Amazon – The Challenging Powerhouse Of Toy Retailing

Amazon – The Challenging Powerhouse Of Toy Retailing

We all knew for a long time that Amazon was going to massively disrupt toy retailing and with disruption comes both opportunity and challenge. During the lockdowns around the world resulting from the pandemic, Amazon played a critically important role for the toy industry. While physical stores were closed (to varying degrees) in many major toy markets, Amazon remained mostly open for business barring a few short-term closures of their warehouse for anything other than ‘critical’ products.

Amazon’s being open for business at a time when global society was most challenged and when demand for many categories of toys and games soared was a major positive in a tough time. Without Amazon things would have been so much worse for the toy business. In a number of ways the pandemic has accelerated Amazon’s influence and growth, but in particular the deeper engraining in many more people of a search, click and receive shopping habit is going to pay dividends for Amazon on an ongoing basis regardless of how long it takes for the pandemic to end.

Amazon does though present some rather strong challenges for toy companies and for the toy industry as a whole. Firstly, Amazon’s pricing strategies and algorithms can cause carnage in a retail environment which has long been cutthroat with regards to pricing of both hot toy lines and evergreen toy brands. An army of people trading on an ad hoc basis from home with little overheads can buy toys at wholesale pricing and sell via Amazon’s platform on tiny margins to make some money on the side while causing large scale disruption to pricing across the internet.

Amazon also represents a technical challenge for toy companies. Essentially Amazon is a search engine for products, which means a different strategy and success formula versus traditional retail. Basically, you need to manage the algorithm and in-built advertising opportunities to get ahead of your competitors. This is not so much about building strong relationships with all powerful buyers, but more about understanding and managing an algorithm you don’t control. For all of us in the toy business who have bemoaned the power and subjectivity of all-powerful Buyers at our customers, this is a fairer and more objective distribution opportunity, but that doesn’t make it easy.

In Europe, Amazon offers another very significant challenges for toy businesses to manage – that being the Treaty of Rome dating back to 1957, under which freedom of movement of goods between members of the European Economic Community (now European Union) was legally mandated. Basically, if you sell a product in one country in the European Union, you can’t prevent that product being shipped across borders by agents, wholesalers, distributors or retailers. There are some infamous examples of this ‘grey market’ shipping of goods which we will not detail here for legal reasons, but let’s just understand that the European Union is supposed to be just one market. The challenge with that when it comes to Amazon is that different countries often have different pricing norms, and so if you have an online platform which can almost automatically sell from one country to another it can again disrupt the market.

As a practical example of this, in 2020 our company has worked on 7 projects helping toy companies find export distribution for their products. When you speak to distributors across Europe, in any country where Amazon is present, the second question they usually ask (after asking about pricing!) is how are you managing Amazon. So, if you want to appoint a distributor in Spain for example, their level of interest in the product may depend on how your distributor in France or Germany is managing Amazon supply.

In conclusion, Amazon has revolutionised shopping and offers big opportunities for toy companies big and small, but this giant global retailer also brings several practical challenges for toy companies to manage. Effectively managing Amazon and the disruption it can cause for the market in general and your other retail customers across markets is already one of the major challenges and success factors for toy businesses, and the importance of effectively meeting this challenge is only likely to grow.

 

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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