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How The World’s Biggest Toy Companies Grew Their Distribution

How The World’s Biggest Toy Companies Grew Their Distribution

The world’s biggest toy companies are $multi-billion corporate behemoths with subsidiaries and employees all around the world. They didn’t necessarily get there quickly though. In fact, the one word which could best be used to describe how these massive toy companies grew distribution in terms of a global footprint would be SLOWLY.

It takes years to build up distribution around the world via sales agents and distributors. And then it typically takes decades for toy companies to set up subsidiaries even in the major toy markets in the world.

There are several reasons why distribution growth is seemingly so slow. The first factor to consider is that we work in an industry with an annual selling cycle, so whatever momentum you can create through the course of the selling cycle can only be built on for the following year. Bearing in mind that many (most!) toy product launches flop or at least fail to succeed well enough to come back the following year, we can see why it takes time to build a compelling must list portfolio of toy products.

Aside from the slow and laborious selling cycle, the process of finding premises for a new office and hiring staff to run them is innately risky and time consuming. For this reason, many toy companies seeking to grow enter new markets via acquisition. By buying an established company with good reputation in the country they seek to enter, with existing and strong relationships with buyers and with a good understanding of the market many years of costly trial and error can be avoided. Needless to say though, while acquisition is usually less risky as you are buying an established business you do have to pay a hefty price, and sometimes things still don’t work out. And to find good companies acquire at a realistic cost is also not easy – this also takes times, often years.

So, the reality is that even the biggest toy companies in the toy business today took decades to grow their distribution capability and capacity to the current levels. Therefore, for toy companies which are far less mature, you have to expect it to take time, and that time is measured in years. There are ways to accelerate distribution growth via sales agents or consultants for instance. This can take years off the process, but even then it will still take time!

 

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/

Toy Market News – What’s The Global Toy Business Outlook For 2021…?

TOY MARKET NEWS – WHAT’S THE GLOBAL TOY BUSINESS OUTLOOK FOR 2021…?

September is typically the time when the toy business starts to look forward & begin the process of selling in the product line for the following year. The one thing we can guarantee at this point is that this will be a selling cycle no other we have experienced before.

Who knows whether Covid is going to fade away, be vaccinated out of relevance or whether we will need to manage our lives forever more with this dreadful virus in mind. What we do know at this point is that the selling cycle for 2021 will be disrupted in a way that 2020’s wasn’t. By the time Covid went global, 2020 was  already sold in.

Looking forward to 2021, we already know that Dallas & New York toy fairs in the USA will not take place this time round (although there will be some kind of event planned for Spring 2021 in the USA). Spielwarenmesse in Nuremberg (the world’s largest toy trade show) is at this stage still set to happen, although with a revised program of events. It’s harder to know what will happen with regards to Hong Kong in January because so much of the real toy business is done on a closed door basis in the showrooms up and down Mody Road in Tsim Sha Tsui. So while toy business people do not have to make a decision about attending Dallas or New York, they will have to decide on a micro basis about whether or not they visit Hong Kong this time round, which means it is likely to go ahead in some form, but with significantly reduced international visitors.

What we can presume is that every toy company now has (surely?!) established alternative methods to preview their product ranges to buyers around the world, whether this be a virtual showroom, a video montage or a travelling (socially distanced) sales effort.

The good news for all in the toy business is that overall there is no evidence (at least not that we have seen) about any reduction in consumer demand. So far in 2020 demand has been higher than usual overall, and yet again on a macro basis the toy business on a global level has proved itself to be highly resilient.

On a category by category basis we can see tailwinds in some cases of course, but whereas we were blindsided by Covid in 2020, at least we and the major Hollywood content businesses can now plan for how to get around social distancing requirements to deliver global blockbuster movie releases again in 2021. Anecdotally we’ve seen a substantial trend towards outdoor cinema (whether drive-in or not), and this seems likely to play a big part in delivering audience numbers for 2021, alongside adapted movie theaters. We can also plan to deliver across every toy category in 2021.

Humanity has proven over millions of years to be adaptable and durable, and the massive global pivoting towards the different world we now find ourselves in shows just how resilient humankind is. We therefore expect that with the opportunity to plan for a Covid restricted world, the toy business will continue to grow in 2021, and that buyers can feel reassured that of all their product categories their toy departments deliver year after year despite massive challenges.

