Leading industry journal covering the global toy industry including practical 'how to' articles, research, industry reports and insights.

05 December 2017 ~ 0 Comments

More Toys R Us Tribulations – UK Division Seeks CVA

MORE TOYS R US TRIBULATIONS – UK DIVISION SEEKS CVA

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After the drama and impact of Toys R Us seeking Chapter 11 protection in the USA, the current news that the UK company is now seeking a Company Voluntary Arrangement (CVA).

For more on the technicalities of this process/what it is & what it means, this is the best description we could find (thanks to good old Wikipedia): https://en.wikipedia.org/wiki/Company_voluntary_arrangement

The practical reality of this CVA appears to be Toys R Us wanting to aggressively renegotiate the leases for the old style warehouse stores, and to trim their store count/refocus on newer, most probably smaller stores.

Here’s our 5 key points on this:

  1. All stores seem set to trade through this Christmas, so we shouldn’t see a sudden gap in sales as we head into the critical December selling month.
  2. For full year 2018 we seem to have a risk of lost sales – as c. 25% of stores will be closing, and while TRU may have struggled to make these stores profitable, there is no doubt that they are/were still driving significant toy sales in terms of boxes shifted.
  3. On the more positive side though, if there is an existential challenge facing Toys R Us, then clearly the fairly radical surgery that is in the works could be a good thing if it redirects TRU down the right strategic path longer term. A short term blip is obviously the lesser of two evils versus the long term loss of this key flagship toy specialist in one of the Top 5 biggest toy markets in the world.
  4. Longer term, if the new strategic path works, then new store openings would be likely to follow rebuilding the sales volume via Toys R Us.
  5. While the toy industry critically needs the mighty Toys R Us, we should also take comfort from the fact that going back a decade or so, the loss of Woolworths (No. 2 in the toy market at that time) did not lead to catastrophy for the toy industry in the UK. In fact, there may be a valid argument in terms of Woolworths demise being healthy for the toy industry overall, with a significant portion of market share going to toy specialists like The Entertainer & Smyths who have grown significantly since then. So whatever happens, the UK toy business will continue to grow, but in the meantime let’s hope some short term pain can lead to longer term gain with Toys R Us!

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents. Steve also advises investment companies via leading expert networks like Gerson Lehrman (Steve is an acnowledged GLG toy expert).

12 November 2017 ~ 0 Comments

Hasbro To Buy Mattel? How Likely Is That?

HASBRO TO BUY MATTEL? HOW LIKELY IS THAT?

Wow – what a topsy turvy year this is turning out ot be for the global toy industry!

After the disappointment of the worst movie box office numbers in more than a decade and the unfortunate Toys R Us situation, reports have been circulating in the last day or so about an alleged approach by Hasbro to takeover Mattel!

While speculation on this topic will keep analysts and journalists buys for the next few days at least, a report of an approach is a long way from the reality of an exxecuted takeover. So how likely is it that one of these two toy behemoths might buy the other? Especially bearing in mind their long term rivalry, perhaps even emnity?

The reality is that is hard to predict unless you sit in certain offices within the companies concerned, however, we can look at some factors which contribute to increasing and decreasing the likelihood:

 

INCREASED LIKELIHOOD FACTORS

New Management At Mattel

So far Mattel’s new CEO, Margo Georgiadis, has made some bold statements and taken some bold steps…as you would expect from someone who came to Mattel from that most disruptive of internet pioneers (Google). Could this mean that an approach from Hasbro’s management to a new Mattel leadership less entrenched in the history of Hasbro vs Mattel is more likely to succeed? I would argue that it could easily be more likely.

Mattel’s Share Price

More pragmatically, when a company’s share price tanks, it costs considerably less to buy, and Mattel’s share price is significantly lower than the $40 peak we saw not that long ago. Therefore Mattel could be purchased for a ‘snip’ of a price based on shire price history.

Hasbro’s need for growth

Hasbro CEO Brian Goldner has been hugely successful. I left Hasbro’s employment soon after he joined, since which Hasbro’s share price has more than quadrupled. Mr. Goldner’s strategic vision to move Hasbro closer to Hollywood has proven to be both the right strategy and the right long term vision thus far. However, like all strategies, it is hard to keep growing forever using the same strategy/in the absence of significant acquisition. Mattel and Hasbro have largely (albeit not entirely) complimentary Brands. Mattel’s strength in what was once called ‘Girls’ and the strength of their Fisher Price business in what is still called ‘Infant/Preschool’ compliments Hasbro’s strength in what was ‘Boys’, especially movie action figures and playsets and Games. Imagine a company which could boast all of the following iconic and highly lucrative brands: Barbie, GI Joe, Fisher Price, Monopoly, American Girl, Furby etc.

