It’s Good To Be Different: Why Independent Toy Stores Need To Work To Differentiate Themselves From The Crowd

It’s Good To Be Different: Why Independent Toy Stores Need To Work To Differentiate Themselves From The Crowd

Independent toy stores are often viewed as the lifeblood of the toy business, and rightly so. While generalist retailers can often deliver the greatest sales volume, their commitment to the toy department and their allocation of space are variable dependent on what else is happening and how their business is doing overall. Of course, independent toy stores have no choice but to fill a shop full of toys, and therefore they are the only guaranteed outlet for our products along with toy specialist chains.

The size of the independent distribution channel varies by country – from the vast array of ‘mom & pop’ stores in the USA, through to the one per town in Germany (both markets where independents are rightly high up the pecking order), through to my own home market, the UK, where there are only around 10% of the total independent stores vs USA & Germany. Even in the UK though the independent toy stores have a greater focus and more ‘clout’/attention from toy companies than perhaps the potential sales volume suggests. There is no doubt that toy companies in general highly value & seek to help specialist toy stores & chains achieve advantage/sustainability versus cost cutting generalist retailers.

Independent toy stores of course do need all the help toy companies can offer, as it is hard for independent toy stores to thrive in this day and age when everything can be bought via the internet at the lowest price on offer. There are some in the toy trade who believe that independents should be able to stand on their own two feet, and should be left to sink or swim – I don’t believe the toy industry is as short sighted as to adopt that perspective en masse, but there is a kernel of truth in the need for independents to differentiate or die! Toy specialist retail chains will often request or be offered exclusive products – maybe a brand extension or a particular licensed product which won’t find full mass market distribution, but which will still appeal to kids – this allows them to differentiate their range from grocers and generalists such as Walmart, Carrefour etc.

Independent retailers won’t get offered an exclusive for their one store, so clearly they need to find another way to differentiate their offer. Generally speaking there are two key ways they do this – firstly, many become affiliated to buying groups, via these groups they can get better terms/pricing from suppliers and better product offerings. Secondly, they can really work on their in store setting to create a really compelling experience/destination for children and families. This is easily said, but often somewhat harder to actually deliver – many independent toy stores are family owned, so staff are often family who aren’t always available to do more than keep up with the basics of shop keeping. Yet above all this is the one thing that independent stores can do above bigger competitors – such corporate stores have very little autonomy at store level typically, everything is planogrammed by someone at head office.

An independent toy store therefore has one key advantage, a customized, flexible offering –fidget spinners, loom bands or whatever is the latest must have toy are easier for independents to take advantage of. These fads offer a comparatively brief but lucrative selling window, and an independent store can really take advantage of the opportunity – with window displays, ‘try me’ outside the store, special promotions/in store events – all offer good opportunities to achieve incremental sales, whereas such a trend is often in and out before bigger retailers can truly capitalize on the opportunity.

One other area where independent retailers can draw people into store is that ‘WOW’ factor – there are some products that you won’t ever see in Carrefour or Target or Argos, some toys that are either very niche or very expensive but really compelling/aspirational for kids to see or play with in store. Generalist retailers don’t need to create the wow factor, they work on pricing, in stocks and having the right hot toys, because they already have huge footfall. Independent toy stores need to work harder on attracting footfall, and then the basics of retailing still apply – good merchandising, good range of products that are appealing and prompting/offers to get products off the shelves and through the tills.

One thing is for certain, toy companies will continue to help the toy specialists, but toy specialists should be very focused on helping themselves by actively seeking differentiation versus their bigger generalist competition – it isn’t ever likely to be easy, but that’s the game!

Do you need help to find the right mid to senior level people? We can help…we have been helping people from across the world of Toys, Games & Licensing to find new roles since 2011. Our client list reads like a ‘Who’s Who’ in the industry, think of a Toy company and we have worked with them in some way. Along the way we have met thousands of really talented people who could be your next hire.  Get in touch for more information via the ‘CONTACT’ page if you need help to hire new people, or check out www.ToyRecruitment.com 

Toys & Games: Alternative Distribution Channels

Toys & Games: Alternative Distribution Channels

We in the toy business can tend to get very focused on our existing (traditional) retailers. In markets like the USA, France and the UK, just a few retail chains per market have a very significant market share (i.e. Walmart & Target in the US, the hypermarché and toy specialist chains in France and in the UK) and tend to demand a large degree of focus and care from our sales teams.