We don’t just offer toy market news and analysis. We run a Consultancy business to toy and game companies around the world, from Asia to America and from Sweden to South Africa, we help toy & game companies grow their businesses, build brands and achieve their goals. For more information on how our Consultancy service has delivered $tens of millions in sales and increased profitability just click here: www.KidsBrandInsight.com/services 

Plush Toys: Consumer Insights & Trends

Plush Toys: Consumer Insights & Trends

The Plush toys category is one of the most timeless and Plush toys are among the most common toys to be found in a child’s bedroom. One of the key consumer insights we have seen with children is that the younger they are the more important their sense of touch is. Whilst adults tend to use their sense of sights first, and all else comes after that, for children that isn’t necessarily the case. For sure children look at toys, but above all they want to touch them.

Plush toys are above all a tactile experience for children. The reason why children often take soft toys to bed with them is because soft toys made from soft fabrics are so cuddly, which is reassuring and calming for children.

One question we are often asked about Plush toys is why feature Plush is attractive to children since the tactile experience is often compromised by the addition of a big electronics unit. The secret to successful interactive Plush products is that the technology needs to be used to bring the toy to life, so that what is lost in terms of cuddliness is made up for by a toy which seems as close to lifelike as a toy can be. Children are often fascinated by animals, how they move and how they behave. Good feature Plush appears to bring the toy to life.

The current pandemic crisis has not been good for the Plush toy category for a number of reasons. For one thing, licensed Plush is a major segment of the overall category, with a large amount of volume driven by soft toy versions of movie characters from current or recent cinematic releases. Clearly this key driver of the category overall has been heavily disrupted by the closure of movie theatres across the world due to the need for social isolation to avoid the spreading of COVID-19.

Another issue this year has been (hopefully temporary) retail closures. This is particularly an issue for Plush toys – because children want to touch, feel and cuddle soft toys, this has been difficult with stores closed, and even when children can access Plush toys in Grocery and other essential retail channels, parents are most probably reticent to allow them to pick up products around the store for fear of coronavirus. Moreover, some stores have limited the number of family members who can go into a retail outlet, further reducing impulse purchase opportunities.

This ‘double whammy’ of a disrupted movie release schedule combined with retail closures has definitely had a negative effect on the Plush category short term. The good news though is that these should be temporary effects. There is simply too big a business behind the movie world for that not to rise again, and retail stores are already re-opened in much of the world. While the short-term impact on the soft toys business is harder than for some toy categories, the fundamental consumer drivers behind the longevity of this end of the toy business have not disappeared. Therefore, while the short-term outlook is tough, longer term we would expect the return of the Plush category to historical levels and beyond.

We run a Consultancy business advising toy companies on how to grow their business by a combination of strategic analysis and export sales facilitation. We have helped more than 100 toy and game companies grow. For more information on our process and methodology for growing toy sales: https://www.kidsbrandinsight.com/blog/toy-co-growth-booster-program/

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Q2 2020 Results Are In – Here’s Our Analysis

Q2 2020 Results Are In – Here’s Our Analysis

Hasbro, Mattel & Jakks Pacific have all reported Q2 2020 results in the past week. The picture from all 3 of these major toy companies is clear – revenues are down for Q2 year on year. We reported last week that sales in the US toy market were actually up for the quarter overall, so how can this be if 3 of the bigger U.S. headquartered toy companies had a tough quarter?

The answer to this question is product mix. The two categories which have understandably had a really tough time this year are action figures (due to disruption in terms of movie releases) and plush (which is often a purchased driven by a child picking up and cuddling a toy, and aside from stores being closed, where stores were open parents may not have wanted the child to pick up a toy which has been touched by other people already in light of the current pandemic situation).

The categories which have performed well have been those parentally driven categories which parents will tend to ‘deploy’ to entertain locked down kids i.e. board games, arts & crafts and other ‘worthy’ categories. This makes Hasbro’s downturn all the more impactful as they in particular have a large market share in some of these categories including obviously games & puzzles as well as compounds/creative play with Play-Doh and other product lines. Hasbro & Mattel both have strategies based on entertainment franchises and content, which is going to be tougher to execute for sales growth in the short term, although it may well be reimagined in terms of home entertainment as the primary launch platform, at least for the short term.

