Spielwarenmesse Nuremberg Review & 2024 European Toy Market Outlook

Spielwarenmesse Nuremberg Review & 2024 European Toy Market Outlook

SPIELWARENMESSE 2024: ANOTHER SUCCESSFUL SHOW

Freshly back from the annual pilgrimage to Nuremberg for the Spielwarenmesse trade show, I’m writing this through the usual fog of fatigue, sore feet (c. 50 miles or 80 KM walked during the show), social and business dialogue overload and a low-level continuing hangover!

This time around there were some travel challenges around the show. There was a train strike in Germany planned to last until later on Monday but called off earlier than planned. I had already booked onto the highly efficient transport organised by the Spielwarenmesse team. Arriving by coach from Munich was a first for me but I would say that this coach substitute is a testament to a well organised show, I can't imagine show organisers arranging alternative transport to deal with a strike happening in every other trade show venue. In the middle of the show we also had a strike at some of the major airports on Germany which caused problems for those attending only the first few days of the show.

Nevertheless many people managed to get to the show. Nearly 60,000 attendees from 125 countries had 2,354 exhibitors to visit with from 68 countries. I’ve never been to a Toy trade show where there wasn’t someone claiming the footfall was down regardless of the actual official head count. I always find overall visitor numbers to be basically an irrelevance to exhibitors. It’s all about the quality of visitors. Not the quantity. If you are selling to retailers & you are visited by the top ten retailers you work with or want to work with, that’s 2 meetings per day across the show, so who cares what happens in between those meetings in terms of tangible results, you aren’t there to be entertained by a constant stream of people to talk to, you are there to sell to the right people! Forget the visitor numbers, success depends on quality of ‘prospects’ you meet with.

You can never meet every customer or partner who is at the show, so why does the overall number of visitors matter? The point is the quality of the people you meet. As I walked about the show this year I realised that I knew at most a few percent of the c. 60,000 attendees after a quarter of a century since I first visited the show. I find that both really inspiring and frustrating at the same time – so many years of visiting and so few people met vs. the potential! If you are a roaming show visitor like me walking between the Halles, you can fit in maybe 60 or so meetings throughout the days Spielwarenmesse is on. So you will never maximise the results you could get from all the people and companies., in fact you will only ever touch a fraction of the opportunity. The bottom line here then is that if you can't get Toy business done at this show, the issue is with you, your staff or your products, not with the show!

Trend wise – the big 3 themes (observed from my perspective) were sustainability (again), Kidults and ever green licenses as we head into a year with a relatively weak movie slate.

EUROPEAN MARKET UPDATE ON 2023 PERFORMANCE 

Based on my conversations and on data released by the national Toy associations, overall it looks like most of the bigger European markets were down c. 3-5% overall in 2023. This is not great clearly. Moreover, the data I have seen in the public domain suggests that the major European Toy markets are back to around the market size they had in 2019 pre-Covid in € value, which could be seen as an ok situation until you factor in inflation, most of those markets have seen inflation of 15-20% since 2019, which means that in ‘real terms’ the market has actually declined.

Another concerning data point I read came from the UK. The British Toy & Hobby Association released data from Circana which showed that the market was down 5% overall but the Kidult market reportedly accounted for 28.7% of the UK Toy market in 2023. That sounds great as the Toy trade pivots to exploit this opportunity of selling Toys to adults & teens, but I suspect that if you looked at the ‘Kidult’ market share ten or 15 years ago, then it would have been c. 15% of the market at most. This then means that the market for Kids Toys has shrunk considerably, and with the UK (but also many other major Toy markets) suffering from a dropping birth rate, this is not a positive trend. I love this industry, and as a point of principle take the glass half full perspective on this business we all love, but I’m currently struggling to see significant market growth in Kids Toys for the next decade. The Kidult thang is no longer just an opportunity, it’s an imperative, and while it’s harder for some companies to pivot than others, that’s where future growth lies.

That slightly depressing point having been made, the reality is that Toy companies care about their own performance. If you are up 5%, but the market was down 50% you would probably still be happy! A shrinking market normally comes under pressure to reduce space allocation by retailers, which is not good, but again if the total number of Toy & Game SKUs goes down, but your listings increase you are probably still satisfied.

