5 Top Tips To Boost Your Toy Export Sales

5 Top Tips To Boost Your Toy Export Sales

Toy fair season is the time when toy people dust off their passports, open their international contact address books and see if they can improve their international distribution this time round.

The following tips/fundamentals should resonate with all kinds of companies, for the simple reason that they have been tried, tested and proven to work over time by our company, by client companies we have worked with and by many other companies we have observed:

1. Export Sales depend on trusting relationships – it could be argued that all sales depend on this, but actually because retail buyers tend to move around more than international toy company owners, it is even more of a fundamental when trying to build an export sales business. There are people we will meet this toy fair season who we first met over 15 years ago, many of whom have been in business for decades. Some of them we have been actively selling to/buying from for most of that time, some of them we have sporadically traded with and some we have never traded with, but there’s always next time! There is also a small group of people/companies with whom we had negative experiences of some kind, with varying levels of antipathy, resentment and negative baggage both ways.

The critical point is there are only so many distributors out there, and aside from new kids on the block or companies which fell by the wayside, if we looked at the international toy companies we deal with today, around 70-80% of them are the same as 15 years ago. So the bottom line is we need to take a longer term relationship nurturing approach to build a platform for long term commercial success (versus selling anything we can to anyone we can whether it will work for them or not!).

2. Resources & Focus – selling in general as often depends on ‘leg work’, follow up and dogged persistence as it does on persuasive brilliance. Yet we often meet companies who proclaim that export sales is an important area, but who do not assign any significant resources or focus onto the international opportunity. Even smaller companies will happily hire new staff to chase perhaps a new distribution channel in North America, which will offer them a fraction of the global opportunity versus one sales person chasing the huge global opportunity (outside the USA) via export sales.

On the same note, we roll our eyes when companies are ‘very focused’ on selling internationally but never leave North America! For sure, some international companies will visit the U.S. in particular, especially for the New York toy fair every February, but many more won’t. If think you are seriously committed to international sales but have never attended Hong Kong in early January or Nuremberg for Spielwarenmesse in late January, then you have a different definition of committed than we do! It’s easy to cheapskate out of the costs of visiting these shows, but to build enough of the right relationships you really need face to face time with key companies in each major export market, and these shows are the most efficient vehicles you will find towards that end.

3. Understand & embrace the fragmented nature of the export opportunity – the USA and Canada combined make up c. 25% of the global toy market, that leaves a lot more to play for elsewhere! One of the major stumbling blocks for North American companies though is understanding the fragmented nature of the export markets.

When your new export sales person comes into your office excited that they just received an order for 5k units from Holland you may struggle to be excited versus a single purchase order from Walmart for 150k units for example. The reality is though that North American mass retail offers a one of a kind volume opportunity. Everything else is outside that is about putting together a jigsaw puzzle of many pieces, and over time this jigsaw puzzle can grow into a bigger business of many pieces, almost like a Specialty business with Mass upside.

Each partner makes up a smaller part of the business, thus reducing the risk of having your business reliant on just a few 3rd parties. In short piecing together an export jigsaw puzzle of your own allows you to lay strong foundations to partially reduce the roller coaster effect of trading with mass retail domestically.

4. Be aware of local/regional commercial & cultural differences – other countries have their own commercial and cultural frameworks. This can lead to legislative & bureaucratical considerations as well as practical (different!) language issues e.g. some product categories are not popular in other markets i.e. the German market is not strong for toys seen to promote aggressive/violent play, so the action figures category is not strong in Germany versus North America.

Europe, which combined makes up around ¼ of the global toy market is highly fragmented, and while the European Union harmonises things to a degree, there are countries in Europe outside of the EU. Safety standards are different – if you just managed to get to grips with the latest domestic toy safety standards try getting your head around EN71, REACH and WEEE regulations in Europe! Furthermore, European employment law tends to grant the worker significantly more rights versus the USA for example. Away from Europe, Japan and China which make up the No. 2 and No. 3 toy markets in the world, have even more significant cultural, regulatory etc. differences.