So, what are the implications of a tough quarter for Hasbro, Mattel & Jakks? For all three it can be expected that they will seek to enhance their offerings in categories which have done well so far in 2020 – those categories named above, plus more outdoor play perhaps. The industry in general is likely to have an abundance of offerings for 2021 in those categories which have performed well this year.

The challenges aren’t over for the toy business, but in terms of quarterly results we should start to see from the next quarterly results onwards the effectiveness of each companies’ reaction and counter measures to the pandemic.

 

We run a Consultancy business advising toy companies on how to grow their business by a combination of strategic analysis and export sales facilitation. We have helped more than 100 toy and game companies grow. For more information on our process and methodology for growing toy sales: https://www.kidsbrandinsight.com/blog/toy-co-growth-booster-program/

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An Interview With RubyRed Fashion Friends

An Interview With RubyRed Fashion Friends

so720ab9 fashion friends - soymocano54.com

We recently spent some time with Fred Yuan & the team from RubyRed Fashion Friends. The following interview outlines the philosophy and work of the company in the fashion doll category:

TOY INDUSTRY JOURNAL: Fred, it was a pleasure to spend time with you recently and to see your beautiful range of premium, ultra high-quality fashion dolls under the Ruby Red brand. My first question for you is why you decided to launch Ruby Red Fashion Friends, and how has the product been performing in retail so far?

FRED: Our founder Ruby, had been in the doll business for 50 years. She had created many beautiful collectible dolls for doll collectors around the world. Early last year (in 2019), she met with her grand-niece Maleah in USA, and was pleasantly surprised on how young girls are so attentive to current fashion trends. Maleah would frequently go through fashion magazines and websites with her friends and her mother and discuss, imagine and purchase various things to make themselves look great.

Inspired by this, Ruby envisioned that there should be a high end fashion play doll with the current trends of fashion, and consequently set the plan in motion. With help from famous sculptor Dianna Effner, and designer Melody Young, RubyRed quickly launched a new doll for kids to play in late 2019, with the hopes of providing the latest fashion trends to doll lovers.

TOY INDUSTRY JOURNAL: What do you see as the main strengths & the main competitive advantage of Ruby Red Fashion Friends?

FRED: With the vision of a high end play doll in mind, Ruby’s emphasizes 3 main values, play, quality and in trend.

For play: Our RubyRed Fashion Friends have great hair that is easy to style and restyle. Unlike many of the play dolls in the market, our hair encapsulates the wig cap manufacturing technology, and thus was able to provide hair that has a larger hair width. The larger hair width will prevent hair entanglement and easier styling. Furthermore, the wig cap manufacturing hair technology also provides a wider assortment of colour than the traditional rooted hair technology.

RubyRed Fashion Friends also includes many jointed limbs in the doll, which allows it to have many more poses than other play dolls. As her grand-niece would say to this, “It’s PICTURE time”

For Quality Our Rubyred team pays a lot of attention to quality and will strive the best to deliver the best quality out there. Many of our collectors have responded on YouTube and various other social media on how much they loved our attentiveness to quality.

For In Trend, RubyRed Fashion Friends follows the latest trends for children. Unlike most other dolls in the market, our dolls usually have not only 1 piece of clothing but 3-5 sets of in trend items. Denim jackets, hats, pink fluffy robes, handbags etc.

TOY INDUSTRY JOURNAL: Which is your personal favourite doll from the Ruby Red Fashion Friends range & why?

FRED: Hanna is Ruby’s favourite. Hanna has a very unique “innocent” look on her that really attracts Ruby.

TOY INDUSTRY JOURNAL: Can you share any exciting news for 2020? Any new products or initiatives you can share with our audience?

FRED: For 2020, we have and will design and publish 3-8 limited editions of our RubyRedFashionFriends line. All of these limited editions are unique and one-off. Our designers had a lot of fun designing them and we are quite excited to launch them.

TOY INDUSTRY JOURNAL: My understanding is that this kind of high end Fashion doll is well known in some markets especially the USA, but still growing in some other markets. Can you explain the underlying appeal of this kind of fashion doll and why you think they will roll out globally to be a permanent feature around the world?