Also we must consider the fact that we are in turbulent times economically speaking. Our industry is famously ‘recession resistant’ in that the market performed ok in the tough times of the global financial crisis of the noughties, and in that parents always deliver on their children’s experience of the festive season. However, most of us have not worked in this industry during an inflationary crisis. As I have written before, if parents have to choose between paying for their homes, heating their homes or feeding their families over Toys we will always lose out. Whereas in recessionary times, some people struggle financially, but not all. Inflation has affected everyone and clearly damaged the disposable incomes of families across Europe.

One final note on 2023 market performance, I met a lot of people in Nuremberg who claimed to have grown in 2023, but nobody who admitted to a sales reduction (!) despite the market being down…which leads us to the conclusion that you can’t believe everything you hear!

2024 MARKET OUTLOOK

Looking forward to 2024, with a comparatively weak movie slate, and no obvious trend tsunamis apparent, a flat market would be a good result for the European toy market this year, but a single digit decline would also not be a surprise. The good news though is that when the movie slate is weak, the market drivers become perennial brands, play patterns and innovations. In years gone by before the mighty Walt Disney company acquired so many toyetic franchises, and we got years of stacked blockbuster slates, a quiet movie year increased the health of the industry with more profitability as well as more investment into own IP and new product development. Hopefully we will see that same effect in 2024. The headline sales may be flat or even down a little, but it is most likely that the industry as a whole will see higher profitability.

More broadly, looking at the economic climate, 2024 should not be quite so severe as 2022 and 2023, as inflation slows in most of the major European Toy markets and as wages start to recoup the ‘real term’ losses of the last few years. I don’t think 2024 will see a massive resurgence in consumer spending, BUT inventory is much cleaner than it was going into 2023, and economic conditions are not quite so bad for many consumers.

The counterbalance to that is the preponderance of short-term fixed mortgage rates in Europe (versus the long term home loans which are more standard in the USA). As central banks have raised interest rates, so we have a looming iceberg of substantially higher mortgage payments coming in for many consumers across Europe. Right now though the pressures are growing for interest rates to be reduced as inflation drops. Rates are unlikely to return to the low level of pre-pandemic any time soon, and so while the increased mortgage payments shouldn’t be quite so dramatic as soaring inflation overall, some consumers will clearly be impacted.

Geopolitics - I find that Geopolitical analysis is an increasing part of my professional role as clients ask me for insights and opinions on how the many geopolitical tensions and conflicts in the world today are and could affect the Toy industry. I’m going to keep this section brief, as I could write a book on this topic right now, but for brevity I see 4 key elements to consider for 2024:

·       Elections in the USA - I’m avoiding party politics, but should Donald Trump be elected again, that could lead to more trade friction with China, and potentially further accelerate the current dripping away of Toy manufacturing business away from China.

·       Russia-Ukraine –aside from the loss of some opportunities in the Russian market, this horrible, terrible conflict has not had a huge impact on the global Toy market. By the way, some of the lost revenue has been circumvented by shipments into Russia from neighbouring countries – many countries have seen a huge increase in orders from countries like Kazakhstan!

·       Conflict in the middle east – at the time of writing we are seeing significant disruption to shipments from Asia to Europe due to conflict in the gulf. Houthi rebels targeting commercial shipping has led to many container ships taking the long detour around the bottom of Africa. This has increased costs (although not to the levels we saw during the Covid period) and lead to delays. For most of the European Toy business the impact of this is annoying but not substantial, as a higher percentage of annual shipments comes from the summer onwards heading towards peak season in Q4. Should the situation remain this bad heading past April/May this could have a tangible impact on product availability and profitability.

·       China, Taiwan & what could be – again I’m going to avoid the politics of this and go straight to real implications. Major retailers are instructing their suppliers to move specified and significant chunks of manufacturing from China to resist the potential risk of conflagration in and around Taiwan. Should conflict ensue, sanctions would follow, shipments would be at least detoured a long way and at worst restricted or banned. Let’s hope the uneasy status quo remains.

Having looked at some dark clouds around us, I just want to end this section of the newsletter by reiterating how great it was to be back in Nuremberg, meeting with old colleagues and friends. If we take a long term perspective, most of us will look back at out careers and remember the ups and downs, the good times and the tough times, but we will also always remember that we have worked in an industry which has a very positive effect on the development and enjoyment of children and their parents, and in which we get to work on fun products with good people.

CURRENT PROJECTS

Here’s some of the live projects I’m working on:

·       Finding international distribution for a major Outdoor Toy vendor in India.