Major license savings

This factor has already been highlighted in the media. The idea being that the historical competition between Hasbro & Mattel to win the hottest licenses has in fact increased the total licensing costs for both parties. Therefore (so this strand of thought from the media suggests) should the two erstwhile competitors become one entity, major licensees would not be able to get the two to bid ecah other up for licensed rights. This factor could in theory be particularly motivating to Hasbro as a defensive measure, as they currently have so many licenses from Disney for instance (including Marvel, Disney Princess, Star Wars etc). The reality may not prove to deliver quite so many cost savings as expected due to the strong deal making skills of Disney, but it could at least be a driving factor in any attempted takeover of Mattel by Hasbro.

 

DECREASED LIKELIHOOD FACTORS

Competition concerns

This factor is routinely mentioned when the idea of a Hasbro-Mattel merger or takeover has arisen over the years. However, I have no evidence to offer here, you would need to talk to the authorities to gauge how they would see this one!

Corporate Ego & Self interest

Clearly a Hasbro takeover or even a joint merger would lead to ‘synergies’ – that most horrible and unfeeling euphemism for job losses. Therefore, it would seem likely that there could be quiet significant forces of resistance should the alleged takeover turn into reality.

Transaction Cost

The speculation of a takeover could lead to increased valuations for both companies which may inadvertently make the takeover itself less viable.

Clearly there are other factors that may have an influence beyond those I have highlighted here, but one thing I would confirm is that in my opinion, a takeover or merger seems more likely/possible than at any other time in recent history. Mattel’s current weakness and Hasbro’s need to acquire to continue to grow seem to point towards this transaction being more likely than ever before. However, as this topic has arisen every few years for as long as I have been in the toy business, and never happened yet, more likely doesn’t equal going to happen!

Either way though, these are interesting and challenging times in the toy business. But thank the heavens for demographics – global population growth will ensure the toy industry will grow in the medium to long term regardles of short term fluctuations and any seismic shift in the market place/among the global toy behemoths!

19 October 2017 ~ 0 Comments

The Future For China & Toys

THE FUTURE FOR CHINA & TOYS

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China has been the heart of the toy industry in many ways for the last few decades. With a dominant position/share of toy manufacturing China has been the key source for toy companies. These though are interesting times – China’s traditional cost benefit on labour heavy toy production seems to have waned considerably in the last few years in particular. Numerous Chinese toy manufacturing groups have opened factories in Vietnam to balance out China’s rising/risen labour costs. Yet the question remains not just will China continue to be a viable source for labour heavy non automated production of toys, but also does it want to? With the pollution problems in several major population centres, the difficulty finding workers who can live in the key manufacturing centres on factory production line jobs and the fact that China’s accelerated & awe inspiring economic development is now pointing towards higher end automated/technology driven manufacturing.

Aside from the manufacturing consideration, China has become an extremely important toy market for distribution also. This importance stems from two factors: 1. The size of the market, with China having moved ahead of Japan’s powerful toy juggernaut in terms of market size in the last few years to take the mantle of world’s 2nd biggest toy market.  2. The certainty of significant market growth over the next few years – as the more mature Western markets grow in low single digits, China’s increasing wealth is filtering through to consumer spending on toys. Moreover, the relaxing of the 1 child policy will clearly lead to higher birth rates, and as every child born will have toys, growth is therefore assured.

So that’s where we’re at today – a Chinese toy manufacturing sector facing challenges & in the process of moving up the value chain and an internal Chinese toy market which is a major growth opportunity both locally but also for those established toy companies with the ambition and wherewithal to take on the China opportunity.

Looking forward, here are some observations about what’s to come for China & the toy industry:

CHINA & TOYS – FUTURE MANUFACTURING

The one truth which is clear is that the traditional heartland of toy manufacturing in the South of China is likely to encounter change going forward. The local economy, real estate prices etc dictate that local workers will struggle to work in low end manufacturing jobs, even if the factories pay them more, that will in itself cause change as the factories will be less competitive on price leading to less business which is the biggest change driver of them all in business! In addition the traditional model of bringing in workers from further afield in China’s interior seems to be less viable as the overall economic growth/maturing of the economy makes these jobs less and less worth leaving your family for.

The good news for Chinese toy manufacturing though is that the toy industry totally has the China habit – trying to get a toy company to move away from China to other Asian manufacturing countries like Vietnam or India has been compared to trying to get blood from a stone – the deeply embedded nature of the Hong Kong toy hub and long term factory relationships have created a huge inertia which means toy companies sometimes appear to literally need to be dragged kicking and screaming away from China!

