MID 2018 – TOY INDUSTRY OUTLOOK
Around about this time of year toy companies begin to have a fairly clear idea (+/-10%) of how 2018 is going to pan out financially. Some will be right now readying the red pen next to their org charts as 2018 pans out tougher than anticipated. Some will be fighting desperately to avoid getting carried away with a runaway success of a year (batten down the hatches – can next year possibly be as good?). Most will be somewhere in between the two extremes of success and lack of success.
So what is the outlook from this mid year vantage point for the toy industry as a whole? Well, there are numerous trends & activities to identify:
Global toy industry set to grow a few percentage points in 2018 – our analysis suggests a single figure growth position for the global toy market in 2018.
Licensed toys are set for yet another successful year – as Hollywood continues to churn out multiple (dare I say countless!) blockbuster toyetic movies, this year seems set to continue the trend. The fact that the toy industry has seen significant growth in the last few years appears to be primarily due to fantastically consistent and frequent franchise management on behalf of Hollywood. 2018 is (at the time of writing) slated to be another strong year, and 2019 is if anything looking even better with Toy Story 4 & a Minecraft movie joining the plethora of super heroes of all shapes, types & genders.
These are interesting times among the major global toy companies – I can’t remember a more interesting time in terms of the competitive position & status of our major leading toy companies. Lego has moved from being just a toy company to also being a kids entertainment company – with 2 Lego movies hitting global box offices in 2017 and with much more to come. Hasbro is in an interesting position having been hugely successful with the content ownership strategy of the last ten years or so, the question now though perhaps is what happens next…how do they keep that massive momentum going? Mattel has not had a great few years truth be told, with pressure to modernise corporate strategy, pressures on traditional cash cows like Barbie and a significant depreciation in stock market value – the (comparatively) new CEO Margaret Georgiadis (ex-Google) seems like the right person to help Mattel embrace the 21st century media & online worlds, but we’re yet to see concrete steps in that direction from Mattel. And finally, with regard to Spin Master, what an amazing last few years they have had – and I struggle to see how they won’t continue to grow for the next few years at least – I see their key growwth advantage being acquisitions in the coming years, because Hasbro & Mattel need deals to the value of at least several hundreds of millions of $USD to make a deal substantial. Spin Master can scoop up the next level down of acquisitions at the rate of a few per year with little bid competition and thus continue to grow.
Fidget Spinners likely to fade away (?) – most industry veterans I have spoken to anticipate finger spinners will burn bright and quickly before fading away. Typically such fads die when the major western markets hit school summer vacation season, and the viral/word of mouth effect of the school playground fades away for a few months. We seem to get one of these super fads every couple of years, and for 2017, this was certainly it. I’ve seen various estimates as to the likely total sales value of fidget spinners globally…I’m not going to comment here, as numerous financial companies read these articles & lose speculation is not helpful to such institutions…bit nevertheless bearing in mind the total annual value of the toy market varies (from data source to data source) between around $80-100 billion, the reality is that fidget spinners are unlikely to make that significant an impact on total 2017 toy market value.
Manufacturing diversification = work in progress – as price inflation has been an ongoing issue in China, the heartland of toy manufacturing, the toy industry as a whole has been assessing the various alternatives to China’s huge capacity. Based on my experience in helping toy companies with alternative sourcing, the reality still remains that China dominates global toy production capacity still, and will do for years to come. However, we have seen some of our clients shift a proportion of their toy manufacturing to countries such as India, Vietnam, Thailand etc., and so far we’ve seen our customers save around $4m USD p.a. Peanuts in the grand scheme of things, but not chump change either!
Emerging/non-traditional markets still the focus – for as long as I’ve been in the toy business (since the late ’90s), toy companies have chased the glitzy exotic upside offered by ’emerging’ or non-traditional markets. The reality historically has tended to be that focus on the major western markets has yielded the best results. However, in terms of market growth potential, China, India and other such non-traditional markets are growing at a pace beyond what is likely or even possible in very mature toy markets like the USA, UK & Western Europe.
I’ll be back in a few months time to take a first look at how 2019 is likely to pan out for the global toy market.
by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com, a leading Consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents.