Lego Announces Annual Results – Analysing What’s Going On With Lego

Lego Announces Annual Results – Analysing What’s Going On With Lego

As financial results season draws to close, there was one big player yet to report how 2020 panned out for them – Lego. Even though they don’t really have to report very much in terms of their annual results (because they are a privately owned company), there were a few big reveals in their 2020 full year results which merit some thought and consideration:

  1. Revenues were up double digits in 2020

This is perhaps the least surprising part of the announcement from Lego. We already knew that toys delivering parent approved play patterns were tending to be up considerably year on year. Lego reported revenues increased by 13%, with consumer sales up 21%.  So, Lego did well out of locked down families just like many other parentally approved toy brands.

 

  1. The Digital space is a major focus

Lego are firmly planted in both the physical and digital worlds these days. This announcement made clear just how important digital experiences are to Lego, both in terms of integration with Physical products (i.e. the best-selling new release was Super Mario Lego featuring an App integrated into the play experience) but also in terms of delivering entertaining, compelling and sales creating online shopping experiences. Lego are in the process of recruiting teams of new people to help them to expand and deliver their digital visions.

 

  1. Lego’s promise to produce bricks made from fully sustainable materials by 2020 is a strong and financially committed goal

Lego has committed $400m USD over 3 years to developing sustainability initiatives, including developing sustainable plastic alternatives which can be durable in the same way as plastic Lego can be, using paper bags for instructions and parts versus plastic and more. For this Lego should be applauded. Perhaps this is the benefit of being privately owned, because it would be hard for stock market listed companies to earmark such a large amount of money towards something offering no clear short term payback.

 

  1. Lego has a hefty product development churn each year, but this is less wasteful than it may appear to be

One of the most surprising parts of Lego’s announcement was that 55% of the product portfolio for 2020 was new! Typically, the toy business sees around 60-70% of toys on sale being new each year, so clearly Lego is ahead of the crowd in this regard, but at first glance it is perhaps surprising that they don’t manage to keep sets in the market for longer. The reality though is that Lego’s unique parts system means that while the theme, imagery on the box and instructions may be different on each ‘new’ set, the vast majority of the pieces inside are used in numerous other products.

 

  1. Lego is growing their retail portfolio, especially in China

Lego now has nearly 700 stores worldwide, with a whopping 250 of them in China. Because China’s consumer culture is relatively new, Lego clearly feel the need to find ways to engage with Chinese consumers to ensure the brand has just as prominent a position in the world’s 2nd biggest toy market going forward as it does in pretty much every other country in the world!

 

  1. Lego’s top selling themes in 2020 are unsurprising

If you had to guess which Lego themes would be most popular every year, most of the time we suspect the answers would be at least partly the same: Lego City, Lego Star Wars, Lego Friends, Lego Classic & Lego Technic are all well-established sub-brands based on a deep understanding of the target consumer base for each. This consumer segmentation is one of the most successful features of Lego’s brand strategy and is something many toy companies could learn from.

 

There are very few toy products or brands which manage to be loved by parents and loved by kids alike in the same way as Lego is. Lego is in the end just one brand, but within that brand and all the brand extensions and sub-brands, Lego has enough to be the biggest toy company in the world, and looks set for future growth.

 

We often use our analysis of the reasons for Lego’s success in our Consulting with toy companies. We have consulted with more than 100 toy & game companies and use our knowledge of Lego and many other successful toy brands and products to help up and coming toy companies raise their game. For more information on what we do and how we help: www.KidsBrandInsight.com/services

Have you listened to our Playing At Business podcast? We analyse key product categories in the toy busines, discuss key trends and interview amazing people from across the world of toys. To find out more: www.PlayingAtBusiness.com

 

 

Why Seeking Alternative Toy Distribution Is Often A Missed Opportunity For Toy Companies

Why Seeking Alternative Toy Distribution Is Often A Missed Opportunity For Toy Companies

Selling toys to retail is hard. It’s hard for one major reason – the level of competition. Spielwarenmesse, the world’s biggest toy trade show, held (normally!) every year in Nuremberg, Germany estimates that there are 1m toy products on display at that show. And that isn’t even every product that the exhibitors run. There are literally millions of toy products on sale each and every year.