On a more positive note, it is very clear that the Chinese toy manufacturing sector is in the process of moving higher up the manufacturing value chain – so we can expect significant growth in high end products where production can be automated/robotised and also in more advanced technology driven products. As such, while I expect China to (eventually) lose much of the low end labour heavy production, I believe it will keep a significant amount of toy manufacturing long term due to the higher tech production resulting from the knowledge driven more sophisticated economy that has arisen & will continue to develop.

In short, longer term I expect China to be a less dominant player in toy manufacturing, but still a major source, certainly for the next decade or so. Hong Kong is therefore likely to remain the hub of the Far East toy manufacturing scene for the forseeable future. Despite the increasing levels of growth/transfer of production to India, Vietnam and others we are seeing/will see over the next decade, the level of expertise/experience in Hong Kong and the fact it is as close to all Asian toy producing countries as anywhere else means Hong Kong is here to stay as our Asian hub for toy companies.

CHINA & TOYS – FUTURE OF CHINA’S DOMESTIC TOY MARKET

This section is mostly good news. The reality is this – China is today a distant 2nd to the USA in terms of domestic toy market size, but China’s toy market is growing rapidly. This is great news for the global toy industry – while mature markets like the USA, Canada, Western Europe etc., will continue to grow single digits due to growing population, China appears likely to see more significant growth – due to increasing standard of living and disposable income for more of it’s people. When you combine this with the relaxing of the one child policy, the resultant increase in birth rate which is set to be significant, and with the sheer size of China’s population, the reality is that China is likely to be the most consistent growth opportunity for toy companies for a decade or more. That’s not to say there aren’t challenges inherent within trying to grow in China, but there is a reason why Mattel & others are so focused on planting seeds of growth in China – in the medium-longterm China’s toy market size will eclipse that of the USA, while the USA still continues to grow at a lower rate.

In short, aside from short term issues, further global financial slowdowns/crashes, the bad movie year that was 2017 for the global toy industry and the constant fight for retail share/listings, the future looks glowing for the global toy industry, and China is a major factor in that rosy outlook!

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents. Steve also advises investment companies via leading expert networks like Gerson Lehrman (Steve is an acnowledged GLG toy expert).

27 September 2017 ~ 0 Comments

Toys R Us – The Retail Growth Story Of The Next 5 Years?

Toys R Us – The Retail Growth Story Of The Next 5 Years?

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One of the little reported facts pertinent to the media circus recently surrounding Toys R Us’ bankruptcy filing is that the companies over reported debt pile was primarily due to the ‘leveraged’ purchase of the business by investment firms. I am no financial guru, but as I understand it, the system we work in allows buyers to buy an asset i.e. a retailer like Toys R Us mostly via loans/financing secured by/put against the business itself.

I’m not going to pontificate about the rights or wrongs of this – reality speaks for itself. There are several notable examples of this type of transaction working (or at least not killing the business in question), but in the end the benefiting party is most likely to be the owners who risk the business itself to  pay off the loans. The business is then saddled with significant interest fees & repayment fees which can’t fail but to constrain development of the business.

Frankly, this is one of the most infuriatingly under reported aspects of Toys R Us’ tribulations – the underlying business is sound! Reporting an operating profit of $460m and EBITDA of nearly $800m in the last full reported financial year. Interest paid in the same financial year = $457m (!).

So to be categorically clear – there is nothing fundamentally wrong with this business! This is a business generating significant positive cashflow aside from the debt used to purchase it.

(please can any one of the hundreds of journalists who have covered this story with apocalyptic doom & gloom in the last few weeks please advise if I have missed anything fundamental here, or failed to read the financial results properly?)

I’d like to highlight the positives of the situation from the toy industry’s perspective and highlight why I believe TRU could become the growth story of the next 5-10 years in toy retailing:

Firstly, there is one positive reality likely to come directly from the TRU bankruptcy filing – the company is generally expected to emerge from Chapter 11 with significantly reduced borrowing, and therefore much less of a millstone around the neck of this toy industry flagship retailer.

Secondly, this will free up money to invest in the refurbishment of stores and growth plan.

Thirdly, the support of toy companies has been almost unprecedently loud and vociferous. Toys R Us is definitely ‘too big to fail’ as far as the major toy companies are concerned – therefore the company has much goodwill in terms of suppliers offering support of all kinds.

Fourthly, once the long term future & security of TRU is confirmed post Chapter 11, it should prove easier to expand further the global footprint.

Overall, the toy industry has shown it is unwilling to let TRU go to the wall. There aren’t many retailers which enjoy such nearly unconditional support. Viva Toys R Us!

