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CHINA’S BIRTH RATE DROPS TO A 61 YEAR LOW – IMPLICATIONS FOR THE TOY BUSINESS

CHINA’S BIRTH RATE DROPS TO A 61 YEAR LOW – IMPLICATIONS FOR THE TOY BUSINESS

The world’s 2nd largest toy market is going to have less children needing toys based on a recently reported drop in birth rate which sees this critical indicator for the toy trade drop to the lowest rate in 6 decades. The reasons for China’s ongoing issues with lowering birth rate and aging population are well reported, but in summary:

The legacy of China’s one child policy lives on, with young adults in China today increasingly seeing the benefits of not having children.
Cost of raising children has increased significantly in time, making it less likely that parents would choose to have multiple children.
The demographic structural effects of the one child policy lead to many families preferring to have male children, this has left far fewer marriage age/child-bearing women versus available men.

China’s government has and is taking steps to address the issue of birth rate decline, with a strong push on reducing education and other child related costs, but nevertheless a serious demographic imbalance threatens to derail China’s unparalleled economic growth and rise in living standards.

More specifically from the toy industry perspective there are two key implications of this:

Firstly, the next generation of toy users (i.e. children!) will be a somewhat smaller group versus previous generations. Although this shouldn’t necessarily be seen as a catastrophe for the toy business, because there were still 10.62 million births in 2021, compared with a rough average of 3.5m to 4m each year in the USA. China then still has way more new children every year than the world’s number one toy market. Moreover, at the same time as we have seen a decline in birth rates, we have also seen a massive increase in standard of living – to put the demographic data in context, average wages in China have more than doubled in the last decade. In other words, we have a slightly smaller potential consumer base, but massively more money which could be spent on toys & games. Economic advancement is likely to continue for China’s people, and it seems likely that the Chinese government’s programs are likely to eventually curtail the dropping birth rate.

The second key implication for the toy business relates to toy manufacturing – as I have written extensively, one of the key trends in toy manufacturing is a gradual shift of some toy manufacturing away from China. What the current growth rate highlights is that the potential workforce will be smaller in 20 years time than it is now, while at the same time living standards and wage expectations are likely to continue to grow. This means that we are looking at a long-term situation whereby labour-intensive toy manufacturing will have a smaller pool of workers to access, and those workers are less likely to find lower paying factory work viable. Over that same 20-year period of course humanity is expecting yet another tech revolution caused by artificial intelligence and an accompanying increase in the capabilities and flexibilities of robotisation. So, in terms of toy manufacturing, it appears to be the case that China’s demographic situation will discourage toy manufacturing in China over time, unless AI & more advanced robots can plug the gap.

We run a Consultancy business helping toy & games companies get ahead. For more information, check out www.KidsBrandInsight.com/services

We also run a Strategic Sourcing Consultancy advising toy & game companies around the world on their Sourcing strategies, reviewing their vendor base & suggesting improvements. To date our Sourcing services have saved our clients $tens of millions. For more information on how we can help, just go to: www.ToyTeamAsia.com

3 Reasons To Cancel A Toy Or Game In Development Before It Hits Shelves

3 Reasons To Cancel A Toy Or Game In Development Before It Hits Shelves

One of the peculiarities of the toy & game business is that the level of due diligence applied to product selection is far lower than in many other industries or consumer products categories. This is largely due to the fact that most products in market don’t carry forward to the next year. In our business, if a new product launch fails to live up to expectations, the implications are normally not that severe in terms of lost revenues – we budget for some markdowns and stock clearance across our product range and we clear the failed product and move on. In other industries where products can stay in market for years, and where the average value of a new product is far higher, more due diligence is applied before, during and after the product development stage.

The bottom line is that sometimes it just makes more sense to launch something (even if we’re not sure it will sell well) than to leave a gap in our topline revenues by not launching something.

There are some products though that should never see the light of day, regardless of how far advanced the product development is, because the risks of complete and utter failure are high.

REASONS TO CANCEL PRODUCT IN DEVELOPMENT

RETAIL RELATIONSHIPS – retailers hate over stocks or slow selling products. If you ship a complete and utter dog of a product to your biggest customers, they will certainly not thank you. They may also be less inclined to take your next wave of product launches. Retail buyers are assessed and incentivised on selecting products that sell. So, if you get quite a long way into the cycle and become convinced that there is something fundamentally awry with the product in terms of commercial appeal or functionality, then perhaps you should cancel the project & put the inventory budget against upping the marketing on your other lines.