What this means in practical terms is that for each and every product you want to sell, there are dozens, maybe even hundreds of other products trying to get on the same retail shelves and trying to get prominence on the same e-commerce platforms. The toy business is one of the most ridiculously competitive businesses out there. Every time you preview your products to a retailer at a trade show you are fighting for attention versus literally thousands of other products they have seen.

Aside from the competition though, another major challenge is that retail buyers come to know their categories really well. They develop very fixed ideas of what works in terms of products, packaging and price points. If you have a product which sits outside there view of what toys in their category should be, then selling becomes really hard.

None of this should be news for anyone who has ever tried to sell a product to retail. But what is remarkable is how few toy companies put serious effort, resources and opportunity cost into breaking out of the shackles of the normal system of doing things. The world has changed so much, yet for many toy companies getting up to speed on Amazon & how to market & sell on social media is their primary adaptation.

One fundamental insight which we see time and time again is this – why would you spend all your time and efforts trying to be one of many products in traditional toy retail when you could try to be one of one via non-traditional outlets?

There are so many good examples of how to do this – we’ve seen companies running corporate gifts using personalised versions of classic toys & games – for instance, the board game Monopoly is offered in customised ‘special editions’ in various countries around the world. Or maybe it’s a bespoke product created specifically for a particular company, brand or organisation. It might be just selling a product with a particular theme to retailers you (& all your competitors) don’t normally sell to.

Another example of non-traditional retail is the educational sector. Although this comes with a minefield of bureaucracy and unclear purchase responsibilities, the education sector is not as price sensitive as retail. Often the person buying toys & games is also buying other forms of equipment, so they aren’t experts in the space. Moreover, they aren’t needing to buy at the best possible price so that they can make a profit, they are instead just spending a budget that is given to them, and while schools and educational organisations are often working on tight budgets, their purchase managers quite frankly lack the commercial ‘smarts’ and hard-nosed approach of retail buyers.

So, next time you come back from a retail meeting wondering why this has to be so difficult, why not try to sell into some greener and untouched pastures?

 

Have you listened to our PLAYING AT BUSINESS podcast? We analyse key areas of the toy and game business, we interview leading people in the business and we discuss major trends and changes across toys & games. You can listen to numerous episodes here: https://playingatbusiness.libsyn.com/

For more articles & insights on the toy and games business, sign up here for our free e-newsletter sent straight to your inbox: https://forms.aweber.com/form/54/1325077854.htm

 

The European Toy Market, A Practical Overview

The European Toy Market, A Practical Overview

Europe has just under 10% of the world’s population, approximately 16% of the world’s GDP (just a little bit less than the USA & China) and more than 50m children. Europe therefore represents a significant commercial opportunity for those in the toy business – the market size is in excess of €18billion.

The challenge of course is that Europe is a more complicated region in terms of disparity and local language and cultural difference. Europe has 44 sovereign states and 24 official languages, and so it is a complicated place to try to do business. Most of Europe’s nations are part of the European Union, a political and economic union bringing together 27 countries. European law stands above local national law for members of the European Union. The EU nations use the €uro currency which is used as the national currency in 19 countries. Before the €uro was established setting pricing for European markets was a nightmare, as local currency fluctuations made it exceedingly difficult to fix a price that worked across markets. This was further complicated by one of the primary treaties of the European Union – namely The Treaty of Rome which legislated for free movement of goods across the zone.

Practically speaking The Treaty of Rome causes a lot of problems for those trying to patch together a network of distributors across Europe, as it is all too easy for them to effectively ‘steal each other’s lunches’ by selling into customers in each other’s markets. When talking to potential new distributors in one European country one of the first question’s they will ask is who is distributing for you in the other markets – because from this they can work out how big a challenge they will have with cross border shipments. The massive growth in Amazon’s power in the market has exacerbated this, with Amazon being a major opportunity as well as a major challenge for efficiently running a Europe wide business.

One of the most effective ways to enter the European toy markets is to work with distributors. There are sales reps in Europe, but they tend to work in only one or two countries at a time, and with each country having various differences in culture, law and distribution channels there is a lot of complication involved in trying to sell via reps across the whole of Europe. Distributors take away a lot of the workload, but on the flip side also take away margin from your bottom line!

