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 

Is India The New China For Toy Manufacturing?

Is India The New China For Toy Manufacturing?

There has been considerable speculation and commentary of late about the rise of India as a toy manufacturing force, and about the reduction in factory output in China. This article looks at the realities of Indian toy manufacturing and the challenges for the toy industry in looking anywhere but China.

Most of the world’s toy production emanates from China. Estimates I have seen vary between 70-85% of the global total. The reality behind the hype is that you can’t find that amount of capacity in a hurry elsewhere, nor can you expect to find the same established levels of knowledge, technical expertise and human capital in terms of toy design, engineering and manufacturing. So therefore, in my view, China will remain the dominant force in toy manufacturing for years to come. China’s domestic toy consumption serviced mainly via toys produced in market seems set to rise for decades (especially with the removal of the one child policy which is likely to lead to higher birth rates/more toy consumers), which is another factor suggesting China is going to be a very major player in toy production for the foreseeable future.

However, not everything is ‘rosy’ for China’s toy manufacturing prospects. When China first began to develop into the global production hub it is today, labour rates were significantly lower versus other Asian countries and Western countries than they are today. That’s really important, because despite automation and advanced machinery, toys can be very labour intensive in terms of running along traditional manned assembly lines. It’s not unusual for a toy to have a dozen people or more working on a production line, so clearly the cost of that labour is going to be a driving factor in terms of ex-factory costings.

Moreover, traditionally the major toy markets of North America & Europe had to accept the cashflow impact & extended stock risk of having product on the water for around a month from Chinese ports. So when the cost advantage decreases, so the shipping time and also shipping cost appear to be more negative factors versus production closer to home.

Therefore, bearing in mind these factors, it is not surprising that the toy industry is looking elsewhere for alternative production sources. There are several reasons why India is particularly interesting: Firstly, size of population is a factor. Whereas some other Asian countries will never reach a fraction of China’s potential workforce or scale of manufacturing, India with its population of somewhere around 1.4 billion people easily offers the promise of large scale workforce and capacity over time. Secondly, India is already a leading regional hub of engineering and manufacturing excellence in other categories, most notably the automotive industry. Thirdly, English language is prevalent, which is important for at least English speaking markets covering c. 1/3 of the world’s toy sales. Additionally, the shipping time/cost to the European toy market is significantly less.

When you look at all of these factors alongside the fact that labour costs in India are half as much as China or less, and with significantly less ongoing inflationary pressure we can begin to see why toy manufacturing can be a motivating interest.

In practical terms, this year, my company has been approached by 4 or 5 toy companies looking for new manufacturers outside China. This has led me to India to visit really high end toy factories which I did not previously realise existed in India. Aside from the wonderment of visiting such a vibrant and seemingly chaotic country, the sheer quality/sophistication of approach, the engineering know how and the very high end working environments were very pleasantly surprising!

One leading factory owner in India explained this to me by way of comparing the toy industry to the automotive industry – in cars there are literally thousands of component parts, some of great engineering complexity, and with a requirement for meeting even greater safety standards than the toy industry. When a team of people has worked extensively on such complicated engineering projects, a plastic toy made up of a handful of moulded plastic pieces with the occasional light, sensor or electrical circuit is really not very challenging at all in terms of engineering and manufacturing processes.

I came back with India certain in the knowledge that India is definitely going to grow and grow as a toy manufacturing centre. The challenge for now though is that there are a limited number of high end factories with the right audits/certification and high end quality processes…and therefore there is comparatively limited capacity in situ at the time of writing. While it’s clear that factories in India are generally planning for major growth in the next 5 years, and therefore capacity is set to grow exponentially, there is still nowhere enough capacity to fulfil a statistically significant amount of toy manufacturing versus China.

In 5-10 years time, this situation may have changed, but for now, those who want to take advantage of significant cost reductions/margin Improvement and quicker shipping times to Europe will have to take active steps to seek capacity/production while they can.

So India is not yet ready to be the ‘new China for toy manufacturing’, but nevertheless it is certainly set to grow in importance over the next years, and for now offers a definite cost saving opportunity for those forward thinking enough to embrace the opportunity and assertive enough to carve out dedicated capacity!

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 

The Purchase Dynamic For Toys – Pester Power

Toy Purchase Dynamic: How & Why Toys Are Bought

The toy industry seems to talk about pester power a lot less nowadays for some reason. In fact when I first discussed the topic with my first boss in the toy business back in the late 1990s, she told me that the industry had moved on from pester power to a more advanced negotiation based approach. Frankly, I’m not sure that was the right analysis then and it certainly isn't now. Pester power is the best way of summing up what often happens in the purchase dynamic where parent and child are involved when it comes to certain (more kid appealing) categories of toys.