·       Finding international distribution for PRISMIC – an innovative new creative play product experience with a stunning end result. We showed this new brand at New York & Spielwarenmesse Toy fairs & have had a great response. Distribution for some markets is still available though, please dm for further details: https://www.youtube.com/watch?v=Cbnwuh4C1TY

·       Recruiting for a USA General Manager role.

·       Just about to go live with 3 Account Manager roles for UK, France & Germany.

·       Working with leading board games factories in India & China to find new clients.

·       India’s leading Toy factory – helping my clients to find geographic diversification in their supply chain.

For more information on the services offered by my company, click here:

https://www.toyindustryjournal.com/ 

Another Year Beckons: 2024 Global Toy Market Outlook

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Happy New Year, and welcome to the first of these newsletters in 2024. Wishing you health, happiness and prosperity this year. This instalment takes a look at the outlook for the worldwide Toy & Game business as we head into 2024:

Setting the scene – the Pandemic Years and the counter reaction aka 2020 and 2021 were unexpectedly good, and 2022 and 2023 were particularly bad!

One of the biggest business learnings you can have is that successfully managing expectations can make a drop in sales look like a success, and a sales increase can become a failure if you don’t manage expectations of people and organisations effectively.

I first learned this around a quarter of a century ago. I was managing a portfolio of well-known classic Toy brands. One of the 2nd tier brands was particularly challenging to manage. The brand owners were hard to handle, with ludicrously unrealistic expectations, a toxic political situation at the top of their company and a direct line into the very top people in the company where I was working as a comparatively junior manager. Due to the effectiveness of the approach of this company, we massively (over) invested in a full brand refresh, new advertising and a heavy marketing push. The initial forecasts were stellar, due to the high expectations our new investment set. I made the very amateur mistake of communicating the massively uplifted forecast to the brand owners, who no doubt went out and bought new Lamborghini’s and other such fripperies on the back of the expected bonanza. Then as reality set in later in the year, it became apparent that despite the massive push and investment, the brand itself was just not going to make the required jumps in consumer demand which our investment should have delivered. We lost money, and more importantly, we lost the chance to invest that money in brands which deserved that scale of investment more. The brand owner went crazy when presented with a much-reduced sales update, and I was in a lot of hot water as angry Faxes started to fly back and forth (Faxes, remember them, lol!). In the end there was a moderate sales increase, but my stunning failure to manage expectations made a sales increase and a massive investment in the future of this brand a colossal failure in the eyes of this particular brand owner.

All of which is a great opportunity for me to go down memory lane, but what’s the relevance? Well, the Toy market growth we saw in 2020 and 2021 was such a bonus because it was not expected. And the failure of the consumer to show up in 2022 vs an expectation that sales would continue climbing left the entire Toy business struggling with an inventory problem and a resultant self-fulfilling lower sales potential heading into 2023.

2024: Resetting Expectations

So for 2024, the question is where should we be setting expectations? If they are set too low, then we could lose sales and leave our customers with empty shelves too early in the season, but if we set them too high, we risk over shipping and creating another inventory hangover at the end of the year. So what should we do?

2024 Toyetic Movie Slate

As the COVID-19 pandemic lead to the closure of movie theatres around the world, some movies went out via streaming platforms, but others were either held back or left unfinished ahead of the return of bums on seats in cinemas around the world.

What we then got for 2022 and 2023 was a large raft of movie releases which should have provided a boost to the Toy market in those years to counter the drop off after the lockdown inspired boom. Unfortunately some weak creative executions left a lot of question marks about key movie franchises going forward.

The Hollywood strike of 2023 saw movie writers and actors withdrawing their labour in protest at the threat they foresaw from artificial intelligence and at their share of streaming revenues.  These strikes are now reportedly resolved, but they disrupted movie production for a significant chunk of 2023, which combined with what appears to be a reset year for some franchises leads us to a movie slate in 2024 which as weak as we have seen for some time (not including the Covid years).

Mattel hit a massive home run in 2023 with the Barbie movie. It greatly exceeded expectations at the box office, becoming the highest grossing movie of 2023 worldwide(!) but also in terms of cultural resonance and mass media exposure. In short, the movie went as good as it could from Mattel’s perspective. The challenge after any success like that though is how do you anniversary that – heading into 2024, the Barbie brand is undeniably stronger in terms of brand recognition, awareness and cultural relevance…but in revenue terms Mattel won’t find it easy to anniversary the sales levels boosted by the movie in 2023.