There are some extremely valuable trade shows in Europe. Firstly, Spielwarenmesse, the biggest toy trade show in the world is held in Nuremberg, Germany at the end of January every year (in normal circumstances): www.spielwarenmesse.de. This massive trade show features nearly 3,000 toy companies from all around the world. There is no better place to get an idea of the European toy market and to seek commercial opportunities. In addition, Distoy takes place in London, England every May (again under normal circumstances), this less well-known show is a show specifically for toy distributors, and with over 400 exhibitors much business is done here: www.Distoy.com. There are also national shows in other markets in Europe, which may be of interest to attend if you are particularly focused on that country. But overall, if you had to attend one trade show to maximise access to the European market it would be Spielwarenmesse.

The biggest toy retailers in Europe (in no particular order) include: Smyths Toys/Toys R Us, Carrefour, Auchan, Argos, Amazon (of course!) and there are thousands of independent toy stores across Europe.

By far the biggest toy markets in Europe are the UK, France & Germany. Even within these 3 markets there is a massive disparity in terms of products, culture and retail structure, as well as 3 different national languages. The UK tends towards more licensed toys, having one of the highest market shares in the world for licensed toys, whereas Germany has one of the lowest market shares for licensed toys in the world. The UK and France toy buying structures tend to be centralised with a central buying team, whereas Germany is very fragmented and buying (or at least replenishment) is often more localised.

Warehousing can be a challenge also in Europe. Many companies will have just one central warehouse, often in Belgium or the Netherlands. Brexit has complicated the logistic situation somewhat (damn we knew we had to mention Brexit at some point!), because there are new rules & restrictions on trading between European Union countries and the now ex-EU country of Britain.

Compliance and safety regulations are demanding in Europe. Whereas the USA has ASTM standards, the European Union has EN71, a massive set of restrictions and mandatories that even teams of experts often can’t easily understand! Going forward the UK will have its own (different) standards. We highly recommend specialist expert help in the area of compliance for Europe for toy companies!

The final complication we are going to mention here is that of trying to supply your products in the right language versions, but with as much efficiency as possible. The more countries you can ship the same product version to the better and more efficient your inventory control will be. For some products this is less of an issue, for instance, basic plush might only need a label with brand name and a few other company details which can be shipped right across Europe. For other categories though things can get more complex, board games for instance are often language-based products with significant ‘content’ on cards which is integral to the play experience. This means that often different language versions are needed for each new country. With time though you learn that some countries will need dual or even tri-language packaging. In some cases (most notably Eastern Europe) there might be the need for a dozen or more languages to be somehow included in the product. Sometimes things can be simplified though, for instance in Scandinavia the level of English spoken is so good that sometimes board games companies can get away with supplying English language product with local legal lines & instructions, normally though this risks reducing the amount of sales achieved, so there is a trade off to be made for simplification.

So overall, there are many challenges involved in selling across Europe, but it is also a strong and vibrant toy market, with many great people working in it, and with consumers who love toys and see them as an integral part of childhood.

 

Our team has been working across the European toy and game market since the end of the last millennium. We have sold products into every country in Europe, and regularly help toy & game companies access the European toy market. For more information on our Consultancy services: www.KidsBrandInsight.com/services

For more articles & insights on the toy and games business, sign up here for our free e-newsletter sent straight to your inbox: https://forms.aweber.com/form/54/1325077854.htm

How To Start A Global Toy Craze With Choon Ng of Rainbow Loom

How To Start A Global Toy Craze With Choon Ng of Rainbow Loom

In the latest episode of our Playing At Business podcast – http://www.PlayingAtBusiness.com – we talk to Choon Ng, the creator of Rainbow Loom. Very few people get to say they started a global toy craze, but that’s exactly what Choon did when his Rainbow Loom products took the world by storm and kickstarted the ‘Loom Band’ craze.

In the interview, Choon talks us through his amazing roller coaster journey as he took the company from one product start up to a massive global success in a short time. We discuss how he handled the business as it grew meteorically and how he managed distributors around the world, as well as a host of knock of ‘me too’ products which soon came onto the market.

We also talk through how Rainbow Loom is still providing a compelling play experience for children around the world.

