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Happy New Year, and welcome to the first of these newsletters in 2024. Wishing you health, happiness and prosperity this year. This instalment takes a look at the outlook for the worldwide Toy & Game business as we head into 2024:
Setting the scene – the Pandemic Years and the counter reaction aka 2020 and 2021 were unexpectedly good, and 2022 and 2023 were particularly bad!
One of the biggest business learnings you can have is that successfully managing expectations can make a drop in sales look like a success, and a sales increase can become a failure if you don’t manage expectations of people and organisations effectively.
I first learned this around a quarter of a century ago. I was managing a portfolio of well-known classic Toy brands. One of the 2nd tier brands was particularly challenging to manage. The brand owners were hard to handle, with ludicrously unrealistic expectations, a toxic political situation at the top of their company and a direct line into the very top people in the company where I was working as a comparatively junior manager. Due to the effectiveness of the approach of this company, we massively (over) invested in a full brand refresh, new advertising and a heavy marketing push. The initial forecasts were stellar, due to the high expectations our new investment set. I made the very amateur mistake of communicating the massively uplifted forecast to the brand owners, who no doubt went out and bought new Lamborghini’s and other such fripperies on the back of the expected bonanza. Then as reality set in later in the year, it became apparent that despite the massive push and investment, the brand itself was just not going to make the required jumps in consumer demand which our investment should have delivered. We lost money, and more importantly, we lost the chance to invest that money in brands which deserved that scale of investment more. The brand owner went crazy when presented with a much-reduced sales update, and I was in a lot of hot water as angry Faxes started to fly back and forth (Faxes, remember them, lol!). In the end there was a moderate sales increase, but my stunning failure to manage expectations made a sales increase and a massive investment in the future of this brand a colossal failure in the eyes of this particular brand owner.
All of which is a great opportunity for me to go down memory lane, but what’s the relevance? Well, the Toy market growth we saw in 2020 and 2021 was such a bonus because it was not expected. And the failure of the consumer to show up in 2022 vs an expectation that sales would continue climbing left the entire Toy business struggling with an inventory problem and a resultant self-fulfilling lower sales potential heading into 2023.
2024: Resetting Expectations
So for 2024, the question is where should we be setting expectations? If they are set too low, then we could lose sales and leave our customers with empty shelves too early in the season, but if we set them too high, we risk over shipping and creating another inventory hangover at the end of the year. So what should we do?
2024 Toyetic Movie Slate
As the COVID-19 pandemic lead to the closure of movie theatres around the world, some movies went out via streaming platforms, but others were either held back or left unfinished ahead of the return of bums on seats in cinemas around the world.
What we then got for 2022 and 2023 was a large raft of movie releases which should have provided a boost to the Toy market in those years to counter the drop off after the lockdown inspired boom. Unfortunately some weak creative executions left a lot of question marks about key movie franchises going forward.
The Hollywood strike of 2023 saw movie writers and actors withdrawing their labour in protest at the threat they foresaw from artificial intelligence and at their share of streaming revenues. These strikes are now reportedly resolved, but they disrupted movie production for a significant chunk of 2023, which combined with what appears to be a reset year for some franchises leads us to a movie slate in 2024 which as weak as we have seen for some time (not including the Covid years).
Mattel hit a massive home run in 2023 with the Barbie movie. It greatly exceeded expectations at the box office, becoming the highest grossing movie of 2023 worldwide(!) but also in terms of cultural resonance and mass media exposure. In short, the movie went as good as it could from Mattel’s perspective. The challenge after any success like that though is how do you anniversary that – heading into 2024, the Barbie brand is undeniably stronger in terms of brand recognition, awareness and cultural relevance…but in revenue terms Mattel won’t find it easy to anniversary the sales levels boosted by the movie in 2023.
Another movie which was a monstrous hit driving Toy sales in 2024 was The Super Mario Bros movie which grossed a massive $1.3billion and was the second biggest movie of 2023. This now perennial brand doesn’t get its fair share of credit and profile, but I suspect it will going forward after a stellar box office return in 2023.