Another movie which was a monstrous hit driving Toy sales in 2024 was The Super Mario Bros movie which grossed a massive $1.3billion and was the second biggest movie of 2023. This now perennial brand doesn’t get its fair share of credit and profile, but I suspect it will going forward after a stellar box office return in 2023.

In summary, 2024 looks like the weakest movie year in some time after two years with a strong release schedule. Historically speaking, a weak movie slate or more flops than usual can have a downward effect on global Toy market value of c. 5-7%. Conversely a strong slate can offer a similar upweighting effect.

So, if the 2024 movie slate is weak what will drive the Toy market in 2024?

Trends, Innovations & Perennial Brands

Typically when the movie slate is weak, then Toy companies fall back on new innovations, new Toy I.P. launches, their existing brands and some support from evergreen licenses. To look at each of these areas in turn:

NEW INNOVATIONS – last year I heard some commentary which put the poor sales performance of the Toy category down to ‘a lack of innovation’ in the market failing to create products kids wanted enough. We’ll all have some opinions on the veracity of that, but to me that is total baloney! I have never been through Toy Fairs and come away thinking that there was a lack of product development, if anything the cycle of constant product churn on a gigantic scale which we take as normal in the Toy business is a problem, not a lack of innovation.

Also, what do these people mean by innovation, because as a cynical ‘veteran’ of this business I haven’t seen many new Toy concepts in the last decade that were totally unlike anything I had seen before. Our industry is actually quite formulaic, and the reason for that is due to consumer churn – in effect we get around one third to one quarter of our consumers in each category for new every year, so what was old hat 3 years ago can be new again to kids who have just moved into our target age groups. That is not to criticise the talented creatives we have working in our industry, but normally the creativity which leads to commercial success is a reinvention, a mash-up, or taking an idea which worked in one space and adapting that to a new space.

Having said this, I would expect that in the absence of as many big movies for 2024, Toy companies will be creating more own I.P. products for 2024, and while that type of year often sees a flat or small reduction in market size it is often healthier for the Toy companies in terms of brand equity and bottom line profits.

EXISTING BRANDS

We should expect 2024 to see a doubling down on established Toy brands. With R&D resources and investment freed up from developing highly authentic movie related products, they can instead be used by those companies who have their own IP portfolios to raise investment into their own brand portfolio. These products often require less due diligence in terms of adherence to style and character art guidelines, they don’t normally require the same level of approval processes and they aren’t subject to a 3rd party licensors pressure to increase the number of skus in each line. In short, we can logically expect major long term Toy brands to increase their market share in 2024.

EVERGREEN LICENSES

In a weak movie year we normally see ‘evergreen’ licenses take up some of the slack. Companies shift focus to classic licenses and classic licensed products. If you look at the franchises which have been top of the tree for decades, these will most likely be even stronger in 2024.

Of course we haven’t yet considered the role of streaming and content from other platforms such as YouTube. There is no doubt that streaming can itself drive successful licensed product ranges, albeit normally to a lower degree versus streaming. But the other point here is that while the Toy industry has made big strides looking at new properties from influencers and YouTube channels, we are still in the infancy of that, and as companies seek alternative drivers of sales in 2024, we could see more products originating from ‘non-traditional’ licensing sources.

The economic outlook: Will consumers find it easier to spend on Toys?

I wrote a lot in 2023 about the impact of inflation on consumer disposable income, so I’m not going to reiterate what happened before. But what we should do is take a look at inflation trends in major Toy markets. And what we see is that inflation rates have dropped significantly overall. The USA has seen inflation reduce from the peak of c. 9% to 3.1% in most recent financial reports. The UK has reduced from a peak of 11.1% to 3.9%. Germany has seen a drop from 10.4% to 3.2%. And perhaps just as importantly we have seen worker pay increasing to start to cover the gap created by inflation. So purely based on inflation eroding consumer spending potential, we should see the impact of inflation reduce heading into 2024 versus 2022 and 2023.

The other point we should consider though is that interest rates rose in order to reduce inflation, and this affects consumer spending too. Mortgages rise, loans and credit card borrowing rates increase and also from a macro-economic perspective increased interest rates can start to reduce demand, which often leads to job losses which in itself can hamper consumer spending.

