Tag Archives: toy distribution

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/

How To Secure Toy & Game Distribution Across Europe

In the last article in this series we looked at how to secure distribution into North America. This time we’re looking at Europe.

The start point in looking at Europe is that despite the existence of the European Union (which makes things much easier for trading across the continent), you are looking at more than 40 countries, each with it’s own culture, history, retail market and regulatory framework. Europe adds up to roughly around the same market value as the U.S.A., but that large market comes in many bits and pieces in Europe!

The three biggest markets (by quite a long way) are the UK, France & Germany. Depending on which published figures you believe, these 3 markets make up around 50% (give or take a bit) of the European toy market.

Followers of the ’80-20′ rule could be forgiven for thinking they will just focus on these 3 markets & take 50% of the potential opportunity. The challenge though is that these 3 markets alone are actually really quite different from each other, and so it isn’t always possible to use the same strategy in all three:

UK Toy & Games Market: The UK is one of the most license driven toy markets. Movie related toys have always been a big thing, as are ‘TV’ properties and even YouTube content/personality licenses these days. In distribution terms, the market has a strong mass market channel with generalist retailers like Argos & grocers like Tesco, Asda & Sainsburys having good market share. Online has been strong for a long time in the UK, with Amazon leading the market. The toy specialist retail channel in the UK is also strong, with Smyths & The Entertainer achieving ongoing success, which looks set to continue as they take advantage of the gap left in the market by the disappearance of Toys R Us from the UK market. The ‘independent’ toy retail sector in the UK is comparatively small, which means that 5 or 6 retailers can still drive the majority of the opportunity, so most companies approach the UK market either via distributors, sales agents or via setting up their own subsidiary & sales team.

Germany Toy & Games Market – the German toy & games market is quite different from the UK. Overall it is far less license driven, with an emphasis on higher quality components/materials i.e. overall less plastic! And if the toy is still plastic it is more likely to be of higher quality plastic. The parenting culture is strong and German parents tend to be very responsible & interested in the development of their children, especially versus the U.K. Therefore product categories such as board games, construction toys, learning toys are all comparatively strong in Germany. The retail market in Germany is quite fragmented, with thousands of independent toy stores, and a number of retail chains who are important but not dominant players. Germany has long been one of the most internet savvy markets in Europe, as such online channels including Amazon (of course!) are strong. Germany would be a harder market to set up your own distribution due to the fragmented market & store by store of some key retailers/channels in Germany. Therefore distributors would normally be the chosen path to market in Germany.

France Toy & Games Market – France is a strong toy market, but with some distinct local differences. For instance, France has a content production ecosystem of its own, along with long standing comic culture which means that while licensed toys are fairly strong in France, some are based on licenses from France’s own entertainment content. The retail market has 3 key channels: hypermarkets or ‘hypermarché’ inc. Carrefour, Auchan & Leclerc. These retail behemoths have less market share now than in the past but they are still significant. They are known for running massive toy promotions in the last part of the year. While the toy ranges may be small throughout Q1-Q3, they tend to expand significantly in Q4 with aggressive pricing to match. The toy specialist retail channel in France is long established but has had some issues in the past few years as key players ran into financial difficulty. Again the online channel is established in France and as elsewhere is an increasingly significant contributor to the market. France has some strong distributors, as well as the usual network of sales agents/reps. Setting up your own subsidiary can be risky as hiring staff in France is comparatively easy, but firing staff in France is difficult and costly because of local employment laws.

CONCLUSION – in summary, Europe represents a significant opportunity for toy & game companies to expand their distribution. Bear in mind though that despite the helpful presence of the European Union, it is not one uniform market place. Product culture varies from market to market, as does the retail landscape. A winning strategy for European toy & games distribution is to allow for local differences in your plans!

If you are interested in selling into European toy & game markets we offer a Consultancy service to toy and board game companies across the world (past clients have come from countries as diverse as the USA, Australia, India, China, Bulgaria, Korea etc). Our brand, product and export sales management service allows us to get deep underneath the skin of toy companies and to help them sell more into North America & elsewhere both via effective selling using our extensive toy industry connections, but also by helping them to correctly align their brands and products to the market. We offer this service with a limited capacity with a maximum of 5 spaces at any one time. At the time of writing, we have only 1 space left heading into toy fair season. To find out more about working with us on this service & to get our help to grow your business please just drop us a line or visit here for more details: www.KidsBrandInsight.com/services/

How To Secure Toy & Game Distribution Into North America

The USA is the single biggest toy market in the world by quite a long way, and when you add on Canada, which is perhaps a surprisingly good sized market in itself you reach a very significant distribution opportunity for toy and board game companies.

