbro, by G. Wayne Miller (Pawtucket, RI: Stillwater River Publications, 2019).
It is arguably Rhode Island’s biggest economic success story since World War II. Other local businesses, such as Amgen and FM Global, employ more people in the state. CVS is a far bigger business overall. But Hasbro is the largest company headquartered here to have made a full transition to the post-industrial economy. Instead of manufacturing expertise, it has thrived with marketing and design savvy. Thanks to its impressive growth since 2009, its market capitalization, at $10.8 billion (now $6b with the pandemic), exceeds that of the Textron conglomerate, $9.6 billion. With economic development front of mind for many Rhode Island leaders, Hasbro is exhibit one for the state’s enduring spirit of enterprise.
How did Hasbro pull this off, when other local manufacturers went into terminal decline? Was it luck, or its position in the booming toy and entertainment industry? We get some answers from Kid Number One, a biography of Alan Hassenfeld by G. Wayne Miller.
Miller, a reporter at the Providence Journal, wrote Toy Wars: The Epic Struggle Between GI Joe and Barbie, in 1998. He focused on Hasbro’s decisions in the 1990s, centered on Alan Hassenfeld. Hassenfeld apparently liked that book so much he commissioned Miller to write this new book and paid for its publication by a Pawtucket press. The first third covers the same ground as the earlier book, taking Hasbro and Hassenfeld’s story up to the mid-1990s. But the rest of the book, with new material, covers Hassenfeld’s gradual stepping away from active management and focus on philanthropic activities.
Those decades after 1998 were when Hasbro, guided by former Hassenfeld lieutenants Al Verrecchia and Brian Goldner, pulled away from toy rivals such as Mattel and became an entertainment powerhouse. Kid Number One lacks the narrative drive and coherence of Toy Wars, and likely won’t get the wide readership of the latter. It’s focused on Hassenfeld, not Hasbro, but still offers useful details for understanding Hasbro’s impressive success.
Moving Out of Textiles
Hasbro started with the first generation of Hassenfeld brothers, Henry and Hillel, who fled pogroms in Poland and immigrated to America in 1903. The teenagers settled in New York City, where they had an uncle. Speaking only Yiddish but with plenty of energy, they started as peddlers and soon moved into the “schmatta” business. That meant finding new uses for the discarded textile remnants from manufacturers. The work eventually led them to David Frank, another Jewish immigrant who had built a thriving textile factory in West Warwick. On a visit, Henry fell for Frank’s daughter Marion, and married her in 1914. He brought her to New York, but she was so homesick for Rhode Island that they moved to Providence in 1917. Their apartment was on Somerset Street, a few blocks from what decades later became Hasbro Hospital. Hillel followed soon thereafter, and they incorporated Hassenfeld Brothers in 1917.
They continued the schmatta business, trying out a variety of uses, and found success with cloth-lined pencil boxes. Rather than buy boxes and pencils from the outside, they started making them directly. That led to other kinds of boxed school supplies as well as novelties, both of which sold so well that they phased out the schmatta work. Their first factory was small, at the corner of Bowen and North Main on the East Side of Providence, and is no longer standing. By 1926 they were prospering enough for the brothers to leave their apartments and buy houses, Henry on Elmgrove Avenue and Hillel nearby on Elmway Street. Business kept growing even with the Great Depression, and in 1932 the company moved to a 65,000 square-foot factory on Broad Street previously owned by a jewelry maker.
Hillel and his wife had two daughters, neither of whom joined the business, but Henry’s two sons became the next generation of Hassenfeld brothers. Harold and Merrill had diverging interests: Harold liked the pencil business, and in 1946 convinced his father and uncle to buy a pencil factory in Shelbyville, Tennessee. Merrill was restless and preferred trying out new products, but stayed close to home. That same year in 1946, he tried out a doctor’s kit for kids, and it proved popular.
So the company created two separate divisions: pencils run by Harold in Tennessee, and Merrill for everything else in Providence. The doctor’s kit led to a nurse’s kit, and then the first truly big hit, Mr. Potato Head in 1952. Its inventor, George Lerner had no ties to Hasbro; he was an independent tinkerer who had tried for years to interest the main toy companies. Hasbro was barely a toy company at all, but Lerner pitched the idea there too, and Merrill was the first executive to take it seriously. That was Merrill’s talent: he came up with no toy ideas himself, but he had an instinct for promoting them to kids. He took a chance and advertised Mr. Potato Head on the new medium of television, where it struck a nerve. Sid Caesar, the most popular early star, was so intrigued that he included the toy on a segment of his show.