I’ve conducted many hundreds of research groups with children and parents, and I can categorically tell you that pester power has not gone away, in fact it is as strong a factor now as it has ever been. This article will look at how each of the parties approaches the process of buying toys, and then what happens when their often differing perspectives meet.

Children are in many ways simpler and more straightforward than adults. Children are usually fairly open about what exactly they want, with a focused single mindedness and determination that most adults (excluding certain industry leading sales people!) do not have. When it comes to getting that treat or snack that the parent doesn’t want the child to have, or most importantly when it comes to having a particular toy or play item, children can be very effective in terms of getting their own way. Not via any kind of complicated intellectual arguments, but just by sheer persistence and pestering!

This quote from Ovid is the best analogy to describe how children go about getting their way: “Dripping water hollows out stone, not through force but through persistence”.

In practical terms, if a parent and child are in a shop, and the child decides they want something their usual approach would be to repeatedly ask the parent to buy it, regardless of how many times the parent says no, and regardless of how exasperated the parent gets. Repeatedly asking for the same thing does work surprisingly often from the child’s point of view, and because they are learning and developing the best approach to getting what they want from life, if this approach works once, most children (quite rightly) presume it will work again, and again and again!

This seems an absurd approach to many adults, as adults usually become largely conditioned to taking no for an answer (because overly pushy persistent people are often judged to be rude in the adult world we eventually become conditioned to take no for an answer far easier than children who still think to ask why/why not). The viewpoint often changes though when you yourself become that parent and you’re in a rush because your car parking ticket is running out, a personal activity to rush off to, or because you have other shopping to do in a limited time. In this way the temptation to pacify/placate the child by giving in can often win out. Clearly many parents stand strong and won’t give in to the child, and if you asked parents in research they would tell you that they would certainly never give in to such pestering themselves. Yet the same parents can often be observed giving in to the child in reality because it moves them forward towards whatever else they are trying to do.

One of the most interesting and important factors to consider when we look at pester power is that the dynamic often varies by product category. Some categories are more/mostly driven by pester power and kid appeal, some others are primarily driven by parental preference, and some are driven by a combination of both. You really need to understand how the dynamic works in your main product categories, because that dynamic tells you how to approach your marketing, who you need to communicate to and most importantly what your message should be.

The start point to understanding this is to look at what children want from their play objects/experiences and what parents want. Children primarily want to have fun! They are the ultimate hedonists in that respect, they want to play freely doing whatever they want. They also want to be ‘cool’ and to play with things that are really cool. When we test really hot toys there is a moment of pure excitement and usually a spontaneous expression of something akin to ‘wow’ when we reveal toys to the children. If we look at toy appeal as a hierarchy, then these really fun play patterns and really ‘cool’ toys are at the top. Children do though have other motivations, albeit lower down the hierarchy - they often want to be as clever as they can be, and to prove that fact, because at toy buying/playing age (in fact up until close to secondary school age c. 10-12 years) children generally aspire to the approval of teachers and parents to a somewhat surprising degree. So products which support these definite but somewhat weaker aspirations may also appeal  to the child in some circumstances.

From a parents point of view, the vast majority of parents want what is best for their child/children and to feel like/be viewed by others as a ‘good parent’. Parents also though want not to be pestered, to have peace and quiet and to be able to do their own things away from their children – both in terms of focusing on necessary chores and in terms of their own fun activities. The balance between the child’s needs and being a good parent versus the parent’s own needs/wants plays out in different ways depending on the parents concerned, but there is no doubt that these factors are usually present to some degree in most cases.

So what does this mean for toy companies? It means that if you are active in a category which parents are likely to perceive as tacky, a waste of money or ‘crappy’, you had better make sure you have full kid appeal, because the child is going to have to really pester to get your products! On the other hand if your main product category is something more educationally or socially focused i.e. craft kit or board game, you had better make sure you appeal to what the adult is looking for in terms of positively developing and occupying the child while making the product as appealing to the child as you can.

Where in fact my first boss in the toy business was closer to the mark in terms of talking about a ‘negotiation process’ is in these more mutually driven purchases/activities/product categories. The child may want something that the parent sees as ‘crappy’ or ‘just rubbish’, but the parties may mutually consent (eventually) to a more worthy purchase instead via a process of negotiation.

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