The economic conclusion then should be that we are not out of the woods, significant pressures remain, but while demand reduced year on year for 2022 and 2023 in many markets, the reality is that the perpetual drivers of the Toy market are still strong – that being parents investing in and rewarding their children with gifts, and I don’t see that changing.

It seems unlikely that consumers have just simply moved on from the mass orgy of consumption we tend to have in the festive season. Just this morning (on the day of writing) UK grocery retailers reported their highest ever spend overall for the Christmas period.

If we take a medium-term view of the Toy market from say 2018 through to 2024, we’re going to see a market which was on a long-term slow growth curve, which then spiked dramatically upwards during the Covid years, which then corrected heading out of Covid.

Not another shipping crisis? Houthi attacks on shipping and rerouting – how big a deal is this for the Toy business?

As has been widely reported, many shipping companies have decided to go the long way around the bottom of South Africa to avoid attacks on shipping through the Red Sea heading to the Suez Canal. I’m only an amateur follower of Geopolitics, but from what I have read, both in the news and opinions and analysis published by academic experts in Geopolitics and the like, I don’t see this issue being the scale of challenge which we saw during the pandemic when container shipping costs increased by as much as 1000% . Here’s a brief explanation of why:

Firstly, this is a current issue, the shipping companies could change their minds and direct ships through the Red Sea again as soon as they think it’s safe to do so. Secondly, the USA and allies will not be able to avoid direct military strikes against the Houthi in Yemen unless they stop attacking shipping. Having made their point, I expect the Houthis to either stop firing on shipping of their own accord, or to do so after the U.S. and allies unleashes some air strikes. Either way, this could blow over very quickly. Thirdly, if you are in the business of Outdoor and other counter-seasonal Toy categories this may affect a big chunk of your business as you are shipping a greater proportion of your annual volume across the next few months, but for most Toy companies an issue with shipping in January and February would have at most a marginal impact on overall performance in 2024.

Needless to say the world is ever more unpredictable geopolitically these days, so anything is possible and a broader conflict in the middle east could have a bigger effect on driving container ships the long way round away from the middle east. This is after all an opinion piece, and I am just as likely to be wrong as anyone else. However at this stage, the Houthis are unlikely to want to sustain their anti-shipping campaign once the U.S. and allies see the risk for inflationary shipping increases and shake the shackles of restraint they have shown so far and start to deliver damage to the Houthi’s bases, infrastructure and leadership.

Ongoing reduction in birth rate

Returning to more long-term cyclical factors, most mature developed economies have a reducing birth rate, and there does not seem to be any likelihood of a sustained upturn in births looking ahead. And so for 2024 as with previous years, we are going to see that the number of potential consumers for children’s Toys is not growing, in fact it is slowly eroding. As such, we either need to sell more to the remaining families, increase our export sales to tap into kids in other countries more than we have in the past, or we will see our sales reduce.

Kidults market driven by content, especially movies

On the flipside of the reducing number of children, the number of adults who could but don’t currently buy or gift Toys offers more than enough opportunity to bridge the gap left by decreasing birth rates. The challenge for this sector for 2024 though will be that movie merchandise, is likely to be a smaller driver in a weak movie year.

We can though expect Kidults to tap into evergreen licenses. And of course Kidult products are not restricted to hipster merchandise collectors, model makers, railway enthusiasts and more segments are still out there!

If you want to read more about the segmentation of the Kidult Toy space, I wrote extensively on that in a previous newsletter here: https://www.linkedin.com/pulse/17-deeper-example-kidult-toy-space-consumer-steve-reece/

In Conclusion

2024 then should be a reset year when expectations are realistic and prudent, when the kitchen sink was largely thrown at 2023 in terms of dealing with negative baggage, inventory hangover and sadly headcount reductions. With 2024 being a fairly fallow movie year, the opportunity is to focus our energies and resources on pushing all our own brands and own innovations harder than we may have for a while. In short, expect 2024 to be tough trading, but closer to pre-Covid norms than 2022 or 2023, and critically with more grounded commercial expectations all around. Economic pressures have not gone away but have softened. We’ll see how 2024 plays out, but as usual it looks like being an interesting year.

N.B. All trademarks and other intellectual property featured herein are the property of their respective owners.

Can we help your business? Do you want to grow your export sales, prep to offer your business for acquisition, find senior staff or maximise your sourcing efficiencies? If you want to find out more about our Toy & Game business consultancy services, please just click the link below. Our company has helped hundreds of Toy & Game companies to get ahead and grow sales/make more profit. I have worked on all product categories across a 25-year career in Toys & Games, and genuinely love sharing knowledge, contacts and facilitating greater success for our clients.