Close-up of model of Mr. Potato Head outside Hasbro’s Pawtucket headquarters (John Landry)
Merrill’s division took off, riding the country’s family-based affluence in the post-war baby boom, feeding new toys to households with discretionary spending. With G. I. Joe in 1963, its second big hit (likewise rejected by the main toy companies), the company established itself as a respectable player in the industry. The company built a second large factory in Central Falls to make Mr. Potato Head and then parts of G. I. Joe (the heads were painted in Japan for the lower labor costs). Another factory at 1027 Newport Avenue in Pawtucket eventually became the growing company’s headquarters. Merrill used the success to build a comfortably large house on Woodland Terrace on Providence’s East Side. He and his wife Sylvia raised the next generation of Hassenfeld Brothers, Stephen and Alan, along with their sister Ellen.
A line-up of some of the original GI Joes from Hasbro circa 1964 (Wikipedia)
Going Beyond Gut Instinct
Unfortunately in the toy business, like fashion, you’re only as good as your hit products. When GI Joe sales slipped in the anti-war early 1970s, Merrill’s division started losing serious money, while pencils were doing fine. Merrill’s early death in 1979, at 61 from heart disease, forced a reckoning, splitting the two divisions into separate companies. The toy operation kept the name, now shortened to Hasbro, while Harold’s division spun out as Empire Pencil – eventually acquired by what became the Newell conglomerate.
Which was just as well, as Merrill had already effectively been grooming his hard-charging older son. Stephen became chief executive at the age of 38. Alan, only 31, had no interest in running the company, but he loved to travel and schmooze, and agreed to join as head of international affairs.
Where Merrill had been a conventional leader driven by guts, Stephen loved analysis and strategy. He was ambitious and hard-working enough to believe that Hasbro could be a Wall Street player. But to get there he needed sales to revive, which happened in two ways. First he approved a revamped GI Joe in 1983, no longer a warmonger but an American adventurer fighting terrorists with high-tech equipment. Then the movie “Toy Story” came out in 1985 with an unexpected lead character, Mr. Potato Head, reviving its sales. Supplementing those breakthroughs was My Little Pony, introduced in 1981, which provided an opening for girl’s toys; and the 1984 licensing of the Transformer toys from Japan, boosted by a television series.
Stephen used the initial profits from these hits to fund ideas in two areas where Hasbro was weak: board games and dolls. In all of this he was helped by financial resourcefulness of a young accountant from Cranston, Alfred Verrecchia, hired back in 1965 while finishing at URI.
Stephen’s internal efforts went nowhere, especially with dolls – nothing could displace Mattel’s juggernaut of Barbie. But then Hasbro got lucky again. The early 1980s were a boom time for videogames, and most toy companies invested heavily to protect their market share from Atari and other invaders. Stephen declined to invest heavily in this area, partly because he thought the market was already saturated, and partly because he was so focused on his 1979 strategy. Wall Street initially derided his conservative approach, calling the firm “Has-Been.” Milton Bradley (Vectrex), Coleco (Telstar) and Mattel (Intellivision) did bet heavily, but then the boom went bust in 1984, and the three companies suffered heavy losses. Stephen pounced, using junk bonds to acquire
Milton Bradley (Life, Chutes & Ladders) and Coleco (Scrabble, Cabbage Patch Kids).
Stephen died of AIDS in 1989, at the age of 47, and Alan reluctantly took over as CEO. He delegated operating authority to Verrechia and Barry Alperin, a Providence lawyer and creative thinker who headed acquisitions and product development.
Alan did push for a big move in 1991, the opportunistic acquisition of Tonka. Tonka had struggled since overpaying for Kenner in 1989, and Alperin beat out Mattel with an all-cash bid possible only because of Verrecchia’s diligence in cutting costs. Tonka came with not just trucks but also Parker Brothers’ Monopoly, Clue, Risk, Trivial Pursuit, and Sorry. It also had a license from the Star Wars movies, which gave Hasbro crucial experience in a business that became central to future profits: toys connected to popular movies and television shows.
A range of licensing opportunities, from Jurassic Park and Batman to the Power Rangers, led Alan and his colleagues to push Hasbro in a new direction. Instead of a toy maker, he wanted the company to be a broader entertainment and lifestyle provider. To give stability, he centered the company on a few popular brands that might resonate for more than a few years. By supporting the frugal Verrechia, he made it harder for new toy ideas to get funding, and he cancelled a risky new virtual reality game that had already cost millions in development. The new strategy led to a major restructuring of the company, including the outsourcing of most factory work to Mexico and Asia. From a peak of 2,000 Rhode Island blue-collar workers in the 1970s, Hasbro had none by 2000.