To listen to this podcast interview, just click HERE

 

We run a Consultancy business for toy & game companies. We work with major toy & game companies through to start ups and one person bands. For more information on how we help toy & game companies grow their distribution around the world: www.KidsBrandInsight.com/services

For more articles & insights on the toy and games business, sign up here for our free e-newsletter sent straight to your inbox: https://forms.aweber.com/form/54/1325077854.htm

Will The Ongoing Artificial Intelligence Revolution Revolutionise The Toy Business? And In What Ways? Part 2 of 2 – PRODUCT

Will The Ongoing Artificial Intelligence Revolution Revolutionise The Toy Business? And In What Ways? Part 2 of 2 – PRODUCT

In the last article on this topic we looked at how artificial intelligence (AI) will revolutionise work and society over the next 10 to 20 years. In this article we will look at what AI means for toy products. Or to put it another way, how can AI help us create even more compelling play experiences and even more desirable toys?

This question has a very simple answer – AI can help us to create more compelling toys by making the toys more interactive, more lifelike and ever more tailored to the child’s wants and needs.

The best way to think about this is to look at how children interact with animals like cats and dogs. They tend to form a strong bond with their pets, but their interaction with the animal is often frustrating from both sides – the child finds that the pet won’t do what they want, and the pet finds the children often heavy handed and over-bearing. While kids will find animals super cute or hilariously funny, the actual relationship with them is not always as strong as it might be.

Toys such as Furby (mk 1) brought toys to life and helped kids by giving them a ‘pet’ which was entirely designed around their experiential needs. By putting a furry outer layer on some technology the toy was ‘brought to life’ and to a very basic degree made interactive. Furby (mk 2) stepped this up, and just by looking at the packaging which listed multiple patents contained inside, it became obvious that this was a new type of toy – one which was featuring tech not previously utilised in toys. But even then, the level of interaction was still kind of basic.

Where A.I. is headed in general is not entirely clear, but as far as toys are concerned the destination is already quite clear: kids don’t care about the complexities and technicalities of technology. They care about the toy, the experience and the level of interaction they can have with a toy. A.I. will allow toy companies (or tech companies) to deliver the kind of lovable friend kids would really want. A.I.’s most basic function is to learn & adjust its functions accordingly, and so by learning what the child likes and doesn’t like, and by constantly assessing the child’s actions, the toy can tailor what it does and how it does it to the child. Let’s say for instance the child is obsessed with sports, or is scared of something, then the toy can help them through that experience. If you think of everything the internet can do for us today, from searching for data or documents, planning a route to a destination, to entertaining us, teaching us and so much more – well all this can be delivered by the toy.

Think about everything we use Alexa for today. Then consider that Alexa is only going to get better, because everyday millions of inputs, requests and queries go into the A.I. behind Alexa, and so Alexa learns and gets better and better over time. The same will happen with A.I. toys.

Now the reality is that the toy business is actually a relatively minor one on a global scale in terms of technological development. Therefore, Google, Amazon, Elon Musk & other tech luminaries are not staying awake at night trying to work out what toys to make next and what technology would enhance the play experience. But what they are doing is constantly developing new technology and A.I. to constantly improve things. The toy industry has always been adept at launching new toys featuring technology invented elsewhere and for different reasons.

That is the really exciting thing about A.I. for toy companies – the options are growing exponentially, but these types of products take more investment than another lump of mechanical plastic. The toy business is never going to be cutting edge, but by using the technology of yesterday we deliver the toys of today, and yesterday’s technology has never been more powerful, advanced and affordable.

Toy companies who learn to cost effectively harness A.I. and to deploy it into creating and delivering to market compelling toys and great play experiences will enjoy great success over the next decade or more.

 

We run a Consultancy business for toy & game companies. We work with major toy & game companies through to start ups and one person bands. For more information on how we help toy & game companies grow their distribution around the world: www.KidsBrandInsight.com/services

For more articles & insights on the toy and games business, sign up here for our free e-newsletter sent straight to your inbox: https://forms.aweber.com/form/54/1325077854.htm

 

How To Start A Successful New Toy Or Game Business

How To Start A Successful New Toy Or Game Business

New toy companies are the lifeblood of the toy business. Unencumbered by decades of the right way of doing thing and understanding what works and what doesn’t, new companies push the boundaries and update thinking about what works as a toy as society and technology evolve over time.

For many of us old hacks who trudge around the same old toy trade shows every year, part of the joy of these shows is seeing what new companies have thrown their hats into the ring. Sometimes a company has so blatantly got it wrong that cynics doubt if they will last until the next toy trade show, others manage to uncover new hot concepts and product directions to the extent that they have distributors and retailers hanging around their exhibition booths like flies, along with all those who will be off to the factory soon after to try to copy the new idea from the new blood!