 

 

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents. Steve also advises investment companies via leading expert networks like Gerson Lehrman (Steve is an acnowledged GLG toy expert).

 

 

08 September 2017 ~ 0 Comments

Is 2017 Turning Into An Annus Horribilis For The Global Toy Industry?

IS 2017 TURNING INTO AN ANNUS HORIBILIS FOR THE GLOBAL TOY INDUSTRY?

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The global toy industry has been on the up for several years now. A magnificently packed movie slate has seen the toy industry nudge upwards year on year ever closer to the magic $100billion global retail sales level.

The acquisition of Lucasfilm & Marvel by Disney has been a huge supporting driver for the toy industry, as the consolidated control of a huge slice of ‘toyetic’ movie franchises has lead to a much more co-ordinated slate with fewer roller coaster rides of big movie years followed by a drop of the edge of a cliff the following year as used to happen sometimes in the past.

However, there are some rather worrying signs of this growth cycle coming to an end or at least taking a temporary setback:

Summer box office 2017 disappoints – summer 2017 has been a damp squib for the movie industry – summer 2017 is the first since 2006 not to surpass $4billion in North American box office revenues (as per this article in Fortune magazine: http://fortune.com/2017/08/31/hollywood-summer-box-office-movie-stocks/). Clearly this ‘soft’ summer for Hollywood is going to have a negative impact on toy sales, as the less kids get enthused and massively ‘into’ a movie, the less of them will buy toys, and the fewer toys overall will be sold. Unfortunately, a weak performing movie slate is a double negative…much is made of the double sales driver of a movie in the summer followed by a DVD release heading into the back end. Alas, a weak movie most likely heralds weak DVD sales, and therefore a smaller corresponding sales spike for toys.

Franchise fatigue – there has been considerable speculation around the movie going public suffering franchise fatigue. Never before have we had so many movie franchises with so many versions. Has this taken the freshness, the air of excitement, even some of the magic out of going to the movies? There is clearly an argument in this direction, however, I’m not convinced when it comes to kids/family targeted movies and especially toyetic movies – because the consumer i.e. kids move through the target age group comparatively quickly – a 5 year old child who went to watch Cars 1 in the cinema in 2006 would now be 16 years of age. A 7 year old child who watched Transformers in 2007, would have been 17 when Transformers: The Last Knight disappointed at the box office in June/July 2017.  Perhaps annual sequels & prequels is a bit too frequent, but that really comes down to franchise management by the movie studios – really the only difference I can identify is that certain movie franchises have almost got too frequent for last years merchandise to have been fully moved through retail.

Lego sales decline – seemingly heralding the end of another monumental growth story in the toy industry, Lego has announced their first half year sales decline since 2004, alongside a wave of job cuts. Lego has been the darling of the toy industry since rising like a phoenix from the flames back in the mid noughties. Unfortunately, every strategy reaches zenith status eventually, and the hugely successful, industry leading brand extension and co-licensing strategy of  Lego has possibly run out of steam. There are only so many niches of substantial size (Lego after all only relatively recently launched a concerted push to firmly recruit more girls into the brand via Lego Friends, Elves etc). However, I don’t see a great deal of doom and gloom ahead – ok, there has been a sales correction, which may at least partly be due to the recently announced weak box office performance, but Lego is still a huge iconic and highly aspirational brand – much loved by both parents and kids, Lego has achieved the holy grail of the toy business in getting both sides of the toy purchase dynamic to love the brand!

Hasbro & Mattel shares take a hit – Both Hasbro & Mattel shares have been hit by weak box office performance in 2017, combined more recently by a further hit with the announcement of Lego’s sales decrease and fears about the future of Toys R Us (see next headline). Hasbro’s corporate strategy is much more focused on Hollywood movies – both with their broad relationship with Disney/ Lucasfilm/ Marvel, and with their own franchises like Transformers. Mattel on the other hand have followed a strategy for at least the last few years which is primarily about their own brands i.e. Fisher Price, Barbie, Hot Wheels etc., with licensed product as a secondary focus. Mattel appear to be further into their process of change and reinvention than Hasbro, largely prompted by challenges for the flagship cash cow Barbie and the loss of the perennial Disney Princess license to Hasbro. For Hasbro themselves, I suspect the corporate strategy may need an overhaul to look beyond the movie business for further growth. It’s been a little while since either of these two behemoths made a significant acquisition of another toy company, so don’t be surprised if big moves are made to buy future sales growth via acquisition in the short term to relieve the pressure from Wall Street.