Here’s a profile of some recent projects:

·       Helped several Asian Toy companies to grow distribution in ‘Western’ markets & to recruit key staff to build distribution with new retail accounts opened up.

·       Advised multiple Amazon vendors on accessing traditional/offline distribution channels with various distribution deals signed across North America, Europe & Asia.

·       Toured a leading U.S. company around India’s leading Toy factories leading to factory selection, production start & significant cost savings.

·       Advised a leading Toy industry association on trends and data related to Toy Sourcing.

·       Advised the board of a leading factory group on sales trends and best practise in the Toy business.

 For more information on our services, click here: 

https://www.toyindustryjournal.com/toy-business-consultancy

SPIELWARENMESSE – SPIRIT OF PLAY BLOG

THE GROWING ‘KIDULT’ OPPORTUNITY

Here’s to Adults growing older later! The Kidult market is a major thing right now, offering significant growth opportunities for Toy & Games companies despite the fact that birth rates are dropping in most major markets. Read more in this latest article I wrote published by the Spirit Of Play Blog, which is published by Spielwarenmesse, the world’s biggest Toy trade show. Click the link below to read the full article:

https://www.spielwarenmesse.de/en/mag/lifes-a-playground/the-growing-kidult-opportunity/

Also here’s a short video excerpt from my presentation at Spielwarenmesse’s Toy Business Forum in 2023 looking at the potential impact of the ‘Kidult’ phenomenon on the future of the Toy business: https://www.youtube.com/watch?v=hE2ZERGW7nc&t=26s

UNCHANGING PLAY FUNDAMENTALS

So often in the world of Toys we look for the big changes, we go trend spotting to find new things to jump on. The reality though is that far more doesn’t change than does. That’s what this latest article I wrote, published by Spielwarenmesse.de looks at. Just click the link below to read:

https://www.spielwarenmesse.de/en/mag/toy-lab/unchanging-play-fundamentals/ 

PLAYING AT BUSINESS PODCAST

EP 102 - Selling A Toy Business: How Mergers amp; Acquisitions Work In The Toy Biz

Many companies in the Toy business grow via acquisition. Company owners often want to sell up and retire or move onto other pastures. In this episode we take a look at some of the biggest Toy acquisitions of all time, we look at why and how Toy Cos are bought and sold and we discuss the details of the process of buying or selling.

Maybe you have a Toy business you want to buy or sell, or maybe you just want to understand how company sales work in the world of Toys, either way this episode will have something for you.

https://playingatbusiness.libsyn.com/ep-102-selling-a-toy-business-how-mergers-acquisitions-work-in-the-toy-biz

EP 101 - How To Run A Successful Tech Toy Start Up With HoloToyz

In this latest episode host Steve Reece talks to Kate Scott & Declan Fahy, the Founders of HoloToyz. Their company aims to inspire creativity and imagination via augmented reality technology.

Kate stated "At our core, we believe that children should be able to experiment, play and learn through emerging technologies in a kid-safe environment away from the open web, whilst not losing touch with the physical world."

We discuss this proposition, and the path from starting the business, through raising funding to achieving distribution for HoloToyz products. 

This episode is a must listen for anyone interested in or actively pursuing a start up in the Toy business, as well as international distributors looking for new products and new stories to latch onto.

https://playingatbusiness.libsyn.com/ep-101-how-to-run-a-successful-tech-toy-start-up-with-holotoyz

EP 100 – How To Recruit Good People And Find New Job Roles In The Toy Business

Join host Steve Reece in a deep dive into the toy industry's recruitment nuances. Having helped many people to find new roles in the Toy business and having advised many Toy companies on who & how to recruit, Steve unveils key strategies for companies to recruit effectively and tips for candidates to land their ideal roles. Whether you're hiring or job-hunting, discover invaluable insights to assist your recruitment/job search process.

https://playingatbusiness.libsyn.com/ep-100-how-to-recruit-good-people-find-new-job-roles-in-the-toy-business

Sign up for my free e-newsletter and receive all the latest reports, analysis and insights on the Toy & Games business: sign up for free here: https://forms.aweber.com/form/54/1325077854.htm

Why Do Mass Market Retailers Run Such Aggressive Price Promotions On Toys & Games?