The journey for a start up is normally difficult, gruelling and fraught with banana skins and mistakes. Via our consultancy business www.KidsBrandInsight.com we have consulted with many dozens of start ups (some clients have described us as toy start up experts). We find that the same key areas define success or failure each and every time.

We recorded an episode of our toy & game business podcast: www.PlayingAtBusiness.com looking specifically at how to successfully start a toy company. Toy start ups are common, but not all of them make it. We cover what separates the successful companies from those that don’t make it on this podcast episode:

https://playingatbusiness.libsyn.com/how-to-start-a-successful-new-toy-business

 

 

Will The Ongoing Artificial Intelligence revolution revolutionise the toy business? And in what ways? PART 1

Will The Ongoing Artificial Intelligence revolution revolutionise the toy business? And in what ways? (Part 1 of 2)

Part 1 of this 2 part article series takes a look at AI in general and how it will impact the toy business. The next article, part 2 will look at how AI can help us create even better toys.

Those of us who have been working across the last 20 years have been lucky enough to witness the Internet Revolution. History books in the future will show that the last twenty years or so has been more disruptive and seen more fundamental change and development for humanity than the Industrial Revolution. Product marketing, retail and communication between development teams in different places have all been thoroughly changed for good.

The next revolution though may be even more impactful, and it is already underway. That is the AI (artificial intelligence) Revolution. Just as we could order from Amazon twenty years ago, but it took a decade to a decade and a half for Amazon to become the behemoth we all knew it would become, so the AI Revolution has already started, and again over the next decade or two we know it will hugely impact human society in many ways – some good, and some potentially bad.

The question is what impact will this have on the toy business? We have some thoughts to share in a few key areas of the toy business:

  1. MANUFACTURING

Automation, and robotisation have played a part in toy production for quite some time at this point. For more on production automation you can check our Podcast interview with Michele Bovetti, an expert and consultant on this: https://playingatbusiness.libsyn.com/toy-manufacturing-trends-and-production-automation-with-michele-bovetti

AI is a different proposition though, over time, AI will be able to produce complex CAD drawings, and even tooling plans. In short, AI is going to revolutionise the way we design products and make them manufacturing ready. It will also have a big part to play on the manufacturing line – companies like BMW are already working with AI to identify faulty components, AI is also already helping to identify when machinery needs maintenance or replacement, which will lead to less down time and more efficient working.

Toy manufacturing is normally regarded as low end, as the price per unit is low & the technology in the products is normally comparatively low in most cases. Therefore, it will take time for some of the AI driven improvements to filter down to toy factories, but this is definitely on the near horizon already.

 

  1. LOGISTICS & WAREHOUSING

We’ve all seen those videos showing huge numbers of robots travelling around a vast warehouse for Amazon or other companies. Or in case you haven’t, check this out:

https://www.youtube.com/watch?v=HSA5Bq-1fU4

Needless to say, those little bots are doing the work of many people, and they don’t strike or whinge or need expensive Christmas parties, social insurance contributions and all that type of thing.  So, robots are like blue collar job takers, they have already begun to take over jobs which involve shifting things around storage facilities. But where AI comes in is at the white-collar level – as the power and capability of AI grows, so it will be able to heavily influence management/office work disciplines and tasks like predicting demand, optimising delivery routes & generally increasing efficiency.

 

  1. RETAIL

Retail is a hyper competitive space, but it is also critical to deliver efficiency in terms of stock levels, inventory management, customer footfall analysis, demand forecasting and much more. Step up another level and retail becomes about understanding shopper behaviour and experience expectations and reactions. All of these areas can be influenced and improved by AI. In fact, much of retail is driven by metrics, and AI can help with the management of existing metrics, as well as the identification of new measurements and performance criteria.

 

 

  1. MARKETING

Over the course of the last decade or so, marketing has fundamentally changed, so that instead of being driven by rough topline metrics like TVRs/GRPs, and PR campaign reach, it is now all about ROI metrics and social media impact and interaction. Data of course is the arena where computerised thinking and processing power shines. In the next decade we should reach the point where we can literally type in marketing objectives, insert key marketing materials and messages and have AI create and execute campaigns from start to finish. This is massive for the toy business due to the volume of work and resources that goes into setting up new marketing campaigns across large new product slates year after year.