Toys R Us looks to restructure debt, with talks of bankruptcy protection being an option – on the back of all this doom and gloom came the announcement that Toys R Us has hired a law firm specialising in debt restructuring to help manage a $400m debt which falls due in 2018. One of the possible ways of managing this debt could be bankruptcy filing to give the chain protection from creditors. While this is clearly worrying news for investors, it isn’t that uncommon for retailers to have big chunks of debt in this day and age. Moreover, Toys R Us has a somewhat challenging business model in general – a big warehouse packed full of stock which tends to sell in high volumes for only around 2-3 months of the year. That has never been a particularly easy business model/risk to manage. Obviously if there is a weakness at the box office, a big warehouse full of movie licensed toys is going to bear the brunt as much as any other retailer, so there can be no doubt that these are challenging times. However, the toy companies and Toys R Us have a very symbiotic organisation, so there will always tend to be a great degree of goodwill and practical support in terms of trading terms etc. offered to TRU from the toy industry. Therefore, it seems clear to me that a business which is profitable and which is relied on to a fair degree by it’s suppliers is not at existential risk. While I have no financial expertise whatsoever, I would speculate based on pure opinion only that the financial investors to Toys R Us are at more risk than the toy industry itself in this instance.

Inventory Hangover – the major issue for the toy industry as a whole is doing what needs to be done to reduce inventory hangover – because often where movie licenses fail to drive sales to the levels expected, inventory is a big problem, and if not dealt with the carry over can impinge on the following years sales – common sense suggests that if the shelves of retailers like TRU are still packed full of stock from movies from last year, then this years stock may struggle to get onto shelf. One major challenge for the toy industry is the timings of Star Wars movie releases – presumably to avoid cannibalisation, Disney Corp has seemingly targeted December movie release for Star Wars instalments. While this may make sense from a movie perspective, it is difficult for the toy industry to maximise based on that release timing – because a huge chunk of toys are bought well before December i.e. kids Christmas lists are usually completed in October, a December movie release date fails to capitalise fully on the selling window, and if there should be inventory hangover, there is very limited time to markdown and try to move stock through before peak season sales die off.

So in summary, this looks like being a challenging year for the toy industry as a whole. There are however several major reasons why the current summer slump is not necessarily the harbinger of doom some seem to foresee! Here’s some powerful reasons for the toy industry to be cheerful:

Hollywood could reduce the frequency for sequels & prequels and rebalance versus original movies – the movie business will have learnt a lot from this disappointing summer. Perhaps the movie slate has become too unbalanced in favour of existing franchises versus new movies/new concepts. Hollywood needs to reintroduce the magic sparkle of anticipation, of the anticipation of the unknown versus over reliance on a limited number of franchises, and certainly needs to review time in between movie instalments. You can imagine right now there are some contentious conversations going on in tinseltown!

Lego has already reset corporate strategy – concerns about Lego seem to be definitely over egging the pie. Following the recent announcements about Lego’s sales decline I was interviewed by a journalist for a leading national newspaper who asked all the usual questions – is Lego over priced, should it be cheaper etc. The reality is that Lego offers huge play value versus other toys which even when they are expensive often only get played with on Christmas day. The fundamental appeal and benefits of Lego have not changed, all that has happened is that one strategy has run its course, and that strategy has been in place since the company’s much publicised troubles of the mid noughties. Lego has already reset corporate strategy by restructuring and the ex-CEO moving upstairs to orchestrate a more holistic brand strategy versus a focus mostly on toys. When we conduct qualitative research groups and playtesting sessions, it is very clear that parents and kids still love Lego, a short term blip is not likely to be a long term problem therefore.

When licensed toys go weaker, own IP brands tend to see a resurgence – not everyone loses when movies fail to live up to expectations. There will be many toy companies out there having very successful years. Those companies who have perennial products that sell year after year probably won’t see much difference just because Hollywood delivered a disappointing raft of summer movies. In fact, we can expect even those toy companies who are knee deep in licensed brands to redouble their efforts to grow their own brands to reduce the risk of under performing licenses.

Developing markets are advancing at pace – whereas we in the West/Northern hemisphere tend to see the world from our own perspective – are Walmart, Carrefour, Argos etc. up or down – the reality is that the next few decades of growth in the toy industry are not going to be driven from our mature markets to the degree that they were in the past few decades. The gigantic populations and economies of China and India are going to be the driving force of the next decades of growth. China has moved to a consumer based economy and that trend will continue. India has further to go in terms of overall economic development, but a toy industry which is currently worth only a few hundred million dollars must inevitably increase in size by tenfold or more over the next decade or so.