In summary, 2024 looks like the weakest movie year in some time after two years with a strong release schedule. Historically speaking, a weak movie slate or more flops than usual can have a downward effect on global Toy market value of c. 5-7%. Conversely a strong slate can offer a similar upweighting effect.
So, if the 2024 movie slate is weak what will drive the Toy market in 2024?
Trends, Innovations & Perennial Brands
Typically when the movie slate is weak, then Toy companies fall back on new innovations, new Toy I.P. launches, their existing brands and some support from evergreen licenses. To look at each of these areas in turn:
NEW INNOVATIONS – last year I heard some commentary which put the poor sales performance of the Toy category down to ‘a lack of innovation’ in the market failing to create products kids wanted enough. We’ll all have some opinions on the veracity of that, but to me that is total baloney! I have never been through Toy Fairs and come away thinking that there was a lack of product development, if anything the cycle of constant product churn on a gigantic scale which we take as normal in the Toy business is a problem, not a lack of innovation.
Also, what do these people mean by innovation, because as a cynical ‘veteran’ of this business I haven’t seen many new Toy concepts in the last decade that were totally unlike anything I had seen before. Our industry is actually quite formulaic, and the reason for that is due to consumer churn – in effect we get around one third to one quarter of our consumers in each category for new every year, so what was old hat 3 years ago can be new again to kids who have just moved into our target age groups. That is not to criticise the talented creatives we have working in our industry, but normally the creativity which leads to commercial success is a reinvention, a mash-up, or taking an idea which worked in one space and adapting that to a new space.
Having said this, I would expect that in the absence of as many big movies for 2024, Toy companies will be creating more own I.P. products for 2024, and while that type of year often sees a flat or small reduction in market size it is often healthier for the Toy companies in terms of brand equity and bottom line profits.
We should expect 2024 to see a doubling down on established Toy brands. With R&D resources and investment freed up from developing highly authentic movie related products, they can instead be used by those companies who have their own IP portfolios to raise investment into their own brand portfolio. These products often require less due diligence in terms of adherence to style and character art guidelines, they don’t normally require the same level of approval processes and they aren’t subject to a 3rd party licensors pressure to increase the number of skus in each line. In short, we can logically expect major long term Toy brands to increase their market share in 2024.
In a weak movie year we normally see ‘evergreen’ licenses take up some of the slack. Companies shift focus to classic licenses and classic licensed products. If you look at the franchises which have been top of the tree for decades, these will most likely be even stronger in 2024.
Of course we haven’t yet considered the role of streaming and content from other platforms such as YouTube. There is no doubt that streaming can itself drive successful licensed product ranges, albeit normally to a lower degree versus streaming. But the other point here is that while the Toy industry has made big strides looking at new properties from influencers and YouTube channels, we are still in the infancy of that, and as companies seek alternative drivers of sales in 2024, we could see more products originating from ‘non-traditional’ licensing sources.
The economic outlook: Will consumers find it easier to spend on Toys?
I wrote a lot in 2023 about the impact of inflation on consumer disposable income, so I’m not going to reiterate what happened before. But what we should do is take a look at inflation trends in major Toy markets. And what we see is that inflation rates have dropped significantly overall. The USA has seen inflation reduce from the peak of c. 9% to 3.1% in most recent financial reports. The UK has reduced from a peak of 11.1% to 3.9%. Germany has seen a drop from 10.4% to 3.2%. And perhaps just as importantly we have seen worker pay increasing to start to cover the gap created by inflation. So purely based on inflation eroding consumer spending potential, we should see the impact of inflation reduce heading into 2024 versus 2022 and 2023.
The other point we should consider though is that interest rates rose in order to reduce inflation, and this affects consumer spending too. Mortgages rise, loans and credit card borrowing rates increase and also from a macro-economic perspective increased interest rates can start to reduce demand, which often leads to job losses which in itself can hamper consumer spending.