FRED: We see two things that are happening in the toy market and around kids. Firstly, there are a plethora of low-cost dolls in the market, but many times, they sacrifice quality for price. We think that there is a consensus among some that would really see a very high-quality doll out there, and we wish to design something for them. Secondly, we see a surge of children who are quite independent in their thinking despite their early age. They would like to choose how they dress and are quite fashion-savvy. Thus we hope to offer a doll that is more in line with the current fashion trends and let kids have their fun in dressing their dolls “in style”.

TOY INDUSTRY JOURNAL: Can you give an idea of your Export plans and which markets you are working on next? Also, what kind of companies/customers are you looking to speak to?

FRED: We are currently selling in USA, Canada, United Kingdom, France, Germany and Eastern Europe. We would like to expand our presence in Europe and perhaps even look into the Middle East. One of our initiatives as we mentioned before, is to issue limited edition dolls, and we plan to make them region exclusive (A France only doll or a USA only doll etc).

TOY INDUSTRY JOURNAL: If we had this talk again in ten years’ time, where do you think Ruby Red will be/how will things have changed and what would still be the same?

FRED: We hope that in ten years we will be a brand that not only provides fashion dolls, but also be in close contact with kids who love our dolls so we can play and design new dolls together. I think with the advancement in technology, there will come a time where kids will be able to send pictures of their own designs of outfits, and we will be able to custom make individual dolls based on their designs.

TOY INDUSTRY JOURNAL: Thanks for this interview Fred. If anyone reading this wants to find out more about Ruby Red or to contact you how can they get in touch?

FRED: They can visit our website at http://www.rubyredfashionfriends.com (for North America) and www.rubyredtoys.com (for rest of the world). Furthermore they can also visit our Facebook page on https://www.facebook.com/rubyredfashionfriends/ (for North America) and https://www.facebook.com/RubyRedToys/ (for rest of the world)

How Is The Toy Business Doing During The Pandemic & Does It Matter

How Is The Toy Business Doing During The Pandemic & Does It Matter?

We’re nearly at the point when the major stock market listed toy companies share their Q2 2020 results. This period of time covers the lockdown of western societies and the period most likely to have seen supply of toy & game products impacted by Covid-19 hitting Chinese manufacturing back around Chinese New Year.

The interesting thing from an observer’s point of view is that there are some massive winners and some massive losers coming out of this pandemic. Not every business or every category has seen the same impact. Some companies and some categories have been hard hit by changes in consumer behaviour, some companies are flying and sales are significantly up for the last few months in a time which is traditionally quiet for the industry outside of a brief sales spike around Easter and any blockbuster movie related toy sales.

Anecdotally we have heard from friends and colleagues on both sides of the fence, and we feel sympathy and concern for those who have been hard hit, and obviously we are pleased for those who are doing well in the circumstances. But what is the actual total picture? This should become clearer once we get the quarterly results through from the likes of Hasbro, Spin Master, Mattel and others.

NPD Group (a leading data/market research company) has released some market data to leading trade publications The Toy Book (USA) showing how the toy business in the USA has performed during the lockdown period. You can read more about that data on their website in the news article featuring the data:

https://toybook.com/exclusive-a-look-at-the-categories-driving-the-toy-industrys-16-sales-boom/

Needless to say, the picture is mixed, but spoiler alert: overall there has certainly not been a catastrophic drop in sales for the toy business.

The issue though like always is that what we all really care about is not the total market size. In fact, while we wouldn’t go so far as to say that is irrelevant, it really doesn’t matter for most toy companies. If you are a $multi-billion toy company you may need to pay attention to what is happening with the overall market as you are effectively at that point in a market share battle with the other major players, but for the vast majority of toy companies market size is in practical terms an irrelevance! What you care about is your shipments, your orders and your future prospects. You may feel a little jealousy for a competitor who has a massive hit, but in the end as long as your busines is doing ok what does it really matter from your perspective.

Even from a retailer perspective it doesn’t really matter what the market size dynamic is if your own toy department sales are doing good.

Every single year, whether the market is up or down there is a massive churn beneath the surface of some companies on the up and some on a downward curve. Sometimes it is a good thing if topline sales for the total toy market are down – for instance when there is a strong movie year, many companies focus on the high volume movie related toys at the expense of their own brands, which can lead to higher sales for the year but not necessarily higher profit and certainly not long term stability.