The German toy market is unusual when compared to these other major toy markets, in that it has a very fragmented retail base, with its preponderance of independent toy retailers and no one retailer accounting for a very large share of the market, it is somewhat unusual. This difference shifts the challenge from managing one or two highly demanding super-sized retailers to ensure you can leverage as many listings/shipments as you need, to a challenge of managing a fragmented sales network and the need for more substantial sales infrastructure.

One distribution factor that is present in mostly equal measure in all these markets though is the concept of ‘alternative distribution’. Away from much cherished toy specialists and highly valued but very demanding multi product retailers, is a different world where toys can be present but aren’t necessarily integral/essential to the retailer in question. While Toy specialist retailers obviously must stock toys, and the mass market generalist retailers use the toy category to drive in store traffic and to ensure they capture as much ‘family’ spending as they can, why would a book store, a furniture store or a multi-media retailer stock toys – especially when toys are sold on a ‘firm sale’ basis i.e. the retailer buys them and keeps them, not like sale or return to supplier which is typical for books or multi-media for instance? Moreover, do these retailers merit focus and attention when they tend to take a narrow range of products from a limited number of suppliers?

The value to toy companies of such customers probably comes down to business strategy and place in the market. The 80/20 rule would probably suggest that such retailers are not worthy of the time of the sales departments in larger companies like Mattel, Hasbro or Lego for instance. Such non-core customers are more likely to be passed onto wholesalers by these big players. However, for smaller companies there may well be value in targeting such alternative distribution, because the value of the potential opportunity may well be more significant to a company that doesn’t have full distribution into all traditional channels. My own experience would suggest that sometimes it is easier to be one of a few suppliers in a particular category than it is to be one of many. For smaller companies, a broader base may mitigate the risk that gigantic customers pose in terms of ongoing sales/listings stability and inventory.

These alternative retailers may sometimes appear to be uncommitted to the toy category – some years they are in, some years they are not, but the reality is that they do offer incremental opportunity. Sometimes they may increase their toy line around events i.e. a major book launch, or a particular season of the year. Toys can help them broaden their offer to the consumer and draw in more families to their outlets.

While consumers may not be looking in such types of stores for toys specifically, the research I have conducted suggests that the average consumer does not think ‘I’m in a book shop, I am only here to buy books’, rather they look at and eventually purchase items which they want or even need, regardless of where they are when they buy them. Certain types of toys can fit very well with a particular retailer, i.e. the Lord of the Rings and The Hobbit film toys (& other merchandise) appear to have achieved significantly more in store space than the general line of toy products offered usually due to the clear link between the movies and the books they are derivative works of.

Toys may not seem such an obvious fit with some of these alternative distribution channels, but they still offer revenue opportunity for those willing to step outside the usual and place a sales call!

Do you need help to find the right mid to senior level people? We can help…we have been helping people from across the world of Toys, Games & Licensing to find new roles since 2011. Our client list reads like a ‘Who’s Who’ in the industry, think of a Toy company and we have worked with them in some way. Along the way we have met thousands of really talented people who could be your next hire.  Get in touch for more information via the ‘CONTACT’ page if you need help to hire new people, or check out www.ToyRecruitment.com 

What Makes Toy Companies Successful

What Makes Toy Companies Successful

There are numerous factors which combine to create successful toy companies.

Firstly, and perhaps most fundamentally, the toy industry is very heavily influenced by family companies & long term management approach. Hasbro, one of the major global giants of the industry started life as ‘Hassenfeld Brothers’ (with 3 brothers involved – Herman, Hillel & Henry). Mattel’s original growth was driven by husband and wife team Elliot & Ruth Handler. Furthermore, Lego is famously still owned within the same family which launched the company. Such global giants have stood the test of time partly due to the continuity of management approach. This effect can be seen not just in the €billion global companies, but also across the toy trade - of the thousands of returning exhibitors at Spielwarenmesse every year are many family founded, owned and managed companies.