NORTH AMERICAN TOYS & BOARD GAMES – MARKET INSIGHTS

The USA retail marketplace is typically split between Specialty and Mass Market.

Mass market retail often gets most of the attention because just a few retailers can drive huge volumes. A listing in Walmart’s physical stores across their store network will often add up to significantly more than the total sales achievable in an entire European country, or even in several European countries. A single product listing can be worth $millions. The challenge though is that Walmart is not that accessible to smaller companies directly, and the difference between 3 or 5 listings from one year to the next can often make or break companies. It can also be very time consuming to handle logistics with such a large retailer across such a large geographical territory.

Specialty distribution in the USA tends to get far less attention, but can still drive what would be very respectable sales levels in any other country. More importantly, with Specialty distribution, the risk is spread across a broader distribution base typically, meaning that you are not so reliant on the whims or directions of a single retailer or single retail buyer. The USA is unique in that even a retailer trading across just a few states can have hundreds of stores. As such, we often advise our consultancy clients to begin with specialty and to build up towards mass market retail as a longer term objective.

In terms of routes to market, there are 4 main options:

  1. Direct selling to retailers – this is a lot of work to take on in such a vast country. We don’t recommend taking this on lightly!
  2. Selling via reps/agents – there is a large array of sales reps in the USA who can take your products to either a large spread of independent ‘mom & pop’ stores, right up to presenting your products to Walmart, Target etc. Clearly they take a %age, but they represent a much quicker way to grow your distribution as they have already established relationships.
  3. Distributors/wholesalers – these are companies who buy your stock & sell it to retailers. A distributor will often take a more strategic brand building approach and may sometimes invest in marketing. A wholesaler tends to just buy & sell stock.
  4. Direct to consumer – once a pretty much insignificant part of toy and board games sales, selling direct to consumer has grown both in terms of $sales and in terms of importance/influence on the overall industry. Going direct to consumer can justify development costs and open up direct distribution opportunities.

CANADA

Canada’s toy and board game market deserves a special mention. The retail landscape is somewhat different and the market is not insignificant. Often ignored by toy companies, sales to Canada can be significant. While it is quite common to find Canadian based companies or reps selling into the USA, beware that your USA partners have an eye on the Canadian opportunity if you grant them North America territory!

In summary, North America is a massive opportunity. We often come across clients who chase enquiries from small countries and markets, and then get lost in the minutiae of supplying to a new country with all that entails. Putting the biggest opportunity first is clearly more likely to deliver big rewards.

If you are interested in selling into North American markets we offer a Consultancy service to toy and board game companies across the world (past clients have come from countries as diverse as the USA, Australia, India, China, Bulgaria, Korea etc). Our brand, product and export sales management service allows us to get deep underneath the skin of toy companies and to help them sell more into North America & elsewhere both via effective selling using our extensive toy industry connections, but also by helping them to correctly align their brands and products to the market. We offer this service with a limited capacity with a maximum of 5 spaces at any one time. At the time of writing, we have only 2 spaces left heading into toy fair season. To find out more about working with us on this service & to get our help to grow your business please just drop us a line or visit here for more details: www.KidsBrandInsight.com/services/

How Toy Markets Differ – The Difference Between Baseball And Cricket Explains All!

How Toy Markets Differ – The Difference Between Baseball And Cricket Explains It!

Regular readers of my blog posts will know of my near obsession with the importance of understanding market by market differences in order to maximise export sales potential. However, such theoretical rantings don’t always register as well as a more colloquial explanation…so here goes!

Firstly a brief bit of dry theory – the USA and UK appear to have much in common – very similiar language, cultural influences, mass market license driven toy markets etc. Yet we can see distinct and large differences between the two – while the Hollywood machine dominates kid targeted movies, the UK has it’s own distinct brand of kid targeted TV and the hugely influential BBC, the retail structure and chains are fairly different and certain product types work better in one market or the other. Now when we consider the huge historical and cultural links between these two nations, and when we add in the more or less common language, we can see that still the toy markets in the UK & USA are different…so when you change the language, the culture, the retail structure, the regulatory frameworks, the hstory and more, we can see why for instance so few UK or US toy companies manage to sell in Japan, China or Brazil for example.