The logical way to deal with these challenges is to make it someone else’s i.e. your distributor’s responsibility, and then to over time build your own knowledge of all these factors. While the extra margin of always selling directly to retailers in each country may be appealing, I have seen far too many North American companies wander blindly into doing this, leading to major challenges/issues to resolve from customs/import documentation issues that cost $millions to resolve through to companies hiring sales staff they could not fire without significant payoffs. In the first instance, selling via distributors for lower margin will avoid so much risk, management time loss and other issues.

5. Engage local/expert help – in the same way as you may need to engage a specialist rep to enter a particular distribution channel domestically, so you may want to consider looking at expert help to kickstart your export sales. There are numerous companies offering market entry services and international representation. Again, everything has a price, but we’ve noticed that in our own business we often save companies years of wasted effort and investment via just a little local market knowledge e.g. one client had exhibited at the wrong trade show for 7 years at huge cost, with (unsurprisingly!) very poor results, a move to the right trade shows instantly yielded substantial results. At the very least, speaking to international toy market experts should increase your knowledge base.

In summary, there’s no doubt that the export opportunity can be significant, but it needs to be managed realistically and efficiently!

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

Innovation Versus Following The Formula In The Toy Biz...

Innovation Versus Following The Formula In The Toy Biz...

We talk about ‘Innovation’ often in the toy industry. The need to innovate to compete is supposedly paramount - when between 50% and 75% of all toy SKUs are new each and every year, there is indisputably a need for a relentless product development or product sourcing pipeline. Yet we often confuse the terms ‘innovation’, ‘blue sky’ and ‘ground breaking’ as being exactly the same as ‘new’.

The reality is new products are not always that original. I have been unable to find a robust analysis of what percentage of products in market are completely fresh and original versus following an already proven formula, but experienced toy people tend to have seen the ‘same old thing’ work time and time again. And so then the question becomes why would we ever originate something fresh with all the inherent risk involved, when we can follow the ‘me too’ approach?

When we look at the consumer lifecycle in the toy business, this becomes even more of a salient question – because we are dealing with children at a particular time/age in their lives, they come into our product ranges, and then comparatively quickly versus other industries they move on. This leads us to a new generation of toy consumers. This cycle occurs every 3 or so years, meaning that the new generation of kids experiences our brands and product ranges for the first time in their lives. So why would we ever bother to create completely ‘new’, when we can rehash the ‘new’ from a few years back and continue to sell our products?

The most striking counter argument here is that hit product often provides the impetus for growth in the toy industry, and those companies with massive hits on their hands can experience a huge sales uplift, or at least see gaps in their business filled by the all new innovations. So clearly there is a place for the kind of brilliant innovation which brought us new inventions such as Furby or Connect 4. In the case of Furby, we have recently seen a new generation of consumers introduced to the brand anew, with the product itself being hugely enhanced by new technology. This shows that yesterday’s completely new news can become tomorrow’s perennial brand (with updates and tweaks) in an industry where known brands are the pillars of long term stability for toy companies.

There is clearly a downside to chasing the hits though – that being the high level of investment including: R&D/royalty costs, inventory risk, marketing expense, opportunity cost and risk to retail goodwill if products fail. We operate in a classic ‘hit or miss’ industry, and alas the misses will nearly always significantly outnumber the hits over a period of time. So if you are in that business, be prepared for a roller coaster ride, and ensure you have the capital to place multiple bets on new product lines in order to increase the odds in your favour over a number of product launches. Nevertheless, if you choose to play that game, you are only ever as good as your last hit, so be prepared for a bumpy ride!

One fact I have seen proven over and over again in my time in this business is that those companies which ONLY play the ‘hit or miss’ game are the companies who see the wildest swings between success and misfortune or as Frank Sinatra put it “You’re riding high in April, shot down in May.”. The companies that secure a significant proportion of their sales (to at least cover their overhead) on proven product formulae, while placing a few carefully considered bets to chase the hits are normally the companies enjoying most longevity.