In the end then, it is largely irrelevant to individual companies and toy businesspeople how the market is performing, because we are all in our own battles against our strengths and weaknesses and against our threats and opportunities.

Needless to say, this not a great year if you are a company heavily reliant on movie license toys, because movie releases have been so disrupted. Also, if you are a Plush toy company things may be tough because Plush (unless licensed, in which case see the previous point!) tend to be products which are picked up and held prior to purchase, which is a tough dynamic if a). physical stores are closed and b). people are reticent to pick things up due to fear of picking up something the virus may be on.

If you are a company in one of the categories which has been hard hit, you may benefit from our last article about toy product line diversification: https://www.toyindustryjournal.com/?p=1025

The harsh reality is that if you are in a badly affected category it’s going to be tough for a while, and if you are in one of the more parentally approved categories like games, puzzles, science kits or other area you may thrive despite the crazy times. In the final analysis though, what matters more than total market size dynamics is keeping a close watch on consumer behaviour and adapting to those changes.

 

We run a Consultancy business advising toy companies on how to grow their business by a combination of strategic analysis and export sales facilitation. We have helped more than 100 toy and game companies grow. For more information on our process and methodology for growing toy sales: https://www.kidsbrandinsight.com/blog/toy-co-growth-booster-program/

If you haven’t already signed up for our e-newletter you can sign up here: https://forms.aweber.com/form/54/1325077854.htm

 

Toy Product Range Diversification – Risk Insurance For Tough Times

Toy Product Range Diversification – Risk Insurance For Tough Times

There are plenty of toy and game companies, as well as toy & game retailers out there having a really tough time right now. There are also some companies having a really good time in the circumstances. The question is what separates these companies out? How can some companies do well while some are really suffering?

Let’s start the answer to that question by looking at the age-old cliché in the toy business – the toy and game business has proven historically that it is recession proof or at the very least recession resistant. Even through the global financial crisis of the late noughties, the toy business performed fairly well, staying flat over that really tough period of economic stress and downturn.

The covid-19 pandemic has been so different from any other difficult time in living history in that it has rewritten rules and cut off many features of modern life and economic activity which we completely took for granted. The aviation industry for instance has been decimated by people not travelling. From the perspective of the toy business there has been supply chain disruption, but also perhaps much more critically the movie toy business has been decimated, and along with that in general licensed toys, for so long a major part of the toy business, has been hard hit.

Consumers have moved from buying across all categories to reducing purchases significantly which seem frivolous and increasing those that seem important. In particular, parentally approved toy and games products have seen sales uplift, as desperate parents seek to gainfully occupy children who have not been attending school.

None of this is news at this point, these trends are well known by now. The key finding here though should be about risk reduction via product range diversification. If you have a business which relies on just one product category, product range or retailer, then you are putting your business at major existential risk. When things eventually return to some degree of normal and the pandemic clears, those age old high performing categories will most likely be resurgent again. Collectables and movie toys will uplift once again, and maybe those less aspirational, less exciting toy categories like science kits or arts and crafts will drop down again, but the way you manage that process effectively is to be a player in both.

Currently we are all focused on the pandemic & the immediate harsh impact of that, but if this pandemic hadn’t happened, we would this year have been talking more about the risk of consumer plastic backlash. That was THE big theme coming out of toy fair season this year. The issue with this risk is that consumers won’t give you 5 years warning of their decision to drop plastic, they will just not buy it one year, and when enough of them do that in one selling season you get a major drop in sales of plastic toys. The way to mitigate this is twofold – 1. Jump on board the movement to create products which have plastic like materials based on plant-based materials.  2. If you haven’t already, launch into some categories with more sustainable materials e.g. cardboard and wood. That is how you manage risk across a company’s product portfolio.

If you are the classic ‘one trick pony’ with just one brand or product, hopefully you are getting through these tough times ok, but why wouldn’t you reduce the risk of getting smashed by the next trend, disaster or recession by broadening your product offering?

