The Connecticut Leather Company, DTC Brands, and the Great Video Game Crash of 1983

Now that we’re talking about the “next wave of DTC brands” - we should have a come to Muhammad moment and acknowledge how waves work. Waves come in… and they crash. So to acknowledge the “next wave”… we have to accept that the previous wave has crashed. Maybe it slowed down and hit a sandbar on the way in, maybe it was captured by the last person still using Instagram’s Boomerang feature… but it did in fact come ashore. 

To continue with the water analogy… before every great crash… there is a great flood. In the real world, floods are terrible things that destroy places you vacationed to one time and then get to tweet about in order to signal that you are both a human and a traveler. In the business world, floods are fun. Floods are how you can eat for free every Thursday night because a vendor that did not exist 12 months ago is picking up the tab. Floods are how you get to jump from entry level to VP without being responsible for anything other than holding the winning ticket. And most importantly: floods are good for consumers because they suddenly get to enjoy an old school dessert cart of goods they never had access to before.

To recap: floods in real life are bad. Floods in business are fun. There is nothing wrong with being responsible for a flood or riding the waves during a flood. To blame the DTC flood on VCs speculating in areas far outside traditional theses... is “to give too much credit to people that enjoy taking too much credit” (@profgalloway, maybe?). This flood is like Mamma Mia and all other floods before: it has many fathers and things were set in motion long ago. From Amazon becoming Amazon, to Millennials entering the workforce during the Great Recession and realizing the world is a bullshit castle built on a house of cards… and that there is one factory in China that makes all of those cards. 

But we have seen these floods before and we have seen what comes out of them. And we have also seen consumer companies pivot, catch waves during the floods and… kind of… make it out the other side. Of course I am talking about the Great Video Game Crash of 1983 and The Connecticut Leather Company aka Coleco. If you’re Gen X or in a high risk group for coronavirus… you’ve heard of it. But if you think you’re never heard of Coleco, you’re wrong. In the 1988 movie ‘Big’ with Tom Hanks (prior to him… as a teenager… bedding an adult woman) there is a scene where Kevin McCallister’s dad, the late great John Heard, asks Elizabeth Perkins if she’s done due diligence on the mystery man. His first question is if she checked with Mattel… the second is Coleco: 

The Connecticut Leather Company came into this world as a small leather goods company supplying parts for regional shoe manufacturers. And like many great success stories, the founder, Maurice Greenberg, came to this country as an immigrant. After the war, the Connecticut Leather Company got into manufacturing via the next generation of Greenberg’s, then vertically integrated with the purchase of an abandoned glove factory. In 1954 they struck gold at the New York Toy Fair with leather moccasin kits for kids. At the time Hollywood was cranking out Westerns, Rick Dalton was the star of Bounty Law, and the Connecticut Leather Company had licenses for big cowboy stars such as Davy Crockett. Consumers could literally buy a kit by foot size, and kids would sew their moccasins while watching. And then to quote that other movie about a young man sleeping with an older woman: “plastics.” The company doubled down on toys and began cranking out plastic toys and naturally… small plastic pools. 

Pools were the first real pivot for the Connecticut Leather Company. So much so that they sold off the leather kit business, changed the name to Coleco, and listed on the American Stock Exchange. The founder’s son took over as CEO and Coleco made acquisition after acquisition, scooping up other plastic pool manufactures and toy companies. For the Canadians, this included the leading bubble hockey maker, Eagle Toys. By the late 1960s they were the number one maker of above ground pools. And while Sher was working on her hit song ‘Gypsy’s Tramps & Thieves’ in 1971, Coleco began trading on the NYSE. Coleco made 20+ acquisitions over the next couple years, including a snowmobile manufacturer. 

The second big pivot for Coleco was consumer electronics. Out in Silicon Valley, transistors went from making weapons of mass destruction more deadly to making radios pocket sized. This meant someone like Coleco could start to make cheap electronic toys with all the cheap chips flooding the market. Coleco released their first electronic consumer good in 1976: the Telstar home video game system. 1 million units sold during the first holiday season. This made Coleco literally the top company in home video game systems. And that’s when the video game flood started. Coleco might have been the first to breakout… but Atari, APF Electronics, Magnavox, and others jumped in.

By 1982 consumers could still do cocaine guilt-free and choose from big name video game systems such as Atari with Pac-Man, Mattel with Tron, and Coleco with Donkey Kong. Dozens and dozens of other consoles, configurations, and games entered the toy aisles. 99percentinvisible did a great podcast in January 2020 that covers some of the hype and fallout of what was to come: the Great 1983 Video Game Crash. And that’s kind of where we are right now with the DTC business. The flood happened. The first real wave has crashed. Consumers have had nothing but choice for the past couple years. Everyone on Instagram can now get any silhouette of shoes shipped to them that are made from: recycled plastic bottles, recycled plastic bags, vegan leather (aka recycled plastic), and eventually recycled plastic shoes made from recycled plastic bottles. 

But I hope you worship the same god as Coleco, because the same year as the video game crash… they licensed and released Cabbage Patch Kids. Not sure if you’re heard of Cabbage Patch Kids. But they were like… huge…. and weird. They also licensed Alf. Again, if you’re too young for Alf, he was an alien that made jokes and ate cats and kids loved him. So now Coleco had: home video game system, Cabbage Patch Dolls, Alf… and oh yeah, a home computer line... in the same year. How could things go wrong? Well… they filed for Chapter 11 in 1988. 

What could Coleco not do? Rambo! Well, according to an industry analyst: diversify. I was two when this went down… but apparently they did not use that sweet sweet Cabbage Patch money wisely in terms of producing or licensing new hits. Or maybe they over diversified in terms of doing a computer, a video game system, and almost all the top selling dolls of the 1980s. Hasbro eventually bought Coleco for $21m. 

Right now, you’re probably thinking: if Coleco filed for Chapter 11 in 1988… and the movie ‘Big’ came out in 1988… was John Heard’s line re Tom Hanks origin informed by the success of Coleco in the 1980s or their troubles that year? Coleco filed for bankruptcy on July 13, 1988. ‘Big’ came out on June 3, 1988. So I would like to believe Tom Hanks gave the impression that he came from the storied 1980’s Coleco versus the troubled Coleco of 1988.  

But your horses cowboy - Coleco wasn’t the only mega 1980s computer company that started in leather craft. Tandy Corporation was another consumer leather company (this time out of Texas) that pivoted to personal computers. Like many DTC brands, Tandy pivoted along the way and went hard on retail in 1963 with the acquisition of Radio Shack. Tandy was also able to successfully build out mail-order and in-house electronics brands prior to going big on personal computers. Again, imagine going from a leather company in Texas, to one of the companies that intro’d America to personal computers. You can still buy “Tandy” leather goods online and the AMC show ‘Halt and Catch Fire’ (90% Rotten Tomatoes) was loosely based on Tandy and other early “Silicon Prairie” computer companies.  

Neither Tandy nor Coleco would have been able to pivot to computers had they not developed the systems that allowed them to act on consumer trends… and raise the capital to do so. But more so, each owned massive parts of their businesses from manufacturing to retail. And the point of comparing the “Great Video Game Crash of 1983” to the recent DTC crash: video games did not go anywhere. And the internet is not going anywhere. It just took a long time, and a lot of hit products for video games to survive. Steve Jobs literally went from making Atari games for arcades… to Apple… to Apple releasing their own Apple Arcade in 2019.