The economic conclusion then should be that we are not out of the woods, significant pressures remain, but while demand reduced year on year for 2022 and 2023 in many markets, the reality is that the perpetual drivers of the Toy market are still strong – that being parents investing in and rewarding their children with gifts, and I don’t see that changing.
It seems unlikely that consumers have just simply moved on from the mass orgy of consumption we tend to have in the festive season. Just this morning (on the day of writing) UK grocery retailers reported their highest ever spend overall for the Christmas period.
If we take a medium-term view of the Toy market from say 2018 through to 2024, we’re going to see a market which was on a long-term slow growth curve, which then spiked dramatically upwards during the Covid years, which then corrected heading out of Covid.
Not another shipping crisis? Houthi attacks on shipping and rerouting – how big a deal is this for the Toy business?
As has been widely reported, many shipping companies have decided to go the long way around the bottom of South Africa to avoid attacks on shipping through the Red Sea heading to the Suez Canal. I’m only an amateur follower of Geopolitics, but from what I have read, both in the news and opinions and analysis published by academic experts in Geopolitics and the like, I don’t see this issue being the scale of challenge which we saw during the pandemic when container shipping costs increased by as much as 1000% . Here’s a brief explanation of why:
Firstly, this is a current issue, the shipping companies could change their minds and direct ships through the Red Sea again as soon as they think it’s safe to do so. Secondly, the USA and allies will not be able to avoid direct military strikes against the Houthi in Yemen unless they stop attacking shipping. Having made their point, I expect the Houthis to either stop firing on shipping of their own accord, or to do so after the U.S. and allies unleashes some air strikes. Either way, this could blow over very quickly. Thirdly, if you are in the business of Outdoor and other counter-seasonal Toy categories this may affect a big chunk of your business as you are shipping a greater proportion of your annual volume across the next few months, but for most Toy companies an issue with shipping in January and February would have at most a marginal impact on overall performance in 2024.
Needless to say the world is ever more unpredictable geopolitically these days, so anything is possible and a broader conflict in the middle east could have a bigger effect on driving container ships the long way round away from the middle east. This is after all an opinion piece, and I am just as likely to be wrong as anyone else. However at this stage, the Houthis are unlikely to want to sustain their anti-shipping campaign once the U.S. and allies see the risk for inflationary shipping increases and shake the shackles of restraint they have shown so far and start to deliver damage to the Houthi’s bases, infrastructure and leadership.
Ongoing reduction in birth rate
Returning to more long-term cyclical factors, most mature developed economies have a reducing birth rate, and there does not seem to be any likelihood of a sustained upturn in births looking ahead. And so for 2024 as with previous years, we are going to see that the number of potential consumers for children’s Toys is not growing, in fact it is slowly eroding. As such, we either need to sell more to the remaining families, increase our export sales to tap into kids in other countries more than we have in the past, or we will see our sales reduce.
Kidults market driven by content, especially movies
On the flipside of the reducing number of children, the number of adults who could but don’t currently buy or gift Toys offers more than enough opportunity to bridge the gap left by decreasing birth rates. The challenge for this sector for 2024 though will be that movie merchandise, is likely to be a smaller driver in a weak movie year.
We can though expect Kidults to tap into evergreen licenses. And of course Kidult products are not restricted to hipster merchandise collectors, model makers, railway enthusiasts and more segments are still out there!
If you want to read more about the segmentation of the Kidult Toy space, I wrote extensively on that in a previous newsletter here: https://www.linkedin.com/pulse/17-deeper-example-kidult-toy-space-consumer-steve-reece/
2024 then should be a reset year when expectations are realistic and prudent, when the kitchen sink was largely thrown at 2023 in terms of dealing with negative baggage, inventory hangover and sadly headcount reductions. With 2024 being a fairly fallow movie year, the opportunity is to focus our energies and resources on pushing all our own brands and own innovations harder than we may have for a while. In short, expect 2024 to be tough trading, but closer to pre-Covid norms than 2022 or 2023, and critically with more grounded commercial expectations all around. Economic pressures have not gone away but have softened. We’ll see how 2024 plays out, but as usual it looks like being an interesting year.