 

  1. CUSTOMER SERVICE

You can already negotiate a new broadband deal with AI without necessarily realising it. You can speak to a friendly adviser at your bank and be effectively talking to a computer with a name without realising there is not a person on the other end of the line or chat box. Clearly the more sophisticated AI becomes the deeper the interaction you can have with it, and the bigger the problems it can help you solve and the greater level of service it can deliver.

 

  1. CONTENT PRODUCTION

In case you hadn’t notice, a lot of mainstream movies or TV shows tend to have quite formulaic plot lines and dialogue. The reality is that there are only so many topics and events that can happen in a movie. So, could AI go as far as being able to write full movie scripts? Perhaps they could even one day be able to fully automate production of a movie, with human actors but everything else created and controlled by AI? That reality is not unthinkable today and could be possible sooner than we think. Various experiments have been run on using AI to write movie scripts, and the reality is that if you give the computer sufficient inputs i.e. thousands of different movie scripts to analyse it can ‘create’ a fairly good movie script already. So, imagine what another few years of growth and development might deliver. The clear implication for this is cheaper content, and with content quantity exploding thanks to Netflix, Disney + and other VOD platforms, it could be that before long we are binge watching even more content due to the growing capability of AI, which in turn may take kids and families deeper into a greater number of franchises which has obvious implications for the toy business.

  1. PRODUCT DEVELOPMENT

We mentioned above how AI will be able to develop CAD drawings, but it is also conceivable that AI could be used for conceptual design for toy products. It’s hard to see how the sheer ingenuity and originality of human product originators can be replaced. But if we consider classic ‘label slap’ licensed toy products, this type of design process could be completed by AI more cheaply & quickly versus human work.

 

  1. FUNCTIONAL & ADMINISTRATIVE OFFICE WORK

It probably goes without saying that the most basic of admin work could be performed by AI. From invoicing to data entry, AI will get better and better, and more efficient at these basic tasks.

 

Overall then, AI is going to massively impact society and business over the next 10-20 years. Mostly it should increase efficiency and free up humans to do more complicated and creative work. Inevitably there are job losses ahead in some areas, but new employment opportunities will arise. One of the scariest things about being a parent in these times is that the jobs your children may do in the future might not have not been invented yet, and so it is hard to know what they should study to advance in a much changed working yet to be defined and realised.

From the perspective of the toy business, AI is already quietly revolutionising the world we work in. Some of the changes will be soft edged as they will involve more efficient solutions and systems versus what we already have, but some will really change our business. Needless to say, like all technology not everything works all of the time, so the process of upgrading new technology and ironing out initial flaws, mistakes and frankly screw ups will take some time, but that process of continuous improvement cuts right to the heart of what AI is all about – machine learning.

Truth be told, it is hard to fully anticipate all that is going to change, but we can surely take reassurance from the one timeless perennial factor that has yet to disappear – children love, want and need toys for so many reasons. Electronic and technology based toys have bene part of the business for a long time, and some play experiences are going to change as technological development advances at a growing pace, but if you watch a child play with a traditional toy, you can see why the fundamental drivers for the appeal of toys is not going to change in a hurry, but nearly every other element and function of how our busines works may be affected in the next ten to twenty years – looks like even more exciting times ahead!

 

We run a Consultancy business for toy & game companies. We work with major toy & game companies through to start ups and one person bands. For more information on how we help toy & game companies grow their distribution around the world: www.KidsBrandInsight.com/services

For more articles & insights on the toy and games business, sign up here for our free e-newsletter sent straight to your inbox: https://forms.aweber.com/form/54/1325077854.htm

 

Mattel FY 2020 Results Beat Expectations & Show Strength Of Core Brands

Mattel FY 2020 Results Beat Expectations & Show Strength Of Core Brands

Mattel just released their full year 2020 results which show that Mattel beat analysts’ expectations and had a great year in terms of a modest sales increase, a massive leap in profitability and a number of positive trends in terms of other key metrics.