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It’s a recurring annual event in the Toy & Game business to see almost ludicrous price promotions from generalist Mass Market retailers offering products at substantial, and presumably not particularly profitable promotional prices. This represents a big problem for specialist Toy & Game retailers who stock our products year-round and who tend to run a much broader range than the Mass Market box shifters.

Not a lot changes in this space though – I still remember my original inductions in the Toy business back around the turn of the millennium. After going around some of the ‘fluffier’ departments I especially remember being sent along to the UK Sales department. I can’t remember which grizzly Sales veteran was given the pleasure of sharing some grim realities from the sharp end of the business with me, but I can remember really well him telling me that price promotions in the run up to Christmas created ‘a complete f#@ing bloodbath’ every year.

The next part of my induction was to go and meet with colleagues in the French subsidiary. Again, after some nice fluffy talks about Brand pyramids and messaging hierarchy for TV commercials, I was sent out to visit French retail with the Sales team. First, we looked round some really good specialist Toy stores, and then we went to Carrefour. My colleagues explained to me the significant price reductions run by the Hypermarche in Q4 each year, which seemed somewhat excessive even to my greenhorn eyes!

Finally I was hooked up with a US colleague, who after talking me through the workings of Toys R Us (!) and then KB Toys (!), explained to me the pricing strategy of Mass Market behemoths like Walmart. Again he explained how the aggressive pricing of Toys by this type of generalist retailer caused real problems with the Toy Specialist retailers during Q4, when the Specialists who need to make a profit from selling Toys came up against these massive price slashing retail machines who it looked like did not care about profitable sales of Toys.

In c. 25 years, the situation relating to retail pricing has not changed that much in this regard. OK, we have Amazon as a major player in the market now, but if anything their impact is also to cause downward pressure on retail pricing, so the rise and rise of Amazon has hardly decreased competitive pricing pressures.

WHY MASS MARKET RETAILERS CAN SELL TOYS AT A LOWER PRICE VERSUS TOY SPECIALISTS

There are two straightforward reasons why Mass Market retailers can sell Toys with big price discounts and still stay in business:

1.     Bulk sales & efficiencies of scale working at lower margins

Firstly, volume is a big factor in driving pricing strategies for Retailers. Mass Market retailers are set up to move high volumes of products and to make a comparatively smaller margin on each product sold. In other words this type of Retailer is fundamentally set up to drive prices down in order to drive volume. We’ve all heard of price elasticity right? If the price goes down, normally sales volume can be expected to go up.

The other factor to consider is that many of the other categories these Retailers operate in have lower volume structures i.e. Food & other FMCG would normally offer lower retail margin versus Toys, as such inherently these Retailers can make lower pricing work because they are set up to deliver the bulk of their sales volumes on lower margin categories versus  a Toy store which would normally operate on 30-50% depending on their strategy.

2.    Toys & Games as a traffic driver at Christmas

One of the other key metrics Mass Market Retailers work off is total basket value i.e. how much does the customer spend per visit. They are also looking at how bringing in consumers into store with an offer on one product category nearly always leads to sales in other categories. As per the previous article in this newsletter – footfall is the critical success factor for physical Retail. Overall then these Mass Market Retailers often use the Toy category as a means to drive traffic into store by delivering highly motivating promotions and pricing reductions on Toys. This way they entice more shoppers into store who then buy other products and thus drive up the total basket value, delivering more volume for these volume driven retailers.

The bottom line is this – Mass Market Retailers often don’t look at their Toys & Games aisles as profit drivers. Parents feel that they HAVE to deliver a good Christmas for their kids, which will normally involve Toys. The food shopping for peak season family gatherings and set piece meals such as Thanksgiving and Christmas dinners are also a massive volume driver, and if you can get the family budget holder in to store to buy price reduced Toys you are much more likely to capture their Grocery spend, and their spend across other categories.

REALITY CHECK: WHY DOWNWARD RETAIL PRESSURE ON PRICING IS A GOOD THING FOR THE TOY BUSINESS

So now we have a clear idea that aggressive price promotions are a long-term structural challenge we need to manage on an ongoing basis. The bottom line is that we are in the business of selling more products, and the lower pricing gets the more we will sell. We may not want to fund a cycle of ever lower pricing as then we end up failing to make profit, but if we are selling our products on relatively equal terms to all Retailers, then what they choose to sell those products for is actually their business. If they want to sell them at cost, or even less, then that is up to them. In fact in many markets it’s considered illegal (against competition and consumer protection laws) to even suggest what retail price might be.

