What Is Friendshoring – And How Does It Apply To The Toy Business?

What Is Friendshoring – And How Does It Apply To The Toy Business?

Recently US Treasury Secretary Yellen referred to a move (particularly in the USA) towards ‘Friendshoring’ she stated the following:

“Favouring the Friendshoring of supply chains to … trusted countries, so we can continue to securely extend market access, will lower the risks to our economy as well as to our trusted trade partners,”

Clearly in this case, Yellen is referring to the long-term reliance of the USA on China for supply chains across various types of categories and physical product segments. There is much talk currently of ‘decoupling’, of the ‘end of globalisation’ and the move to ‘Friendshoring’ and ‘Nearshoring’ due to the changing nature of the U.S. relationship with China.

All of which sounds fine in principle, but in the Toy industry, there are not many viable alternatives currently. Vietnam has seen significant opportunity as Chinese factory owners opened up plants outside China choosing Vietnam due to it’s geographical and cultural proximity. India is set to take up some of the slack with a few good Toy factories. Closer to major Domestic Toy markets, Mexico is ramping up to a degree, but the bottom line right now is that there is no substantial alternative to China which retains the majority of Toy manufacturing at this point, albeit with a decreasing share on a year by year basis.

When we look at terms like ‘Friendshoring’ we need to see this as an ongoing and future trend – the industrial capacity and domain expertise is not there yet in other geographies. So yes, we absolutely should be looking at our ‘Plan B’ outside of China, but we need to see our industry (& the broader world) as being at the start of a long process of migration of Toy production. Just as China didn’t become the golden hub of Toy manufacturing overnight, so the process of moving from a single hub sourcing solution to a multi-hub solution will take time. Being all in on China right now seems risky but being all in elsewhere is realistically speaking not an option. So, we need to chart a careful course forward and not get to carried away by terms like ‘Friendshoring’ until our friends are ready for us!

If you want more insights into Toy Sourcing & the need for strategic diversification, check out this Linked In Newsletter article:

BIGGEST THREATS FACING THE TOY INDUSTRY: PART 1, LACK OF SUPPLY CHAIN DIVERSIFICATION

https://www.linkedin.com/pulse/biggest-threats-facing-toy-industry-part-1-lack-risk-our-steve-reece/

Did you know we run a Strategic Sourcing Consultancy to the Toy & Game business? We have worked in some guise with most of the major Toy companies globally, and regularly consult with clients to help them review their vendor base and to carefully plan their strategic supply diversification. For more info on what we do: https://www.toyteamasia.com/

Toy Sourcing: The Next 10 Years - Changes, Challenges & Opportunities

Toy Sourcing has become a fairly straightforward process over the last couple of decades with a number of factories in China becoming the core suppliers to most toy companies. In many ways it would be a much simpler world if things stayed as they were with China remaining the dominant hub with strong efficiency, capacity and capability. Alas things are changing, with major stock market toy companies like Hasbro & Spin Master announcing to the markets that they are now sourcing c. 50% of their production from outside China in places such as Vietnam, India, Indonesia & some other countries.

A couple of years back we released a video looking at the changing situation in China & the world beyond. You can check out that video here:

Recently the Toy Association asked us to relook at the topic of Toy Sourcing & how the next 10 years could pan out from here a few years on from the last time we looked at this topic. This snappily titled White Paper can be downloaded here:

TOY SOURCING: THE NEXT 10 YEARS – CHANGES, CHALLENGES & OPPORTUNITIES!

https://www.toyassociation.org/ta/research/reading/papers/toys/research-and-data/reading-room/white-papers.aspx?hkey=8623f248-da28-4039-a80d-bb353cc31b3f

If you have any issues downloading the White Paper, please message me & I will share with you. The White Paper covers the following topics:

1. Where we’ve come from – China & access to abundant cheap labor.

2. Challenge with Sourcing in China today – worker shortage, high labor costs & other risks

3. Alternative Sourcing Hubs: Realities, Potential, Risks & Opportunities.

4. Moving From A Primary Toy Manufacturing Hub To A Multi-Hub Situation

5. Is Nearshoring The Big Solution We Are Looking For?

6. Toy Manufacturing In The Long Term

Again, in case you missed the link you can download the White Paper here: https://www.toyassociation.org/ta/research/reading/papers/toys/research-and-data/reading-room/white-papers.aspx?hkey=8623f248-da28-4039-a80d-bb353cc31b3f

If you’re interested in the topic of Toy Sourcing, you may find our last Linked In Newsletter #9 interesting: IS INDIA THE ‘NEXT CHINA’ FOR TOY MANUFACTURING? In this newsletter we take a closer look at the Toy Manufacturing sector in India and profile India's leading Toy Factory group - MICRO PLASTICS PVT LTD https://www.linkedin.com/pulse/9-india-next-china-toy-manufacturing-steve-reece/

