5 Factors Which Cause Toy Companies To Fail

5 Factors Which Cause Toy Companies To Fail

When you spend a fair bit of time in the same industry you can start to see patterns in what works and what doesn’t work. If you stick around long enough you also get to see companies go from pretty much nothing to huge success – Spin Master is a great example of a company that started back in the 1990s and grew over time to be one of the biggest and best toy companies in the business. During the same time frame though you would also have observed dozens (if not more) of company failures, and of those companies that failed you would have seen many of them went out of business due to some or all of the following reasons:

  1. Failure to deliver an ongoing stream of compelling products to the market

Above all the toy business is a product driven business. You can have a great year one year and a terrible year the next based purely on your new product launches. There are of course ways to balance out these ups and downs, but in the end if you repeatedly fail to deliver compelling product to market (both from a retail & consumer standpoint) you will struggle to stay in the toy business.

 

  1. Failure to build own intellectual property/brands

Due to the ups and downs of new product launch cycles, and the general hit & miss nature of the toy business, the long-term solution for sustainable success is to build some of your own brands which have perennial appeal in the market (albeit they are likely to need updating and some degree of new product iteration). By having something which consumers and retailers want each and every year you can lay down foundations for stability and success. An obvious example we can think of for this would be Mattel, who despite their ups and downs of the last decade have pulled through due to the latent and lasting strength of demand for Barbie, Hot Wheels & Fisher Price.

 

  1. Failure to effectively manage the year long cashflow cycle of the toy business

In the toy business your company tends to be ‘out of pocket/ for a long time during the cycle. You have to pay for staff, office buildings, advance cashflow inventory purchases, marketing spend and much more. Retailers don’t typically make it easy for you to get paid quickly. Having the financial mechanisms and facilities in place to finance both a good year which demands more investment and the following sales cycle after a bad year is a necessity for survival in a business where fortunes can change quickly.

 

  1. Failure to ruthlessly manage inventory

One of the most prominent behavioural traits of large toy companies who run many product lines is a notable ruthlessness on inventory management. Even those products and brands which represent the company’s ‘golden goose’ will be ruthlessly managed to ensure stock levels are kept at the right level according to budget and adjusted sales forecasts. Major toy companies often incentivise their senior executives on stockholding levels by month, and sometimes this can be a greater reward than revenue growth. That is how important managing inventory is. Cash which is tied up in obsolete stock or at least excess stock can’t be used to finance the next sales cycle.

 

 

  1. Hiring under performing people and not improving or firing them

In smaller companies, a bad hire or at least an under performing staff member can hamper the company’s growth by a factor of years. In larger companies it is harder to recruit so that each employee is a super star, but still careless or under committed team members usually cost toy companies money one way or another.

 

It is a sad fact that numerous toy & game companies go out of business each year. Next time you see that happen, take a closer look and the likelihood is that some or all of these 5 factors have been in effect. So, to flip this round effective management of these key areas is the not so secret sauce in the recipe for success in the toy & game business.

 

We run a Consultancy business for toy & game companies. We work with major toy & game companies through to start ups and one person bands. For more information on how we help toy & game companies grow their distribution around the world: www.KidsBrandInsight.com/services

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