 

We run a Consultancy business advising toy companies on how to grow their business by a combination of strategic analysis and export sales facilitation. We have helped more than 100 toy and game companies grow. For more information on our process and methodology for growing toy sales: https://www.kidsbrandinsight.com/blog/toy-co-growth-booster-program/

Setting Priority Countries For Toy Export Sales

Setting Priority Countries For Toy Export Sales

One of the most fascinating features of the toy business is the vast array of countries to sell toys to around the world. For those who are interested in travel and experiencing different cultures, the toy business offers much (at least in normal times, maybe the travel opportunities are restricted right now but nevertheless export sales opportunities abound).

Clearly some countries offer far bigger commercial opportunities than others, and some are likely to offer a better fit with your product lines in particular. For those who have been around a long time (ourselves included!) it is all too easy to have a fixed mindset in terms of which markets are the priorities, but as economic development has surged ahead in the world over the last decade or more things are perhaps not quite as simple as they once were.

There is one golden rule though for sure, which is that the USA is by far the world’s largest individual toy market and looks set to be so for at least the next five to 10 years. Therefore, when we work with companies to boost their export sales, we always start with the U.S. toy market, because even if a company already has distribution into this most lucrative of markets the reality is that any efforts and investments of time, resources and money is more likely to pay back in a big way in the U.S.A.

What has changed quite remarkably in the last decade is the position of the toy market in China. China’s domestic toy market is growing fast, and whereas it was once a toy market dominated by generic ‘me-too’ products, in recent years the place in the market for toy brands like Lego and entertainment driven properties has been growing substantially. Whereas China would not have been an obvious country to prioritise for export sales at one point in time it is now an important sales opportunity today, but perhaps more importantly looks set to be of even bigger significance going forward.

After the U.S. and China, we normally point toy companies looking for increased export sales to Europe. Europe’s toy market is roughly on a par with the market in North America, albeit much more fragmented and with a much larger number of different countries. Just to put this in context, a Europe wide contract might include 40+ countries, whereas North America would typically be defined as just three countries.

Of the markets in Europe, the ‘Big 3’ markets are the UK, France & Germany. These three markets are all substantially larger than any other European toy market. While all are quite different in terms of the product mix, emphasis on quality versus price, distribution channels and the relative importance of licenses, it is normally best to find good options for distribution in these countries before looking too much further afield.

After these 5 markets (USA, China, UK, Germany, France) there is a plethora of toy markets of smaller but still substantial size, and one of the most interesting dynamics is the rate of growth and importance of some of these markets. For instance, India is a comparatively small market at this point in time, with potential sales which are typically not found to be worthy of much effort and investment for international toy companies. However, in terms of growth rate of both the toy market and the economy, India offers good long-term growth opportunities. Ten years ago, countries like Turkey and Greece would have been far down the pecking order, but now can deliver significant opportunity.

We find when consulting for our clients on toy export sales that the bigger the company is the more they benefit from targeting the larger markets. For the smaller companies who don’t have such a track record of sales success they often benefit more from selling to smaller countries which are often off the radar of bigger companies. As ever though, each company is different and aside from their product mix, the management approach and sales team capabilities often direct which export markets are the most important.

 

We run a Consultancy business advising toy companies on how to grow their business by a combination of strategic analysis and export sales facilitation. We have helped more than 100 toy and game companies grow. For more information on our process and methodology for growing toy sales: https://www.kidsbrandinsight.com/blog/toy-co-growth-booster-program/

 

 

The Ever-Growing Importance Of China To The Global Toy Industry

The Ever-Growing Importance Of China To The Global Toy Industry

Spoiler alert: this article is not primarily about OEM manufacturing!

For those who have been in the toy business for a long time, China is synonymous with toy manufacturing, and has been for the working lifetimes of most people in the toy trade. China has been an incredible manufacturing resource for toy companies. Much has been written about the pressures on China’s toy factories (including by ourselves), with rapid economic development which makes labour intensive toy production less and less viable in China. Labour cost inflation is the primary reason why toy companies are increasingly looking to Vietnam, India and other Asian markets to pick up some slack in terms of lower labour costs.

This manufacturing picture though is not the only picture. There are two major areas where China is going to offer huge opportunity, competition and activity for the toy business around the world for the forseeable future:

Domestic China Market

There was a point in time when China’s domestic toy market was primarily generic locally manufactured toys. Over time though, as China’s economy has developed and living standards have increased substantially, China is fast becoming the major growth opportunity in the world today for established toy companies. The fact that Lego has plans to open 80+ stores in China should give a strong indication of just how big the domestic toy market opportunity is in China. If current levels of economic development and brand adoption continue, China could become the world’s biggest toy market in a decade potentially.