N.B. All trademarks and other intellectual property featured herein are the property of their respective owners.
Can we help your business? Do you want to grow your export sales, prep to offer your business for acquisition, find senior staff or maximise your sourcing efficiencies? If you want to find out more about our Toy & Game business consultancy services, please just click the link below. Our company has helped hundreds of Toy & Game companies to get ahead and grow sales/make more profit. I have worked on all product categories across a 25-year career in Toys & Games, and genuinely love sharing knowledge, contacts and facilitating greater success for our clients.
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· Helped several Asian Toy companies to grow distribution in ‘Western’ markets & to recruit key staff to build distribution with new retail accounts opened up.
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· Toured a leading U.S. company around India’s leading Toy factories leading to factory selection, production start & significant cost savings.
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For more information on our services, click here:
SPIELWARENMESSE – SPIRIT OF PLAY BLOG
THE GROWING ‘KIDULT’ OPPORTUNITY
Here’s to Adults growing older later! The Kidult market is a major thing right now, offering significant growth opportunities for Toy & Games companies despite the fact that birth rates are dropping in most major markets. Read more in this latest article I wrote published by the Spirit Of Play Blog, which is published by Spielwarenmesse, the world’s biggest Toy trade show. Click the link below to read the full article:
Also here’s a short video excerpt from my presentation at Spielwarenmesse’s Toy Business Forum in 2023 looking at the potential impact of the ‘Kidult’ phenomenon on the future of the Toy business: https://www.youtube.com/watch?v=hE2ZERGW7nc&t=26s
UNCHANGING PLAY FUNDAMENTALS
So often in the world of Toys we look for the big changes, we go trend spotting to find new things to jump on. The reality though is that far more doesn’t change than does. That’s what this latest article I wrote, published by Spielwarenmesse.de looks at. Just click the link below to read:
PLAYING AT BUSINESS PODCAST
EP 102 - Selling A Toy Business: How Mergers amp; Acquisitions Work In The Toy Biz
Many companies in the Toy business grow via acquisition. Company owners often want to sell up and retire or move onto other pastures. In this episode we take a look at some of the biggest Toy acquisitions of all time, we look at why and how Toy Cos are bought and sold and we discuss the details of the process of buying or selling.
Maybe you have a Toy business you want to buy or sell, or maybe you just want to understand how company sales work in the world of Toys, either way this episode will have something for you.
EP 101 - How To Run A Successful Tech Toy Start Up With HoloToyz
In this latest episode host Steve Reece talks to Kate Scott & Declan Fahy, the Founders of HoloToyz. Their company aims to inspire creativity and imagination via augmented reality technology.
Kate stated "At our core, we believe that children should be able to experiment, play and learn through emerging technologies in a kid-safe environment away from the open web, whilst not losing touch with the physical world."
We discuss this proposition, and the path from starting the business, through raising funding to achieving distribution for HoloToyz products.
This episode is a must listen for anyone interested in or actively pursuing a start up in the Toy business, as well as international distributors looking for new products and new stories to latch onto.
EP 100 – How To Recruit Good People And Find New Job Roles In The Toy Business
Join host Steve Reece in a deep dive into the toy industry's recruitment nuances. Having helped many people to find new roles in the Toy business and having advised many Toy companies on who & how to recruit, Steve unveils key strategies for companies to recruit effectively and tips for candidates to land their ideal roles. Whether you're hiring or job-hunting, discover invaluable insights to assist your recruitment/job search process.
Sign up for my free e-newsletter and receive all the latest reports, analysis and insights on the Toy & Games business: sign up for free here: https://forms.aweber.com/form/54/1325077854.htm