The two biggest growth areas for the business in 2020 (according to Mattel’s presentation to the stock market) were Dolls (up 13%) and Vehicles (up 12%). Obviously these two categories contain 2 out of 3 of Mattel’s power brands: Barbie and Hot Wheels (the 3rd being Fisher Price). Arguably Mattel benefitted in 2020 from the lack of cinematic movie releases due to the pandemic and resultant lockdowns. Typically a slow movie year leads to increased sales on well known and trusted brands.

But beyond this boost, it looks like Mattel is heading in a good direction, even if 2021 and certainly 2022 will offer more competition in terms of content driven licensed toys from competitors. CEO Ynon Kreiz has headed up Mattel for nearly 3 years now, and his background in the world of content production and distribution is starting to shine through with new content production growing – the results announcements included the following update on content: 11 feature films announced and 17 TV shows/specials in production.

While the toy market is full of challenges looking forward, Mattel seems to have turned the ship around and is heading in a good direction. Most notably, the resurgence of Barbie is a major achievement for Mattel’s teams. Over the last 6 or 7 years, the brand has successfully repositioned for a new generation and new social accountability which has been a major challenge for many businesses. When Mattel lost the Disney Princess license to Hasbro, it was seen as a major blow as a chunk of sales in the region of $500m disappeared out of the door to a major rival. The outcome though appears to be a greater focus on flagship brand Barbie, so with royalty rates for licensed toys at (arguably) an all-time high, it looks Mattel have swapped less profitable revenue for higher margin, increased brand equity and better long-term prospects for Barbie.

 

We run a Consultancy business for toy companies. Sourcing and factory finding is one of our primary specialisms. We have worked with hundreds of toy & game companies to support their Sourcing efforts. We have saved our clients more than $10m. We are considered by many to be the leading Consultancy for toy manufacturing in India and other toy manufacturing hubs. From plush to plastics, from dolls to play dough we have worked on nearly every toy category. To find out more: www.KidsBrandInsight.com/services

You can also find out about our work with Indian toy factories here: http://www.ToyTeamIndia.com

 

5 Factors Which Cause Toy Companies To Fail

5 Factors Which Cause Toy Companies To Fail

When you spend a fair bit of time in the same industry you can start to see patterns in what works and what doesn’t work. If you stick around long enough you also get to see companies go from pretty much nothing to huge success – Spin Master is a great example of a company that started back in the 1990s and grew over time to be one of the biggest and best toy companies in the business. During the same time frame though you would also have observed dozens (if not more) of company failures, and of those companies that failed you would have seen many of them went out of business due to some or all of the following reasons:

  1. Failure to deliver an ongoing stream of compelling products to the market

Above all the toy business is a product driven business. You can have a great year one year and a terrible year the next based purely on your new product launches. There are of course ways to balance out these ups and downs, but in the end if you repeatedly fail to deliver compelling product to market (both from a retail & consumer standpoint) you will struggle to stay in the toy business.

 

  1. Failure to build own intellectual property/brands

Due to the ups and downs of new product launch cycles, and the general hit & miss nature of the toy business, the long-term solution for sustainable success is to build some of your own brands which have perennial appeal in the market (albeit they are likely to need updating and some degree of new product iteration). By having something which consumers and retailers want each and every year you can lay down foundations for stability and success. An obvious example we can think of for this would be Mattel, who despite their ups and downs of the last decade have pulled through due to the latent and lasting strength of demand for Barbie, Hot Wheels & Fisher Price.

 

  1. Failure to effectively manage the year long cashflow cycle of the toy business

In the toy business your company tends to be ‘out of pocket/ for a long time during the cycle. You have to pay for staff, office buildings, advance cashflow inventory purchases, marketing spend and much more. Retailers don’t typically make it easy for you to get paid quickly. Having the financial mechanisms and facilities in place to finance both a good year which demands more investment and the following sales cycle after a bad year is a necessity for survival in a business where fortunes can change quickly.

 

  1. Failure to ruthlessly manage inventory

One of the most prominent behavioural traits of large toy companies who run many product lines is a notable ruthlessness on inventory management. Even those products and brands which represent the company’s ‘golden goose’ will be ruthlessly managed to ensure stock levels are kept at the right level according to budget and adjusted sales forecasts. Major toy companies often incentivise their senior executives on stockholding levels by month, and sometimes this can be a greater reward than revenue growth. That is how important managing inventory is. Cash which is tied up in obsolete stock or at least excess stock can’t be used to finance the next sales cycle.