Now that may all be a little dry and remote for some, or you may have stopped listening to my point on this market difference, so here’s an analogy I like to use – let’s compare cricket and baseball:

For a start, I imagine there are many people reading this who don’t know what cricket is. There will be some that don’t know what baseball is. So let me briefly explain – both are sports where one person propels a hard ball towards their opponent, and whereby the opponent must try to hit the ball far enough to allow him/his team mates to score ‘runs’ i.e. to run to certain points. With me so far? Good! The interesting part though is just how different the format and process of both games is when compared to the other, despite the overall idea being very similar…for instance, baseball scoring is driven by running between bases set out in a diamond shape, in cricket players run in straight lines back and forth. In baseball, the ‘pitcher’ throws the ball without bouncing it through a set space which is deemed hittable, in cricket the bowler runs in, and using a strictly straight armed motion (i.e. not throwing, no whip or bending of the elbow allowed) propels the ball towards three wooden ‘stumps’ with 2 wooden ‘bails’ on top. In baseball you can be out via: 3 strikes, caught or run out, in cricket you can be out bowled, caught, run out, lbw (leg before wicket when the ball hits your legs), because you hit your own wicket, because you took too long to get to the wicket etc.

Hopefully you’re still awake at this juncture…because the point is not to talk about these two venerable games, the point is how two nations can take the same idea i.e. one player propelling a ball at the other and the other trying to hit it with a bat, and create such a different execution?

The reality is that the same similarity of overall purpose can still be executed in a very different way i.e. even within the same category product formats can change – action figures in Germany for instance are more likely to be high quality fixed animal figurines than the traditional movie driven action figures we might find in the UK or USA, a Chinese board game may be very different to an American game etc.

And this doesn’t just apply to product, it also applies to retail – for instance, only the UK has ‘Argos’ – the biggest toy retailer in the UK for as long as I have worked in toys at least – imagine a catalogue driven retailer which prints over 20 million catalogues (one for each UK household roughly) as the leading toy retaiiler…it’s a bit different from Walmart, or Carrefour etc. In Germany, we have thousands of independent toy retailers, and no single dominant retailer, it’s a very fragmented market in terms of retail…whereas the mighty Walmart & Target in the USA hold a hefty market share and therefore have a much greater impact/power base with suppliers. Furthermore, while Toys R Us may offer a mostly homogenous approach to toy specialist retail on a global basis, each market tends to have its own specialist chains with different characteristics – from The Entertainer in the UK to La Grand Recre in France, things are similar but different in the same way as baseball is different from cricket!

The bottom line is this – you will often get away with selling some of the same stuff in multiple markets, but actually you will be better placed in the long term if you first take steps to understand, and then exploit market by market differences.

We work with companies in countries around the world to help them grow their export/international business, and the major finding from our experience is that companies usually need help with ‘tweaking’ their product line and changing product direction to account for the global opportunity…in actual fact in many cases where companies have struggled to establish significant international sales, it’s often because their product lines/approach is the issue. Clearly it helps if you know the right people/companies in each market (our database holds nearly 5,000 toy companies for instance, and we are regular contact with around 100-150…clearly this is advantageous), but actually most often a good product which fits the needs of a particular market will sell itself.

In terms of benchmarks, bearing in mind that the USA accounts for around a quarter of the global toy market, US companies who have domestic sales of $50m for instance should have export sales of at least $5m-10m. For European companies, a good rule of thumb would be that export sales should be at least the same as domestic sales, albeit with a different margin structure.

So if your export sales aren’t hitting these standards, perhaps it’s time you thought about the difference between baseball and cricket, and whether it’s your selling efforts which are holding you back, your product or your lack of knowledge about market by market difference

P.S. More ridiculous analogies will feature in future articles – watch this space!

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading Consultancy to toy, game and kids entertainment companies around the world, which helps companies find the right toy & game factories, consumer research test their products with kids and parents and secure export distribution/market entry around the world.

5 Top Tips For Growing Toy Export Sales

Steve pic

Rarely does my company encounter more wasted effort, expense and opportunity than in the field of export sales. Nearly every company wants to sell overseas, but apparently fairly few actually look to build a sustainable, coherently managed business which will thrive and grow longer term.

