THE GLOBAL TOY MARKET STRUGGLES TO BEAT INFLATION IN THE FIRST THIRD OF 2022

THE GLOBAL TOY MARKET STRUGGLES TO BEAT INFLATION IN THE FIRST THIRD OF 2022

NPD Group’s star analyst in Europe, Frédérique Tutt, recently posted a blog post looking at what has happened in the toy business in the first part of 2022. Following some good years for the toy industry during the Covid pandemic, Tutt reports that global sales were up just 1% year on year for the months January to April 2022.

https://www.npd.com/news/blog/2022/the-compelling-value-of-the-global-toy-market/

While a performance which is more or less flat year on year would not normally be seen as a negative thing, especially when the previous few years were so positive. The issue of course at the time of writing is that we are seeing high inflation rates – 8.3% year on year for the USA & around the same for the UK. These official interest rates tend to significantly underplay reality, as the list of items which are tracked to monitor inflation often exclude items with high inflation. In the UK currently for instance, household energy bills have soared massively in excess of the official figures, as have fuel prices at the pumps for fossil fuel powered vehicles. The true inflation figures I suspect could be as much as double what is being reported by governments.

The issue then for the toy business is that when inflation is so high, an increase of market value of 1% is in fact a decrease of at least 7%, if not twice as much as that in ‘real terms’ taking account of inflation and the devaluing of consumer disposable income.

I am known for being an eternal optimist, with some of the more cynical souls in our industry rejecting our content output for being overly optimistic. Bearing in mind my natural propensity for optimism about the prospects for the toy business, I am concerned for the first time in more than 20 years in the toy business that we could see the first significant market reduction in all that time. Our industry which is so famously resilient to tough times, made it through the dot com bust of the turn of the millennium, the global financial crisis and the Covid pandemic. However, we have not seen such high inflation since the 1970s, and when consumers are struggling to find the funds to fuel their vehicles, struggling to heat their homes and struggling to pay for food and other costs which are in an upward inflationary cycle, the prospects for toy sales must surely be lower.

We know that toy pricing has gone up & will go up more, but I don’t see that as a fundamental problem, because our retail pricepoints have been kept artificially low for years by price pressure from big box shifting retailers. On a comparable basis, toys & games, even at higher pricing represent good value for consumers versus other product categories and their comparative price inflation over time. The issue is more one of Maslow’s hierarchy of needs. Quickly explained, Abraham Maslow modelled human needs, with the more basal needs coming first, and then moving upwards to less physical, rudimentary needs. The issue we have now in the toy industry is that if consumers are pushed further back down the hierarchy of needs by inflationary pressures on their household finances, then it could have a negative impact on demand.

I sincerely hope that I am wrong, in fact I will be delighted if I have got this wrong, but it looks like to me like 2022 could be a tough year for the toy business, and we may be in for a couple of tougher years than we have experienced in my couple of decades in the toy business. It could be time for toy companies to batten down the hatches and ride the stormy waves ahead…

China’s Societal Shift: How To Increase The Birth Rate & What This Means For The Toy Business

China’s Societal Shift: How To Increase The Birth Rate & What This Means For The Toy Business

In China’s recently released census, it became obvious that China has a decreasing birth rate, and therefore a structural demographic challenge is looming. Needless to say, China’s government is working to change this situation and to stimulate birth rates.

In the last week we have seen a number of media articles looking at this issue. The Wall Street Journal, for instance, highlighted an initiative to reduce education costs. Many interviews have been published with Chinese people stating that it is too expensive to have children, so over time the society has become used to having just one child and putting everything they can into that child’s education and development. This has in turn led to a situation where private and supplemental education has become a major cost for Chinese parents. As such, we anticipate many more initiatives across the board to reduce the cost of raising children across China. Here’s the link to the Wall Street Journal article:

China Takes Aim at Educational Costs as It Seeks to Reverse Birthrate Decline – WSJ

We also came across another article talking about ‘Chicken Parenting’ in China, which highlights how intense and pushy some parents have become in China. Included in this article is a sample daily schedule for a child which basically is all about education and very little about fun and play. In many ways this is concerning because of course we know that playing is an important part of the development of children. More specifically though this suggests that the Chinese toy market would offer a lot of potential for toy & game companies offering educational products. Here’s the article referenced:

Chicken parenting is China’s helicopter parenting on steroids – SupChina

The outlook for the toy business in China looks positive overall. Despite decreasing birth rates, it is clear that action is ongoing to incentivise more births and to reduce barriers or discouraging factors to families having more children. We can’t be sure when all these measures will take effect, but it is clear that significant action is under way to reverse the trend. Moreover though, China’s parents are increasingly investing very heavily in their children’s development, and as the relatively recent advent of consumer society continues to mature, it looks likely that toys with educational and developmental benefits have increasing opportunity in China, especially as disposable income continues to develop alongside further economic growth.

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