The Global population is rising – the success of the toy industry is closely aligned with birth rates for one obvious but critical reason – when children are born, they inevitably become a new consumer of toy products. The overall global populaton is growing – 7.5billion people today is expected to be 8.5 billion by 2030 – and all of that extra billion people will be toy consumers at some point in the next 15 years. So aside from Wall Street’s pre-occupation with short term focus on the next quarterly earnings reports, the reality is the toy industry can only grow while the global population continues to grow.

So, while 2017 is panning out to be a tougher year than most of us in the toy industry expected…the overall prospects are good for the toy business (eventually!).

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents. Steve also advises investment companies via leading expert networks like Gerson Lehrman (Steve is an acnowledged GLG toy expert).

One of the major long term trends we have observed is the need for lower cost manufacturing alternatives to China. We help toy companies find manufacturing in India – India is set to receive as much as $5-10bn in toy manufacturing in the next decade. If you’d like to find out more about Indian toy manufacturing you can contact us via the company website above!

24 July 2017 ~ 0 Comments

Are Toys Still Relevant For Today’s Kids? Erm Yes, Rather!

ARE TOYS STILL RELEVANT FOR TODAY’S KIDS? ERM YES, RATHER!

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Those outside the toy industry often seem to ask whether toys are still relevant to ‘Generation ipad’. Today’s children have so many more media to consumer and engage with than previous generations, that they don’t seem to spend as long with their toys.

Yet they tend to have many more than previous generations. Each item is played with for less time on average, but consumption/purchase/accumulation of toys has definitely increased over time. So how do we explain this? Kids are playing with toys less but we seem to be selling more toys to them – how is that?

Well, there are two compelling reasons for this:

TOY STOCKPILING – I’ve written previously that retail pricepoints for toys have often not changed since the ’80s. if you go back & look at old TV ads, you’ll often find that the same product selling 30 years ago is still selling at the same prciepoint today – despite 30 years of inflation. As a result, traditional toys i.e. action figures, fashion dolls, board games etc., have become (over time) more or less throwaway items. $20 is not nothing, but it certainly is not worth what it was 30 years ago. $10 is a lunch or a few coffees in Starbucks. So it has become easier to buy toys as throwaway gifts, therefore whether kids are using toys or not, toys are now an obvious gift for kids of a certain age. When going to another child’s party, a toy is a typical gift now, so if 10 or 20 kids attend, that’s 10 or 20 toys sold. Most of these may end up at the bottom of the toy chest, but the accessibility of toy pricepoints today makes purchase much easier/likely versus the past.

THE PURCHASE DYNAMIC – people buy stuff for all kinds of reasons. Their motivations are not always the same as our anticipated selling points. I’ve always felt that’s something to embrace as toy company, not to worry about – the point is to sell appealing saleable products & to achieve commercial success while delivering worthwhile products to people. If they buy them but don’t use them, for sure that’s kind of wasteful and not going to win many friends with environmentalists/anti-consumptionists, but the reality is we all do that! How many people reading this have bought clothes they never really wore, or DVDs they only watched once, or books they didn’t read etc? The clear answer is going to be ‘many’.

The toy purchase dynamic is usually about a parent (or grand parent) and the child. Aside from party gifting or other purchase dynamics, the biggest volume and $amount of toys are bought by parents for their own kids. Now being a modern parent is challenging in several ways, not least of which is trying to leverage/crowbar your child away from tablet devices! Kids will sit and play on/passively watch content on tablets for hours if left to their own devices, which we all know is unlikely to be very good for them. So toys today are hugely relevant and important to parents who want their kids to get off screens. Today parents use toys as much as a screen time antidote as they do to provide a primary play pattern. For sure you will get those kids who are obsessed with Lego, or the latest hot collectible toy brand, but we in the toy industry are selling more and more to parents due to the compulsion to get kids off screens.

There have always been some toy categories which were more parentally appealing – board games, construction, creative play etc., but today toys of all kinds are becoming increasingly popular with parents.

Children by the way don’t necessarily want toys any less – if you watch kids watching kids TV channels, you will still see that TV advertising for toys makes them really want the toys featured – just that they are more addicted to/find screen time more compelling (in general/overall), and therefore spend more time on screens if given the choice.

This is indirectly a good thing for the toy industry overall, as we are ever more the parents preferred activity, while still being desired by kids.

So toys are ever more relevant, even if overall kids play with them less.

 

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents. Steve is an acknowledged toy expert, and regularly advises investment firms on Hasbro, Mattel & other major toy companies via leading expert networks including Gerson Lehman & others.

18 July 2017 ~ 0 Comments

Transformers 5 Disappoints: What Next For Hasbro?

TRANSFORMERS 5 DISAPPOINTS (?)…WHAT NEXT FOR HASBRO?

