It Takes Time To Build In The Toy Industry…


Newcomers to the toy industry are often unpleasantly surprised by the timelines – by just how long it takes to get things done. At the time of writing (September) most companies are beginning the sell in process for products which will hit shelves in around one year’s time. For those who enter the toy industry from other industries, this elongated process can seem bizarre at best, and highly obstructive at worst.


For certain, when it comes to setting up and building new toy companies, one of the major challenges is just how long it takes to complete the process and receive the funds from sales. If in the meantime the founder has to live, eat and play then we have a potentially huge barrier to entry for any one without significant capital at hand.


Even when a company is established to some degree already in sales terms, it can take some time to reach critical mass, and sometimes even longer to reach profitability. One client company we consulted with had virtually no sales in the first year of trading, some sales in year 2, very good sales in year 3 (but significant loss), breakeven in year 4, and finally profit in year 5. That’s a very long time to deliver a profit! Moreover, this is not entirely uncommon - it takes time to make progress in the toy business.


One major reason for this is that retailers are not keen on taking on new suppliers in most circumstances. New businesses must build a distribution base from the ‘ground up’. This process varies massively depending on which market the company begins in – for instance in the UK (my home market) there is a comparatively small independent toy shop sector, with the vast majority of sales being via national chain retailers…exactly the type of retailer which tends to prefer not to take on new suppliers. So in the UK market the new toy company tends to work hard to build a limited distribution base, and from there normally companies will tend to add a few national retailers during each sales cycle i.e. a few new customers per year. So we can begin to see why it takes so long to become established. – it can take 5 years, or sometimes longer to reach full distribution.


There are shortcuts in terms of distribution – distributors with existing trading accounts can get the products of a newer toy company on shelf, but this comes with challenges in itself – lower margin, less control, less focus – not always a recipe for success. It is not unusual for companies to start with distributors, before eventually taking back the business to supply retail direct with now established products, yet even this takes time.


Furthermore, when we look at the giants of our industries, we see further proof of just how long it takes to grow a successful toy company:

Hasbro – originally founded as Hassenfeld Brothers in 1923 as a company selling textile remnants, began selling toys in the 1940s, before shortening the name from Hassenfeld Brothers to Hasbro. Until comparatively recently, a member of the 3rd generation of Hassenfelds involved in the business was Chairman of Hasbro, and before CEO. (I myself even worked under Alan Hassenfeld in my time at Hasbro). So we can see just how long a journey Hasbro took to get to where they are today.


Mattel – Founded in 1945, the founders themselves continued to work in the business for 30 years, before leaving in 1975. While certain new product/brand introductions and acquisitions catapulted Mattel forward, they started quite some time back and took time to grow.


Lego – founded in 1932, this iconic brand and company has gone from humble beginnings in a small carpenter’s workshop, as a wooden toy company to a huge global juggernaut. The Lego brick in it’s current form was launched as long ago as 1958 though, and the company is now in the hands of the grandson of the founder, so again we see just how long it takes to reach the top of the toy trade.


We could look at more and more examples, but one very noticeable factor for long term success is the prominence of family originated businesses at the top of the tree – one major reason for this is that building a toy company from start to finish can be more than one generation’s work!


When we consult with smaller or newer companies, we often find a huge amount of impatience relating to sales growth, but the reality is usually that prudence and incremental solid progress are the foundation of ongoing success, and the smash hit products or landmark acquisitions are usually additional stepping stones along the way.



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


The Importance Of Building Brands In The Toy Business


Many independent Toy companies struggle away for years slowly and relentlessly building their businesses, until they reach a point where they have a very solid business, with great retail relationships, strong product line and are generating significant profit. However, what many companies miss when they only focus on sales and profit, is the opportunity to build Brands or intellectual property.


The benefits of building your own Brands are numerous: Firstly, if you create a successful Brand, you are in control and are not responsible to any other 3rd parties on derivative products and you will not be likely to lose the rights, in effect the opportunity arising from the Brand are yours to control and exploit. With your own Brands you do not pay royalties, so if a company usually pays an average of 10% royalty, you effectively save yourself that 10%, leading to greater profitability. Moreover, if you create a very successful new property, other companies may license rights from your company and pay you a royalty. Finally, your company may eventually be able to sell your Brand for a large one off payday – for instance the Cranium Brand was reportedly sold to Hasbro for $77m, and Mattel paid a reported $680m to buy the Hit Entertainment business and Brand portfolio.


So with all these benefits, why don’t more companies successfully build Brand portfolios? Well there are 3 main reasons in my experience: 1. It takes significant investment of both money, resources and focus, which not every company is willing to apply. 2. It is very difficult, and for every new Brand which is significantly successful, at least five or ten more fall by the wayside. 3. Short term P&L focus – some companies (rightly) focus on driving sales and profitability, but rather than over layering a Brand building approach they just think short term and fail to maximise long term value.


Those companies who focus only on the short term tend to exhibit an over reliance on licensing and/or transient technology, neither of which act to effectively lay down solid, dependable, long term foundations for their business. Technology can provide a short term boost to sales and a competitive advantage, but even patented technology has it’s limitations in terms of true protectability. Licensing is a powerful and normally essential part of a Toy company’s product approach. However, once a company enters the licensing ‘treadmill’ it tends to rely on a significant proportion of it’s revenue coming from hot licenses, and retailers also rely on the company to supply less licensed merchandise. When the company has a weaker year for licenses, revenue falls as do retail listings on other non licensed products.


For the sake of perspective, we must be clear that the most successful Toy companies exploit the opportunities offered by licensing and technology, albeit prudently. The critical point though, is that few Toy companies enjoy long term stable success without their own Brand portfolios. If we look at the major corporate companies such as Hasbro, Mattel and Lego, they all devote significant resources to licensed products and technology driven products, however, they also deploy significant resources to nurture and grow their own Brands often utilising technology and licensing in the process! In other words, for them the end is not solely the sales revenue, they are ALSO heavily focused on building their own intellectual property.