I remember managing an iconic Toy brand some years back, and the trade margin offered at the (suggested) Retail price was minimal, because this was one of those products the Retailers just had to stock, that they knew would sell through and which we therefore had to make the least effort/use the least persuasion to maintain listings. Our customers regularly sold this item at cost or below, and for sure they complained like heck about the low margin they were making on the product, but in the end that was their concern. Despite ongoing rumblings the same promotional pricing ‘bloodbath’ repeated on this iconic product year after year. And year after year, it remained a top seller and was the Number 1 margin driver across our entire product range for our company.

So the bottom line here is that while it’s often very difficult to deal with hysterical Retailers who are seeing cutthroat pricing from their competitors, this is just part of the game that they have chosen to play. It’s normally not our fault as Toy companies.

HOW TOY COMPANIES SHOULD SUPPORT TOY SPECIALISTS IN THE FACE OF TOY PRICING PRESSURES WITHOUT ENCOURAGING ANTI-COMPETITIVE FACTORS

Now, having made it clear that pricing promotions are inevitable, the next question is how should we manage that situation so that our Specialist Toy & Game Retailers who are committed to our industry and support a much broader range of products, and who really know and love the products and therefore help the consumer to know and love our brands and products, can also thrive even when they can’t dream of competing with Mass Market price promotions.

Let’s start with one clear assertion: Specialist Retailers need to stock the really ‘Hot’ items which every kid wants, otherwise they don’t become THE destination for Toys. But the reality is that they either a). Won’t sell through those products so well if they don’t compete on price or b). Won’t make any profit if they do compete on price. So while they need to stock these items to be a must visit destination for Toys, the reality is that they will make their money elsewhere, and Toy companies have to work really hard to help them do that.

This goes back to the point made earlier on these Retailers running a bigger range vs. Mass Market Retailers. A sound strategic approach for Toy companies to take is to plan a range which offers several SKUs which will favour Toy Specialists due to specification, price points and product style/type. If we go back to the example I used above of the iconic Toy product Retailers had to list, we would produce various higher spec and therefore higher priced versions of this product in order to offer an item to the market which would suit Specialist Retailers.

So for sure our Toy Specialist customers are not going to enjoy some of the range they have to stock, but if we structure our product ranges properly then we should be offering them plenty of products with which they can find less low end of the market price competition and perhaps even some items with channel or Retailer exclusivity.

The one thing I can guarantee on this topic is that Q4 price drops are going to be with us for as long as Mass Market Retailers stock Toys, and I genuinely hope that is forever, because we couldn’t run this business just on our beloved Toy Specialists, but we also couldn’t run it with just the Mass Market, so we need to work to supply products to fit all needs.

N.B. All trademarks and other intellectual property featured herein are the property of their respective owners.

SPIELWARENMESSE – SPIRIT OF PLAY BLOG

5 TIPS FOR AN OPTIMAL RESULT AT THE SPIELWARENMESSE

This article was recently published by Spielwarenmesse.de, the official Blog of the world’s biggest Toy Trade show. It’s my top 5 tips to maximise your results from attending Spielwarenmesse in Nuremberg.

https://www.spielwarenmesse.de/en/mag/magazine/5-tips-for-an-optimal-result-at-the-spielwarenmesse/ 

PLAYING AT BUSINESS PODCAST

EP 103 – Why Product Selection Is Critical For Toy & Game Companies (AKA Why I Turned Down Settlers Of Catan)

Among my many claims to infamy in this industry, one of my biggest misses when taken at face value would be the time I turned down the distribution rights for now perennial classic 'gateway game' Settlers of Catan. This mightiest of Games has now sold over 40 million copies, yet I was right to turn it down...because product selection is everything for Toy & Game companies. Click the link below to here more.

https://playingatbusiness.libsyn.com/why-product-selection-is-critical-for-toy-companies-aka-why-i-turned-down-settlers-of-catan 

AND FINALLY…

I’m now well into my second decade working as a Consultant to Toy & Games companies. My company has helped hundreds of clients across the trade. Do you have problems that could benefit from outside help? If you want to take advantage of my c. 25 years experience working across functions, categories and markets in the Toy & Games business just click here for more information on how you can work with me:

https://www.toyindustryjournal.com/toy-business-consultancy

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