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It has been widely reported that Hasbro & their movie studio partners have a 10 year map for the Transformers franchise. This includes numerous additional Transformers films, plus an array of spin off movies. This should not be surprising, as this is increasingly the way blockbuster movies are going – extended franchises going ever deeper into each character’s story/background. X Men would be the most obvious example – with 10 (big box office earning) movies in the franchise since 2000, total box office gross of over $5bn, with a per movie average of over $500m.

According to media reports, Transformers 5 has been a major disappointment at the box office & in terms of critical reception. Yet the movie is still set to gross well in excess of $500m against a production budget of around $220m, and could even reach $600m at the global box office, putting it on a par with the franchise average of the X Men series. Admittedly this looks like being the lowest box office gross for the Transformers franchise since the 2007 movie, but $500-600m is hardly a disaster. It may be significantly less than expectations, and significantly less than the 2 previous movies which grossed over $2.2bn between them, but likely to be about on a par with X-Men Apocalypse, the last full ensemble X-Men movie which grossed c. $540m in 2016.

The question for Hasbro & their movie partners is whether Transformers 5 failing to live up to expectations is a reason to question the strategy/volume of movies & spinoffs planned going forward or not. As an acknowledged Hasbro expert (I worked for Hasbro for 6 years in the noughties & regularly advise investment companies on Hasbro’s prospects & outlook), I just can’t see how that would be the case for several reasons:

Hasbro & the movie people can’t afford for Transformers to fade from the movie scene, so you can be sure many of the top minds in the movie business will be on it to ensure future success.

While much has been made of Transformers 5 suffering from bad review/poor critical reception, the reality is that aside from the 1st in the modern franchise series in 2007, none of the Transformers movies have reviewed that well.

Spin offs allow franchises to have more frequent movies with less ‘franchise fatigue’ effect, as the story while being linked to the main narrative is different, the action is different, setting etc – for instance The Wolverine (2013) is a great example of a spin off which is unlikely to cause franchise fatigue – the setting in modern day Japan, the Yakuza, the particular ‘baddies’ etc. all significantly differentiate the movie from the main franchise, despite the lead character being one of the lead characters in the broader ensemble. So I would not expect the disappointment of Transformers 5 to have any impact on the forthcoming Bumblebee spin off (aside from much scrutiny from those at the top) to ensure the movie is a hit.

Licensing & merchandising is the big profit driver with this kind of franchise – the reality is that the movie has as much space on shelf as any other brand around the launch date. While this is outside Q4 peak season for toy sales, that means the licensed products almost sell themselves due to the noise around the release & the very prominent in store presence. Maybe this will wane more quickly in the run up to peak season than it might have done if Transformers 5 had been a $1bn grossing movie, but nevetheless, a disappointing movie doesn’t stop kids loving the concept, the characters and the past movies (these past installments of a franchise have never been more accessible with Netflix & other content platforms prevalent today). For sure, there’s likely to be a few less kids recruited into the franchise from Transformers 5, which has to be a concern, as kids are generally in the toy space for this kind of franchise for around 3-4 years max before moving on…yet there is the Bumblebee spin off movie in 2018, which is likely to do at least $300-500m at the box office, meaning the cumulative audience for both Transformers 5 & Bumblebee should be not far off the past smash hit sequels in the franchise. Therefore I see any financial impact as being short term – the franchise will keep going strong.

So, in conclusion, Transformers 5 may have disappointed based on sky high expectations, but $500m-600m is hardly a disaster, and still puts this movie on a par with the X Men series average box office.

N.B. All box office numbers quoted in this article are taken from: www.the-numbers.com

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents. Steve is an acknowledged Hasbro expert, and regularly advises investment firms on Hasbro’s strategy & outlook via leading expert networks including Gerson Lehman & others.

 

29 June 2017 ~ 0 Comments

MID 2018 – TOY INDUSTRY OUTLOOK

MID 2018 – TOY INDUSTRY OUTLOOK

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Around about this time of year toy companies begin to have a fairly clear idea (+/-10%) of how 2018 is going to pan out financially. Some will be right now readying the red pen next to their org charts as 2018 pans out tougher than anticipated. Some will be fighting desperately to avoid getting carried away with a runaway success of a year (batten down the hatches – can next year possibly be as good?). Most will be somewhere in between the two extremes of success and lack of success.

So what is the outlook from this mid year vantage point for the toy industry as a whole? Well, there are numerous trends & activities to identify:

Global toy industry set to grow a few percentage points in 2018 – our analysis suggests a single figure growth position for the global toy market in 2018.