If you want to read previous editions of this Linked In Newsletter, you can access here: https://www.linkedin.com/newsletters/toy-industry-journal-6910540635838013441/

WHEN THE GOING GETS TOUGH: 5 PRODUCT TYPES WHICH SELL DURING TOUGH TIMES…

WHEN THE GOING GETS TOUGH: 5 PRODUCT TYPES WHICH SELL DURING TOUGH TIMES…

After a buoyant couple of years in which the toy & game business soared, despite, or perhaps because of a global pandemic, 2022 is turning into a tough year for many businesses and for the industry as a whole.

Cost of living crises are rolling around the world caused by higher inflation than we have seen in most western economies since the 1970s. As a result, we seem to be heading into unknown territory whereby even toy sales have a tough time. This is something most of us haven’t really experienced. Even during the global financial crisis, things were more difficult than before in our business, but more for reasons of finance and the general pressure our retailers were under. Retail sell through was not catastrophic during the financial crisis of the late noughties. Global toy sales stayed more or less the same throughout this period and returned back to single digit growth by 2010 based on some old reports I dug out of my archives recently.

Normally the toy business is famously recession resistant, but that’s based on recession i.e. an economic contraction. But most of us haven’t worked in an environment where inflation erodes consumer disposable spending in a stealthy way like is happening right now. It’s one thing to be buying toys for your children when things are tight financially speaking, but when the more fundamental human needs are so much more costly than we are used to, if a parent has to decide between keeping their children warm, feeding them or buying them toys, then the toys will come a distant 3rd. This is why I believe that we could see the first major regression in the value of the global toy market (in real terms) of most of our working lifetime in 2022.

So, the question is where should we be focusing our efforts in the light of the tough times we are living through? Which products should we proceed with for 2023 and beyond? Which products should get more of our marketing spend and sales team focus?

Clearly, it’s difficult to answer that product specifically for every toy & game business, but there are some key factors to consider based on what happened during the global financial crisis when toy companies battened down the hatches:

1. Lower price points – there is a clear risk of consumers ‘trading down’ i.e. buying toys for their kids still but buying cheaper lower spec products instead of the more expensive ones they may have bought previously. The one fundamental decision to make for toy & games companies now is do we have the correct balance of price points in our product portfolio for these difficult times? One positive feature that came out of the global financial crisis was that the major toy companies who had generally paid less attention to lower priced toys really embraced the collectibles categories which have been some of the most vibrant over the last 10 to 15 years. It could well be time to focus on some lower cost toys & games for the next couple of sales cycles.

2. Consider cancelling any speculative products in development – most toy & game businesses have been through tough cycles before and understand what type of products to develop in general perfectly well. This though may not be the best time to launch that new really out there concept that your creative team are really keen on. This is more a time to focus on stable, dependable product formulae…unless you are so sure of your major new initiative and have the ‘minerals’ to put your money where your mouth is and to invest heavily in marketing to drive sales at a time when many companies will cut marketing spend.

3. Focus marketing spend on sure bets – retailers don’t normally like taking inventory risks, but in a climate like this when inventory is hanging around retail like a stale old sandwich, your customers will need persuasion to make stock commitments. Regardless of where you are spending, if you spend (comparatively big) to drive retail sell through despite considerable consumer resistance then you are more likely to sell in and to maintain sales revenues as close to previous as possible. In these tough times, marketing can really work and give you competitive advantage versus competitors who reduce their marketing budgets.

4. Known brands – another reality we need to face in the current climate is that struggling consumers and struggling retailers buy known brands that they trust. This may be licensed products, it may be your own already established brands, but this may not be a prudent time to launch completely new IP.

5. Brilliantly compelling products can sell regardless of the above rules! – Hasbro launched various new iterations of Furby during the tail end of the financial crisis last time around at prices above $50 and topped the charts. The boom in kids’ tablets launched by Vtech, Leapfrog & KD Group also happened towards the tail end of the financial crisis. The reality though of course is that Hasbro & the tablet companies invested heavily in marketing to get these more expensive products to sell.

We run a Consultancy business for toy companies. We work with major toy companies through to start ups and one person bands. For more information on how we help toy companies grow their distribution around the world: https://www.kidsbrandinsight.com/blog/toy-co-growth-booster-program/

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Have you listened to our Playing At Business podcast? We have more than 80 episodes live covering many different topics relating to the business of toys & games, find out more here: https://playingatbusiness.libsyn.com