The reality is that selling toys overseas can be comparatively easy, but the main issue is a lack of strategy, a lack of planning and a lack of analysis of whether a particular product range will work in other markets. When we help toy or board game companies set up or grow their overseas sales, the start point is not who can we sell to and how soon can we get started. The start point is product selection, collateral material production and an understanding of how future developments can be tweaked to maximise the opportunities.

For those companies with a successful domestic business who are not overly interested in selling further afield, consider these stats – the US toy market is huge by any standards, but even then the market only accounts for between 20-25% of the global toy market i.e. 75-80% of the opportunity is still outside the US. For other markets the scope of this export opportunity is even greater, if we take my home market (the UK), then there is roughly 95% of the global toy opportunity outside the domestic market!

So a good sound plan, and a willingness to devote time and resources to export sales can yield great results.

Here’s 5 top tips for how to maximise the toy export opportunity:

1. Make Sure Your Products Sell Well In Your Domestic Market – the first question any overseas customer will ask you is how well your products will sell at home. If your products don’t work particularly well in your home market, they aren’t all that likely to work elsewhere. Perhaps you could hold off from attacking the vast international opportunities until you have a proven performer to sell…because until you do you are likely to be better rewarded spending your time on building traction domestically!

2. Understand That Markets Differ – presuming that all markets are the same and that you can sell the same thing the same way anywhere in the world is setting your company up for failure. Markets differ vastly in terms of product mix, retail set up/key players, pricing, culture and many other factors. Companies who achieve success in the export business either a). create globally relevant products or b). adapt to the needs of each market opportunity as far as needed. For an example of how different markets can be, check out our article on how the European toy market is actually far from being one single homogenous market:   http://www.toyindustryjournal.com/?p=53

3. Prioritise, Prioritise, Prioritise – there are so many individual countries out there that it can be overwhelming to approach them all at the same time/during the same selling cycle. A winning approach has to be driven by prioritising by size of opportunity – for instance, if you are not located in North America, then the North American market (as the largest, most homogenous toy market in the world) should be your first priority. The next largest toy markets are China & Japan, although they aren’t all that easy to penetrate, followed by the UK, France & Germany, with Australia thrown in as it’s an English language speaking market of reasonable if not large size. If you are just starting to look at export sales, those markets should be more than enough to keep you busy and offer a very significant chunk of the global opportunity. Everything else after that is basically ‘ever decreasing circles’ i.e. smaller and smaller volumes for the same amount of work…for sure you will want to get there eventually, but that can be step 2!

4. Get Off The Seat Of Your Pants – the companies who achieve the most in terms of international toy sales tend to be those who travel! If you have the biggest, hottest product in your portfolio, or an international smash hit movie license you can probably get away without doing so until the heat dies off, but eventually you are likely to need to get on the road! Hong Kong, Spielwarenmesse-Nuremberg and New York toy fairs should be pre-requisite annual itinerary items for you to get ahead in the export game. Emails, phone calls and Skype are ok, but really you can’t beat face to face meeting to build rapport/relationships and to work out whether you trust a company to do a good job on your brands/products.

5. Take Short Cuts Via Expert 3rd Party Help – there are international sales reps out there who will cover the whole world for you via one rep/distribution deal, there are regional and market by market reps, as well as Consultancy businesses focused on helping companies significantly increase their export sales. Often these 3rd party solutions are both more effective and cheaper/less risky than hiring your own export sales staff. Reps only get paid if you make sales and get paid for them, some specialist Consultancies charge less than the wage of an inexperienced junior sales person. For instance, my company Kids Brand Insight (www.kidsbrandinsight.com) offers export sales consultancy via TOYEXPORTBOOSTER™. We find that we end up being cheaper than reps, as we charge a consultancy fee instead of % commission, and cheaper than an export sales manager…so once clients see the effects and cost effectiveness of working with us they tend to stay with us on an ongoing basis. There are other similar companies offering the same type of service also…so the bottom line is that 3rd party solutions can dramatically propel your toy export sales forward.

 

STEVE REECE – is CEO of Kids Brand Insight a leading Consultancy to toy companies specialising in playtesting research, factory finding and toy export sales Consultancy. Kids Brand Insight have a database of in excess of 4,000 toy companies, and are in regular contact with hundreds of toy companies. To find out how they can help your business, please visit their website: www.kidsbrandinsight.com