China therefore has growing importance to the toy industry because there are only so many countries in the world which offer such a large market alongside significant upward growth. The challenge for many toy companies though is that China (like all markets) has its own quirks in terms of culture, distribution setup, media and consumer wants. To use the Lego example again, Lego has launched products tailored to the Chinese market – this is in itself quite a statement, because Lego’s range is one of the most global in the toy business. The major U.S. stock market listed companies have been investing heavily in China’s domestic toy market for at least a decade because above all they need growth to satisfy their investors.

For smaller toy and game companies it can be daunting to know where to start with selling in China, and just like elsewhere, finding a good committed distributor can be challenging, but nevertheless the opportunities are significant and growing.

Chinese manufacturing companies launching their own brands

China has been the world’s toy manufacturing powerhouse for so long, and many manufacturing groups have generated significant wealth over decades by manufacturing toy products on an OEM basis for other companies. Even from way back though, some toy factories went direct to building their own brands in Western markets supplied from their own factories in China. This method of doing business is growing. Logically speaking it makes sense after all, maybe once a toy factory supplying OEM manufacturing might make 15% profit or more, but today with increased labour costs and constant downward pressure on pricing from customers while costs rise might be lucky to generate 5% profit. It makes sense then that of those thousands of Chinese toy factories some should invest to seek to transition from manufacturing toys for other people to designing, manufacturing, selling and marketing their own products and brands.

This could be one of the most disruptive implications of China’s economic development for toy markets around the world, as long- established toy factories with significant expertise move up the value chain to compete with their one-time customers. In the last 12 months, our company has Consulted for more Chinese factories looking to move up the value chain and establish their own brand than we did in the 5 years before that.

China’s role in the world, and especially for us in the toy business is changing. This vast heavily populated country at one point supplied our industry with a large industrial capacity, huge workforce and cheap labour. Looking forward though, while Chinese factories will continue to play a very significant role in supplying toy companies with OEM manufacturing, that role is likely to recede over time. Whereas China’s domestic market is likely to grow significantly, and the number of Chinese toy factories switching from OEM to creating and building their own brands is going to increase significantly which will add competition and new product development streams to the market.

We run a Consultancy business advising toy companies on how to grow their business by a combination of strategic analysis and export sales facilitation. We have helped more than 100 companies grow. Our clients range from $multi-billion FMCG giants through to start ups, from long established toy companies to toy factories and everything in between. We work with companies around the world – recent projects have been delivered for clients in the USA, UK, China, Hong Kong, India, Eastern Europe and beyond. For more information on our process and methodology for growing toy sales: https://www.kidsbrandinsight.com/blog/toy-co-growth-booster-program/

Toy Distribution Methods: Pros & Cons Of The Main Routes To Market

Toy Distribution Methods: Pros & Cons Of The Main Routes To Market

We consult with dozens of companies each year in our toy and game Consultancy business www.kidsbrandinsight.com – more than half of the projects we are asked to help on include export selling – helping a company who are maybe established in one market grow their sales to other countries. We find that the most important consideration is to match the distribution method appropriately with the product, the company ethos and the country in question.
Sometimes companies create more problems than opportunities by not paying enough attention to the differences of the various methods of getting your product to market in other countries.

This article then outlines the main options for selling product into another market, and looks at the positives and negatives of each of these options:

LICENSING – the least hands on method of getting your product to market is to license the rights to another company. This might make sense for product categories or markets where the company licensing the rights wants to manage their own manufacturing. Your company then takes no stock risk, and aside from a licensing agreement and file/data transfer can leave everything else to your licensee. The challenge with this model is that it pays a relatively smaller $ amount per unit as a royalty is a fraction of the net sales value, which is an issue for companies trying to grow sales and profit versus just profit. The other issue is that you can be so hands off that it can be hard to measure or assess whether the other company is doing a good job with your product – the royalty statements will be all you have to review sometimes.