So now we have established the need to Brand build, how can a company actually do it? That’s the difficulty, it isn’t easy, and it’s not possible to provide a full answer in a short article, however, here is one powerful solution which I have seen work magnificently: Focus and resources – one of the most powerful actions independent companies can take is to adopt a Brand management approach, which in practise means turning ‘Marketing’ people into ‘Brand’ people, and necessitates a message of Brand evangelism throughout the company and beyond. This one suggestion can have the greatest effect. If you give a talented marketing person the title of ‘Brand Manager’, then effectively you conjoin the success of the Brand with the success of their career. That individual will move mountains to ensure success, to persuade sales people and retailers to support your Brands and also be more likely to deliver winning consumer communications. For sure there is much more to building new Brands than that, but that is a very effective first step!



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

Toys And Easter

In this industry, we are always very focused on Q3 for shipping in and Q4 for selling out to consumers. This is not surprising when sales are biased towards the second half of the year. Only the ignorant or foolhardy would ignore the selling opportunity that Q4 and Christmas offer.


However, there is a trap we can fall into here, and many companies clearly do fall into this trap – that being the presumption that Q4 is all that matters. Even for those companies operating in categories which are particularly biased towards Q4 will see no more than 70-80% of annual sell through in Q4. By simple deduction this means that 20-30% of sales for even the most Q4 focused companies comes outside of Q4. 20-30% of a companies sales is not a small amount. That amount would be the difference for many companies between a very successful year, and a disastrous, occasionally fatal year.


We should also bear in mind the risks and challenges of cash flowing the first half of the year when even the mighty run at a loss. We therefore need to consider very carefully the opportunity to sell outside peak season. We still have birthdays throughout the year, which is a very significant, albeit unconsolidated opportunity. More importantly however, there are several other periods offering significant opportunity. The most critical of which is Easter.

Easter is often described as the biggest retail event outside of Christmas. The challenge is though, that if you dig beneath the surface, the reality is that Easter is the second biggest retail event FOR FOOD & DRINK items, because obviously the family spends more time together, family & friends visit, children are off school and confectionery sales increase. None of which seems directly likely to help the Toy industry.


We should though consider this opportunity carefully, because as an industry we spend in excess of $5billion every single year on advertising. If the industry decided en masse to push Easter gifting via bespoke advertising, and decided to do this year after year, we would create a massive trend away from Q4. However, it would be arguable as to whether this would be incremental spend, and whether spending the money earlier in the year to try to ‘push’ consumers into purchase would be prudent and effective versus the ‘pull’ effect of steering consumers towards your particular offering when they are already shopping for your kind of product.


The reality is that Easter offers a definite sales opportunity, but one which needs a well thought out plan, prudent use of product, sales and marketing resources, and not least of which an innovative approach. When I’ve looked at Easter previously with teams of sales, marketing and product development people, it seems the barriers haven’t changed much over the years, and the solutions suggested don’t change too much either. The main suggestion seems to be ‘something with eggs’, and an ‘Easter basket’ and ‘The Easter Bunny’, but with no greater thought or strategy than that.


My perspective has always been different – my perspective is that some products which sell well at Christmas might not sell as well at Easter i.e. high end, expensive Toys. The obvious difference with Easter is price point. In most major markets, the presents given in Q4 are the largest and most expensive given all year. That clearly isn’t as likely to be the case for Easter. Nevertheless though a need is there waiting to be fulfilled, and an opportunity waiting to be exploited – namely smaller, lower price point gifts from family & friends to their nieces/nephews, grandchildren, and friend’s offspring. That is where the opportunity is strongest and easiest to approach.


So my suggestion is for companies to embrace the opportunity, but to focus on a new marketing and promotional approach. Here’s some examples of how you can do that:


1. Cross-promotional opportunities – we are not the only industry trying to sell consumer products, family entertainment or impulse purchasing at this time! Can you look for an Easter cross promotion with a leading cinema chain in your market or can you license rights to special Easter versions of your branded products i.e. Toy & chocolate Easter egg in the same pack via leading confectionery companies. The opportunities are immense when you think about it, because all we are looking for is companies with similar target consumers!


2. Retail driven – our retail partners are normally not slow to grab seasonal opportunities, but sometimes we are slow to proactively suggest how we can help them to sell more of our products. For instance, a small part of the seasonal space given over to confectionery incorporate an ‘Easter Gift’ section, and perhaps we might offer to supply the POS materials (with customers branding) to drive sales. There is of course a cost associated with such activity (retailers are not slow to ask for funding normally!), but that is the case with any activity, and marketing spend at point of sale is proven to return better ROI than just broad consumer marketing alone.


3. Consumer marketing – it is expensive to try to create need for consumers, however, it is significantly less expensive to get consumers thinking about a new solution to an existing situation i.e. your marketing could suggest you will see more of family and friends over Easter, why not take a board game to play, or a gift for their children etc. In this day and age this need not be very expensive, a viral social media message with prizes or promotional offers could conceivably drive mass awareness.


4. Product development driven – this is possible of course, but I recommend only cosmetic (and cost effective) tweaking at the warehouse to avoid obsolete inventory once Easter is finished. For instance, a bundled value pack with 2 products in a special outer pack can be taken out of the pack if needed after if sales are slow. Developing completely bespoke Easter products seems like a risk too far, but creative outer packaging seems more likely to be viable.


These are just a few ideas as examples, and by considering these and the Easter opportunity more broadly, maybe, just maybe, you can shift a few more percentage points of sales out of Q4 and into the earlier stage of the year.



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