Coleco misplayed its success. TROUBLE IN THE CABBAGE PATCH

In the end, even a gang of Cabbage Patch Kids couldn't have kept the wolf from Coleco's door. Under pressure from creditors owed $335 million, and unable to line up new financing to continue operations, Coleco, the nation's fifth-largest toy manufacturer, filed Tuesday for Chapter 11 bankruptcy protection from its creditors.

The filing was not unexpected, but it might have been avoided, several analysts say. The difficulty came in Coleco's mishandling of the boom-bust syndrome so common to fad products in the toy industry.

``They were blinded by their success,'' says Barry Rothberg, a toy industry analyst with Mabon Nugent & Co., an institutional brokerage. ``Any business with $500 million in sales should have the management foresight to recognize the risks.''

In 1985, Coleco, which is based in West Hartford, Conn., was riding high. Sales of the popular, pudgy-faced Cabbage Patch dolls had peaked at about $600 million and made up more than 75 percent of company sales. But in 1986 sales of the dolls fell to about $250 million, and by the end of last year Cabbage Patch sales had fallen to about $125 million.

Though the dolls are still a good seller, the problem for Coleco was that management thought the phenomenon would endure longer than it did, says Sean McGowan, an industry analyst with Balis Zorn Gerard, an institutional brokerage.

``When you're up there, the task is to say how far down does it go,'' Mr. McGowan says. ``But managements never want to believe it, and there's always the temptation to pat yourself on back.''

Coleco might have taken the opportunity to be more conservative, McGowan says, given the company's brush with disaster with video games in the 1970s. As recently as 1983, Coleco had hurried to join the home-computer boom by taking the $600 Adam home computer to market too quickly. Analysts say it was a good idea that went bust from the beginning because of poor quality and Coleco's inability to get it in stores by Christmas.

Coleco's management is hardly the first to be suckered by a big success. Not long ago Worlds of Wonder Inc., the toymaker that made Lazer Tag and Teddy Ruxpin, got caught with too much production capacity and holding a huge inventory of once-hot products gone stone cold. Worlds of Wonder filed for Chapter 11 in December 1986.

Coleco's management has been joined by members of a New York ``crisis management'' firm. An executive of that firm, Antonio Alvarez II, will share the duties of chief executive J.Brian Clarke.

Mr. Alvarez says that if the company can secure loans to continue operations, Coleco will be a much smaller company, with revenues in the $200 million-to-$250 million range. The bankruptcy filing does not include Coleco's Canadian or other foreign subsidiaries, which account for 20 percent of sales.

But the effects have already been felt. In May, the struggling company learned that Horn Abbott Ltd. of Toronto was turning over Coleco's license to produce Trivial Pursuit, the popular board game, to rival Tonka.

There is also concern that Leisure Concepts Inc., which had licensed Coleco to make the stuffed toy Alf, might also turn to another manufacturer because of Coleco's weakness.

``The potential is there to come out of bankruptcy and operate profitably,'' says McGowan. ``But it will require management to change its ideas and cut further - down to about a $100 million company.''

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