 

 

  1. Hiring under performing people and not improving or firing them

In smaller companies, a bad hire or at least an under performing staff member can hamper the company’s growth by a factor of years. In larger companies it is harder to recruit so that each employee is a super star, but still careless or under committed team members usually cost toy companies money one way or another.

 

It is a sad fact that numerous toy & game companies go out of business each year. Next time you see that happen, take a closer look and the likelihood is that some or all of these 5 factors have been in effect. So, to flip this round effective management of these key areas is the not so secret sauce in the recipe for success in the toy & game business.

 

We run a Consultancy business for toy & game companies. We work with major toy & game companies through to start ups and one person bands. For more information on how we help toy & game companies grow their distribution around the world: www.KidsBrandInsight.com/services

For more articles & insights on the toy and games business, sign up here for our free e-newsletter sent straight to your inbox: https://forms.aweber.com/form/54/1325077854.htm

 

What Hasbro’s FY 2020 Results Can Teach Us About The Toy Business

What Hasbro’s FY 2020 Results Can Teach Us About The Toy Business

Hasbro just released their Q4 & final full year results for the COVID-19 ravaged year of 2020. By Hasbro’s standards of financial performance over the last decade or so, the results (which show a rare sales decline) may on the face of it seem disappointing. However, our read of these results is that they are actually extremely impressive in the face of a crazy (unprecedented!) year.

The big hit Hasbro took for their 2020 business is the reductions in revenues from movie & entertainment related segments (this applies both to franchises owned by Hasbro and 3rd party franchises they license in). When you consider that Hasbro is the primary lead toy licensee across much of Disney’s portfolio including Star Wars and Marvel, and that these mega franchises couldn’t launch cinematically in the usual way whether they were ready to or not in 2020, then actually Hasbro’s performance was not so bad.

Aside from highlighting Hasbro’s results to the stock market, there is something more fundamental to learn from how Hasbro did in 2020. Net revenues reduced by 8% year on year, yet major segments were much further down than this: Partner franchises (which includes Star Wars, Marvel & other Walt Disney Corp owned brands) down a whopping 12%. Hasbro’s TV/Film/Entertainment segment was down a massive 21% and the Emerging Brands segment which includes the major eOne titles Peppa Pig, PJ Masks & Ricky Zoom was down 17%. These are massive reductions in revenues for key segments of Hasbro’s business. But how can the overall business be only down by 8% if these business areas were down so much?

The answer of course is diversification. Hasbro have been in business for a long time. The company first started back in 1923, albeit they didn’t become primarily a toy business until 1942. Mr. Potato Head was the firm’s first hit product, launched in the 1950s. So this is a company with a long history. And over the decades since those early days the company has built an incredible brand portfolio featuring icon brands and products from across the toy & game business. One of Hasbro’s major advantages versus other major toy companies is the overwhelming strength of their games business, especially in North America, where they own if not all, nearly all iconic board games brands from Monopoly to Clue/do, Trivial Pursuit and (for North America) Scrabble.

Hasbro’s 2020 performance was down, but it was saved from being down disastrously by their long-term strategy of diversification and the strength of their Hasbro Gaming brands. Hasbro Gaming was in fact up 15% year on year for 2020, as lockdown increased home play occasions and propensity to play towards a level normally only seen around the festive season.

The key lesson then for small and growing toy companies can be found in a well-known cliché – don’t put all your eggs in one basket. Every year the toy industry as a whole tends to grow, but beneath moderate topline growth is typically a huge amount of churn, there are winners and losers each year. There are unexpected smash hits and massive flops. Some companies achieve record success one year and go out of business not too long after. In an industry which is so up and down, those toy companies who are successful over the long term tend to create a good solid brand which can stay in market (with some ongoing product development), and thus they build up one egg in one basket, but sometimes they fail to put more eggs in more baskets to reduce the risk of the first or any subsequent ‘eggs’ going belly up.

This then is the key learning from Hasbro’s 2020 full year results – product and category diversification can often mitigate against a bad year for one brand or product line.

 

Have you listened to our PLAYING AT BUSINESS podcast? We analyse key areas of the toy and game business, we interview leading people in the business and we discuss major trends and changes across toys & games. You can listen to numerous episodes here: https://playingatbusiness.libsyn.com/