Along the way, Alan resisted an aggressive takeover bid from Mattel in 1996. The $5.2 billion offer would have netted the Hassenfelds $500 million, a big boost for the family as it expanded its philanthropy. They had just contributed the lion’s share of the cost of the $51 million Hasbro Children’s Hospital, and would go on to endow a similar hospital in New York City. Alan’s mother, Sylvia, had moved to New York and gotten involved in charities there, and he himself had married a German jet-setter who much preferred Florida to Rhode Island.
Why did Alan resist the takeover? It was partly because he thought the government would shoot it down on antitrust grounds. But he also believed that Hasbro’s more open, creative culture was simply better than Mattel’s hard-charging, corporate approach. And while he wanted to pull back from the company, he was excited about Hasbro’s new strategy, and wanted to keep the company independent.[1]
The strategy paid off, as Hasbro’s stock rose from $15 in 1996 to $25 when Alan gave up the CEO position to Verrecchia in 2002. (It had been $5 on Stephen’s death in 1989.) Star Wars and other licensing boomed in the 2000s, with help from acquisitions such as Magic the Card Game. The company developed close relations with Hollywood and co-produced several major films tied to toys. Business boomed again after 2009, now under Brian Goldner (a Long Island native who joined via a 1998 acquisition). The stock reached as high as $120 in 2019 until dropping with the coronavirus pandemic.
Vanguard of the New Economy
Much of the Kid Number One (Hassenfeld’s nickname for himself at Hasbro) consists of a series of episodes with little connection over time. But some delightful anecdotes stand out. My favorite involved the building of Hasbro Children’s Hospital. For all his eagerness to delegate, Alan was no pushover when it came to projects he cared about. The plans included the skyway linking the main building with nearby R. I. Hospital. When Providence mayor Vincent Cianci demanded compensation for the “air rights” over Dudley Street, Alan stood firm. As he remembers, he replied that “I went to college at a time when we were fairly creative in protests and demonstrations. I don’t think your honor would like a sit-in outside City Hall, with children in IVs.” Cianci backed down.
More important, Hasbro’s scrappy success shows the survival strategy for Rhode Island’s declining industry. Prosperity depended not on preserving conventional manufacturing or low-wage jobs, but on moving into the knowledge economy oriented toward marketing and culture – coupled with creative finance to pay for the big upfront costs. Hasbro now employs fewer people in the state than it did in the 1970s, but those jobs pay much better. And more important, Hasbro sends a signal to other Rhode Islanders that world-class success can come from innovative risk-taking plus financial discipline.
The conventional wisdom is that Rhode Island failed at de-industrialization. Empty mill buildings, bankrupt industrial towns, and stagnant population testify to the loss of economic momentum after 1945. Yet the economic statistics suggest otherwise. From 1979 to 2018, the state’s gross domestic product rose faster than the national average, even as its population hardly budged. The GDP of Massachusetts, which moved even more aggressively into knowledge-based industries, grew at 6% annually.
This focus on knowledge work helps explain why Hasbro set up an innovation office in Providence next the convention center. Since the 1990s, Providence has reshaped the downtown from a dreary, half-empty wasteland to a lively magnet for talented young people – and scrappy entrepreneurs.
That’s not so surprising with an understanding the Rhode Island’s history of economic development. The late 1800s and early 1900s, with their giant “Industrial Wonders of the World” were the anomalies, not the triumph, of Rhode Island entrepreneurship. The state does better with innovative, aggressive firms always looking for the next big thing. That’s all the more reason to favor incubators such as the new Wexford Innovation Center—and to resist subsidies to lure big established companies to set up shop.
Alan G. Hassenfeld, Chairman of Hasbro, at a conference in 2017 (Wikipedia)
In 2019, Hasbro announced that it was looking to move its headquarters out of the old factory building in Pawtucket. It wanted a new building with an open, flexible arrangement to foster collaboration across operating silos. Hassenfeld had changed his residence to Florida, mostly for the lower taxes there, though he kept a house in Bristol.
The governor’s immediate response was to consider tax breaks to keep the company in town, especially since Pawtucket had just lost its minor league baseball team to a better offer for Worcester. Or maybe move it to Providence, where it could expand on the innovation office. While paying headquarters companies to remain is an unfortunate aspect of country having 50 separate states competing for them, perhaps those resources are better spent on encouraging the next innovators in Rhode Island.
[Banner Image: A model of Mr. Potato Head stands outside of the headquarters building of Hasbro, Inc. in Pawtucket (John Landry)]
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