FOB SALES TO DISTRIBUTOR – with this method your factory (or your logistics company) delivers the product to the port nearest to the factory, and your distributor takes the product from there. This way they are responsible for taking the stock risk and responsible for shipping and import costs and administration. They then supply retailers from the ordered stock. Generally speaking this is as safe a way of getting to market as any, the only limitation is that your margin will be fairly limited, as the distributor needs to make a fairly significant margin to make this method work from a profitability and risk management perspective. The distributor will therefore often tend towards being more risk averse than you might like, and will often under order stock to avoid any costly over stocks. You also won’t get to see much of what happens in market as the distributor is handling the entire domestic process.

SHIP TO DISTRIBUTOR’S WAREHOUSE IN THE MARKET – with this method you are responsible for shipping into the customer’s warehouse, and so you have to cover the shipping and import costs and administration, as well as the stock risk until delivery. The distributor may prefer this because they don’t have money tied up in stock sat on the water, they are receiving and paying for stock closer to the point in time where they can deliver to the retailer and invoice it.

SALES REP/AGENT – (in the USA they tend to be called sales reps, and in some parts of Europe they tend to be called sales agents). With this method the rep/agent presents your products to retailers and solicits orders. You manage the manufacturing, stock management, shipping, warehousing/logistics, marketing activities and deal with any returns or over stocks. The rep/agent doesn’t normally get paid until you get paid by the retailer, and then they are usually paid a commission based on a fixed percentage of sales, normally 5-10%. The benefit of this method, and one major reason why it is quite a popular route to market is that your company gets most of the margin, and you don’t normally have to pay the rep until you receive sales proceeds. The major challenge/drawback with this model relates to the major benefit – when your sales rep is not getting paid unless something sells, they are not incentivised to a). sell to the right retail channels b). help you build a brand. They are just going to find the biggest and easiest opportunities to sell as much product as they can. For some companies this is fine, but it can cause issues for companies looking to build strong stable brands in the market sometimes. Also, reps are in business like you, and it is not in their interests to pursue a hard sell. They will generally seek out low hanging fruit, and because there are so many products available out there, they can always find another possibly easier/more lucrative product to sell, so some reps will ditch your range or at least focus on something which is likely to pay them back more for their efforts and opportunity costs. Therefore, while the rep/agent model may seem great at first glance, you need to consider the potential pitfalls also.

DIRECT TO RETAIL – this one is quite straightforward. Your company sells direct to retailers, so you are responsible for everything except for the retail element. The benefit is that you get a much higher margin from this method versus some of the other options. The issue is that most retailers are not particularly keen on adding new suppliers unless that supplier has such a compelling range they can’t not take the product line. So getting a ‘foot in the door’ is the main challenge with this method, it takes time. A secondary but nevertheless formidable challenge is that there are many languages spoken in the world, and while most countries will speak at least some English, it can be harder to sell to a customer in their 2nd language. Also with this model, bear in mind that you take significantly more risks versus the distributor model in terms of being responsible for product liability in the market and other in market risks. This may be fine for a market you know quite well and is culturally and perhaps legally similar to your own, but some countries are very different trading environments, and therefore come with risks and roadblocks to surmount, some of which you may not discover until you learn by error – so sometimes while this can be the most profitable route it can be much harder to deliver sales and profitability in reality.

DIRECT TO CONSUMER – with this model you sell directly to the consumer in the market. This model is much more involved. Whereas all the other routes to market listed here are in essence SALES challenges, selling direct to consumer is more of a MARKETING challenge i.e. you need to get your product in front of a significant number of potential consumer purchasers, online, at events via pop up stores or by other methods. Gaining critical mass can be tricky and costly with this method. Clearly the price you sell at is higher, so in theory your margin can be higher, but you need to watch your marketing cost per unit sold and your fulfilment (i.e. delivery costs) per unit to ensure you do actually make more profit per unit.

That then covers most of the routes to market. We find that toy and game companies often spend too little time considering the right option before leaping into selling and processing sales. There are many details in each of these options that we didn’t have space to list here, this is just a topline – we do suggest that companies take their time and do their due diligence to avoid costly mistakes!

We run a Consultancy business advising toy companies on how to grow their business by a combination of strategic analysis and export sales facilitation. We have helped more than 100 toy and game companies grow. For more information on our process and methodology for growing toy sales: https://www.kidsbrandinsight.com/blog/toy-co-growth-booster-program/