RISK OF DAMAGE TO BRANDS – one $multi-million product line I worked on was a brand extension of one of THE most iconic brands both in our industry, but also in terms of broader consumer society. We developed a new version of this product involving an added technology element. But as often happens with technology development the end result did not live up to expectations, and we had to decide fairly late in the game whether to pull the product or not. We should have pulled the product because it bombed in retail, left a nasty hangover for both our company and the retailers, but perhaps more importantly it risked the health of a mighty cash cow of a brand.

FUNDAMENTAL CONCEPT OR FUNCTIONALITY FAILURE – due to the prevailing lack of structure and due diligence in product development processes in the toy business, sometimes products make it a long way through before some fundamental flaw is discovered. I can think of one very painful experience for a client when I research tested their new major product release and discovered that both the underlying concept for the toy and the dexterity fit between the product and the target demographic were a complete mismatch. I made the rare recommendation that the product should be dropped before launch as it was genuinely so bad! Alas at this stage, the product had already begun tooling and the client chose to proceed. They shipped out in the region of $1m of inventory to the market and had to markdown or clear nearly all of that stock. The costs of this failure were close to catastrophic for the company, and they had to curtail 2 or 3 rounds of product development after. The cost to the company overall of proceeding with the product was $millions.

In conclusion, there are so many product concepts out there that we need to have robust product selection and product development review processes to filter out products that will fail badly. The earlier in the process we can find that a product has serious issues the less we have invested and the more we can put into alternative concepts with more ‘legs’.

We run a Consultancy business helping toy & games companies get ahead. For more information, check out www.KidsBrandInsight.com/services

Does The Impending Growth Of The Metaverse Threaten The Toy Industry?

Does The Impending Growth Of The Metaverse Threaten The Toy Industry?

Any further immersion of human beings into the virtual realm tends to create concerns and worries about whether that will negatively impact on the toy industry, which is a real-world consumer products business.

At this stage we don’t really know just where the Metaverse is going to take us, but we can presume that this is going to be yet another gigantic tech revolution. Facebook’s change of name to Meta is a serious statement from a company worth $500billion+ (at the time of writing). Tech companies across the world from the U.S. behemoths like Facebook, through to China’s mighty players including ByteDance, Tencent & Alibaba are researching, investing and acquiring to try to maximise their future participation in and profit from the Metaverse. So, we can fairly certainly predict that this thing called Metaverse is coming in a very big way.

But what does this mean for the toy industry? The first point to note is that despite the massive advancements in technology in the lives of children, despite the massive growth in screen time addiction and gaming time, the toy business has thrived nevertheless. How can this be? Surely children have less play time available to toys due to all their screen time, and surely they want to be gifted in the virtual realm nowadays? The reality is that children still love being given toys and playing with them, even if they spend less time with their toys versus past generations. For parents, toys are ever more important as they offer a potential antidote to screen time and aid their child’s development.

The nature of big technology companies is to build up huge data on users and general usage, and then to maximise the elements which create maximum usage and engagement. The Metaverse, in essence, is going to add additional elements of immersive virtual reality and interaction to what we already have. While children can have Netflix playing and still play with toys, it is less likely they will be able to be lost in a VR world and play with normal toys simultaneously, so that may represent a further loss in potential play time for toys, but toys developed specifically to be immersed in the Metaverse could be huge. We only have to look back to Activision’s Skylanders, which sold more than 170m toys to see the potential of toys immersed with a digital experience. No doubt there will be a company who absolutely cashes in on integrating toys with the Metaverse.

In conclusion then humans remain rooted in the real, physical world. There may be a future where we are fully lost in digital worlds like the Na’vi people in the movie Avatar, but we are a long way from that yet. Both children and parents value toys, and the more deeply children immerse themselves in virtual worlds, the more affinity they feel for the characters, worlds and brands they experience in the digital realm, which in turn can be expected to translate into sales of related merchandise, especially toys. Moreover, it is very likely that one or more companies will absolutely nail the execution of toys in and for the Metaverse. Overall then, the toy industry should view the Metaverse as both a threat and an opportunity – if we can keep on creating compelling and attractive toys, based on themes and characters kids love and exploring how toys can interact with the Metaverse, then we may be able to grow alongside.

We run a Consultancy business helping toy & games companies get ahead. For more information, check out www.KidsBrandInsight.com/services

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