Licensed toys are set for yet another successful year – as Hollywood continues to churn out multiple (dare I say countless!) blockbuster toyetic movies, this year seems set to continue the trend. The fact that the toy industry has seen significant growth in the last few years appears to be primarily due to fantastically consistent and frequent franchise management on behalf of Hollywood. 2018 is (at the time of writing) slated to be another strong year, and 2019 is if anything looking even better with Toy Story 4 & a Minecraft movie joining the plethora of super heroes of all shapes, types & genders.

These are interesting times among the major global toy companies – I can’t remember a more interesting time in terms of the competitive position & status of our major leading toy companies. Lego has moved from being just a toy company to also being a kids entertainment company – with 2 Lego movies hitting global box offices in 2017 and with much more to come. Hasbro is in an interesting position having been hugely successful with the content ownership strategy of the last ten years or so, the question now though perhaps is what happens next…how do they keep that massive momentum going? Mattel has not had a great few years truth be told, with pressure to modernise corporate strategy, pressures on traditional cash cows like Barbie and a significant depreciation in stock market value – the (comparatively) new CEO Margaret Georgiadis (ex-Google) seems like the right person to help Mattel embrace the 21st century media & online worlds, but we’re yet to see concrete steps in that direction from Mattel. And finally, with regard to Spin Master, what an amazing last few years they have had – and I struggle to see how they won’t continue to grow for the next few years at least – I see their key growwth advantage being acquisitions in the coming years, because Hasbro & Mattel need deals to the value of at least several hundreds of millions of $USD to make a deal substantial. Spin Master can scoop up the next level down of acquisitions at the rate of a few per year with little bid competition and thus continue to grow.

Fidget Spinners likely to fade away (?) – most industry veterans I have spoken to anticipate finger spinners will burn bright and quickly before fading away. Typically such fads die when the major western markets hit school summer vacation season, and the viral/word of mouth effect of the school playground fades away for a few months. We seem to get one of these super fads every couple of years, and for 2017, this was certainly it. I’ve seen various estimates as to the likely total sales value of fidget spinners globally…I’m not going to comment here, as numerous financial companies read these articles & lose speculation is not helpful to such institutions…bit nevertheless bearing in mind the total annual value of the toy market varies (from data source to data source) between around $80-100 billion, the reality is that fidget spinners are unlikely to make that significant an impact on total 2017 toy market value.

Manufacturing diversification = work in progress – as price inflation has been an ongoing issue in China, the heartland of toy manufacturing, the toy industry as a whole has been assessing the various alternatives to China’s huge capacity. Based on my experience in helping toy companies with alternative sourcing, the reality still remains that China dominates global toy production capacity still, and will do for years to come. However, we have seen some of our clients shift a proportion of their toy manufacturing to countries such as India, Vietnam, Thailand etc., and so far we’ve seen our customers save around $4m USD p.a. Peanuts in the grand scheme of things, but not chump change either!

Emerging/non-traditional markets still the focus – for as long as I’ve been in the toy business (since the late ’90s), toy companies have chased the glitzy exotic upside offered by ’emerging’ or non-traditional markets. The reality historically has tended to be that focus on the major western markets has yielded the best results. However, in terms of market growth potential, China, India and other such non-traditional markets are growing at a pace beyond what is likely or even possible in very mature toy markets like the USA, UK & Western Europe.

I’ll be back in a few months time to take a first look at how 2019 is likely to pan out for the global toy market.

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading Consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents.

28 June 2017 ~ 0 Comments

Product Launch Timings – When Is The Best Time?

PRODUCT LAUNCH TIMINGS – WHEN IS THE BEST TIME?

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We recently wrote an article for Spielwarenmesse.de – the official blog of the Spielwarenmesse/Nuremberg International Toy Fair looking at when is the right time of year to launch new products. Clearly the industry has the ‘standard’ timings of 1st half & 2nd half of the year, but this article discusses other options in more detail:

http://www.spielwarenmesse.de/magazine/article-detail/strategy-for-launching-new-toys/?L=1&cHash=3c5dbb839f2a28fcfa3af4e9cc7f19a4

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading Consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents.

06 June 2017 ~ 0 Comments

Toy Market USA: An Inside Look…

TOY MARKET USA: AN INSIDE LOOK

We recently supplied on the American toy market to Spielwarenmesse.de, the official blog of the Spielwarenmesse-Nuremberg International Toy Fair.

The article looks at the largest toy market in the world & how best to approach it:

http://www.spielwarenmesse.de/magazine/article-detail/advice-for-the-us-toy-market/?L=1&cHash=9fc1d0d2bc5adcff49c50702ee7b7540