Those toy companies enjoying strong ongoing success which are not family owned & run, still tend to have very strong management teams in place long term – Spin Master would be an example of this, where the company was founded by college friends who have remained at the helm through a very impressive growth curve leading to stock market flotation recently.

The second factor, and perhaps the most obvious one, is good product. A toy company without good products is like a car without engine and wheels – it won’t go very far! One of the most intriguing facets of the toy business is that all different kinds of products sell, but for products to be successful, they must generally feature some kind of compelling play experience and/or aspirational status. There are companies who have a nearly completely new product line each year, and there are companies who have a few products which have sold for years (even decades in a few instances!). Most toy companies though do aspire to ‘carry forward’ product, as selling the same product again next year will usually be cheaper, more profitable and easier if the product has sold well in the previous year’s. In fact, the toy industry as a whole has a very considerable product ‘churn’ rate, with roughly two-thirds of all products on shelf new developments each year. So the actual reality is usually a combination of both the old trusted products and the new novelties.

The third factor in successful toy companies is less exciting but absolutely imperative – that is risk & cash flow management. I remember sitting in a meeting with a very experienced toy industry consultant soon after I joined Hasbro. The one thing that stuck with me from this guy was when he said “Inventory is the thing that kills toy companies”. The toy business works on a comparatively high manufacturing cost vs sales value versus other entertainment industries. Manufacturing costs are typically between one quarter to one third of selling price. So there is nothing else on which toy companies spend more money. Therefore, slow moving inventory can be very damaging financially. Aside from having so much money sat there not doing anything, warehousing costs can add up and cause a financial headache. Typically, those toy companies who achieve success are those who have strong financial disciplines – clearing house in December and heading into a new year with fairly lean stock holding is a typical feature of successful toy businesses.

Additionally, those companies who can consistently manage the annual cash flow cycle are most likely to survive the test of time. Although some toy companies have a significant spring-summer business, the majority of the toy industry is driven by cash flow inputs peaking between September & January. Therefore, for the rest of the year, many companies who are driven by peak season business are cash poor & operating in deficit. This is not just the smaller companies – you can see from the Q1 & Q2 results from the major corporate companies that even they tend to lose money in the first quarter or two of the year. So companies which successfully manage the painful cash flow cycle of the toy business are most likely to survive in the first instance, and thrive beyond that!

Fourthly, when we look specifically at start-ups in the toy industry, achieving success is more of a marathon than it is a sprint. Those people/companies expecting to move the world in their first selling cycle are most probably setting themselves up for disappointment and failure! On a personal note, when I joined a new business, it took 4 or 5 selling cycles to become established in our home market. And that is with the backing of a strong parent company/infrastructure, with industry leading staff and lots of established relationships with retailers, licensors and others in the trade. So for a new venture with no in house toy industry expertise to achieve any measure of success in an industry driven by an often painfully slow annual business cycle is going to take years. We’ve probably all encountered those companies who attempt to enter the industry in a blaze of activity & frenzy, but who fade away long before achieving significant results. Those companies who achieve success tend to be those who are at Spielwarenmesse or their own local shows year after year, and each year they tend to have a few more products, maybe an extra staff member and a few more sales. Organic growth is typical in the toy industry.

There are some other contributory factors, but these tend to be the most important ones based on my analysis.

Do you need help to find the right mid to senior level people? We can help…we have been helping people from across the world of Toys, Games & Licensing to find new roles since 2011. Our client list reads like a ‘Who’s Who’ in the industry, think of a Toy company and we have worked with them in some way. Along the way we have met thousands of really talented people who could be your next hire.  Get in touch for more information via the ‘CONTACT’ page if you need help to hire new people, or check out www.ToyRecruitment.com