So overall, while we often speak of innovation in our industry, we should be clear about the part this plays, and also be clear about what is innovative in reality. Fundamentally we should be clear what the goal of innovation is – otherwise we may be safer (in business terms) replicating a known formula. Perennial themes such as monsters, dinosaurs, zombies, ponies and horses, good versus evil, super heroes and villains – all of these known perennials can be seen as safer bets, as they have been proven time and time again. Of course, execution is still key, and if you can follow part safe formula and part innovation by adding technology or functionality/positioning value, then you can seek the right balance for ongoing success.

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

Prudent Licensing For Toy Companies

Prudent Licensing For Toy Companies

In our industry, where achieving retail listings can be so difficult, and where over stocks can literally kill a company, there is often a tendency towards ever increasing reliance on licenses to ensure products are a). listed and b). then sell through retail. Retailers prefer proven brands, as experience shows that consumers often prefer to buy brands they know, trust and love versus purely generic product. Retail is a hard trade, and retailers are often much maligned by toy companies for refusing to take risks, but when you are set to make a comparatively small percentage margin on a product bought at risk, this does not encourage a risk taking approach!

The issue for toy companies is that while extending licensing may seem to be the ‘magic button’ in terms of driving quick sales, it also brings with it significant risks and counter challenges to deal with.

RISKS OF LICENSING

1. Up front financial commitment – for a license with any strength, a minimum guaranteed, non-refundable payment will be expected/required by the licensor. This is a risk from 3 perspectives: a). increasing the financial risk of launching a new product in the instance where the product launch fails b). cash flow challenge, as you pay the advances up front some time before you can expect any pay back c). under recouped guarantees (i.e. where your sales don’t exceed the amount needed to recoup the guaranteed amount at a reasonable royalty rate) – this last factor is the bane of finance departments!

2. Loss of focus on your own brands – the reality is that the majority of the value in your company will be driven by your own brands – in terms of brand equity, long term stability and profitability. Yet if your sales team has some super hot license which everyone loves, you need to pay special attention that they use the ‘must have’ products to leverage additional listings for your own brands.

3. Beware the downward stretch of the roller coaster – the strength of most licenses will ebb and flow over time. Moreover, sometimes you may have a super hot license in your portfolio which drives huge sales. The challenge is that this in itself can create more problems for you, because no license sells at super hot levels forever. The massive movie franchises have slower years when there is no new release, the fads & crazes can reach peak sales for a while, but always cool down eventually. So if you suddenly find in a hit year that you have sales of perhaps 200% of your usual sales, the next year you may be back to 100%, or even less if your organisation has not planned for the down cycle of the license.

4. Licenses come and go – even if you manage to find that rarity of a license which has both huge appeal/sales driving impact AND longevity, licensors are unlikely to guarantee you the rights for longer than 3-5 years at most. More often than not, the end of a contracted licensing period sees a new licensee take over a product category, so beware the treadmill effect – if you play the licensing game, be willing to run the ‘hamster wheel’ to maintain your licensed brand portfolio.

5. Not every licensed brand or product works – strong licenses help to sell more products, that’s a proven fact in general, but beware the exception that breaks the rule – clearance stores are full of licensed products, some of which has just had it’s time, some of which just didn’t sell.

6. Not every licensor manages their licensee portfolio ‘fairly’ – the term ‘slice-ensing’ is used to describe a situation where a licensee tries to slice up the ‘pie’ into too many pieces, leading to poor opportunity or very muddied waters for the licensee. Beware what rights you are getting, and ensure they cover what you need. It is normally prudent to be sceptical of vague promises not to over license versus contractual stipulation!

There are three paths you can take in this business: 1). To pursue building your own brands only – this is often a long and difficult road, but ultimately fruitful…IF you make it. 2). Build a business based solely on licenses – this can be a quick starting, quick boosting approach, but beware building a business based on foundations in sand. 3). Combine both prudently for long term and short term success.

The last option would be the recommended course – if you look at even the corporate giants, with their huge portfolios of proven powerful brands, they still have a licensed portfolio – often around 25% of their total sales are licensed based, despite the vast riches of own brands they poses.

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