Global Toy Industry Outlook 2022 – Ep 48, PLAYING AT BUSINESS podcast
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Hi, welcome to Episode 48 of the Playing at Business podcast.
I’m your host Steve Reece.
In today’s episode we’ll be taking a look at the Outlook for the Global Toy Business for 2022.
Before we get onto that, if you would like to find more news, analysis and insights on the toy & game business, check out:
ToyIndustryjournal.com – all about the toy business
BoardGameBiz.com – all about the board game business
You can sign up for our Free email newsletter – the Reece Toy & Games Report on those Blog sites, sent out most Fridays with link to our latest published content including notification of new podcast episodes
If you find this podcast, or those Blog sites interesting or insightful, please do share them with your friends and colleagues in the business – we want to provide free to as big an audience as possible.
We offer consultancy services to toy & game companies:
In particular, I work as a board adviser or non-executive director for a limited number of companies, check out kidsbrandinsight.com/services
We also provide Strategic Sourcing Consultancy via ToyTeamAsia.com
To find out about sourcing Toys & Games in India, check out ToyTeamIndia.com
So, at the time of recording (towards the end of October 2021), the jury is still out to some degree on how the toy market will end up in 2021.
According to NPD Data (NPD by the way is the leading provider of market data on the toy business globally, highly recommend you check them out if you haven’t already)
The major Western toy markets including the USA, UK, France & Germany etc were up YTD to end September by 13%, which bearing in mind how good 2020 was for the toy business overall with locked down parents bingeing on toys & games for their kids, is another stellar performance so far in 2021.
Hasbro & Mattel have just released their results for Q3 2021, and their results were very good in the circumstances with Mattel reporting a sales uplift of 7% YOY (on a constant currency basis) & Hasbro reporting an 11% uplift YOY for the 3rd
Q4 is by far the most important quarter though of course, and we don’t yet have a measure on how that will pan out. The major question is to what degree will all the supply chain issues we have experienced led a to a stock shortage as we get deep into Q4.
Overall, though, we have a lot to be grateful for in the toy business, with almost ridiculous levels of robust demand seemingly in all circumstances. And however, the numbers wrap up for 2021, they won’t be bad overall. Profitably may take a hit in 2021 however for some companies due to cost inflation, but even there it looks like we may have finally managed to push up some seemingly permanently fixed ‘hard’ price point brackets that have needed to go up for a very long time – as the saying goes, every cloud has a silver lining!
Moving onto 2022 then, there are some clear uncertainties that we need to contend with and consider:
The ongoing issues with shipping costs & container availability
Power cuts in China’s manufacturing zones
General cost inflation in China on an ongoing structural level.
The tail end (I hope!) of the pandemic
High inflation across the world as the massive quantitative easing / money printing exercises effectively devalue currencies around the world.
But there are also some positive drivers for the year ahead, including:
A strong movie slate, which is usually a major driver of the toy business.
Continuing robust consumer demand for toys & games
Financially healthy toy companies with money to invest in new product development
The return of key trade shows such as Spielwarenmesse in Nuremberg or New York toy fair.
Looking at the potential headwinds first then:
The shipping crisis is likely to roll into 2022. There doesn’t seem to be a clear consensus on what will end it. There are a couple of opportunities for things to reset at least to some extent though:
Chinese New Year – this is normally a slack period when factories are closed, and even after they reopen output takes some time to ramp up.
Reduced production due to power shortages in China.
Potential resumption of normal buying patterns – if you remember, what instigated this shipping crisis was the unseasonal surge in purchasing from locked down consumers in major Western markets. Consumer purchases in April, May and beyond were completely and utterly out of kilter with normal buying patterns, which drew shipping capacity away from fulfilling the usual peaks in consumer demand heading into Q4.
Government action to address the crisis to try to stem the tide of inflation vs other more painful measures – governments now have so much debt themselves, that the traditional inhibitor of inflation – raising interest rates is potentially unviable, whereas threatening a few shipping companies with aggressive measures if they don’t take steps to reduce costs will eventually be an easier and more popular step to take.
The bottom line though is that we don’t know when these factors will take effect, and as a result we should expect continued disruption heading into 2022. While there are bound to be issues still though, it seems unlikely that the situation can get worse in 2022, and the chances are it should get significantly better!
The next potential headwind to consider is the pandemic itself. At the time of recording, cases are rising again in the UK as the seasons change and people spend longer inside. Some Australian cities and regions have only just come out of aggressive lockdowns, and so the pandemic has far from abated. However, medical understanding of the virus, healthcare and treatment of those with the virus and of course ever-increasing numbers of vaccinations should at the very least prevent the same level of issues as we had initially and in subsequent waves to date. Either way for the toy business though – lock down drove demand upwards and coming out of lockdown seems to have driven demand further up again. While further waves of this blasted virus would not help the shipping crisis most probably, our industry seems set to thrive regardless!
High inflation is the next negative factor to consider. Inflation is rife, I have to profess to being profoundly cynical about official inflation figures, I suspect the real inflation rates people are feeling are more like 10% than the 3 and 4 percent figures professed by officialdom. For life in general, this level of inflation is a really bad thing for reasons that are probably beyond the scope of this podcast, but the question is what does this mean for the toy business?
Well for a start, as referenced earlier and as I have written about recently on ToyIndustryJournal.com, we have an opportunity to finally shift upwards price points which have been locked in for a ridiculously long time against all logic and comparison. In the UK for instance, a ‘pint’ of our local beer costs around £5 to £6 today. Twenty-five years ago, when I was a fresh faced University student the cost was somewhere between £1.50 to £2 – so beer has seen something like 300% price inflation in that time. Toys on the other hand have been largely the same price since then on a like for like comparison.
That’s clearly completely ridiculous! We have been imprisoned in artificially low price point brackets by aggressive retail discounting and pressure while other categories lapped up annual inflationary increases.
So, while inflation in general is bad, a reset on standard price point brackets upwards may offer lasting benefit to the toy business.
Supply chain diversification is set to continue to be a key trend and issue for 2022 and beyond. Many factories I speak to in China are really struggling to be profitable, and there is no great future for factories with no prospects of profitability. This is going to be one of the biggest ongoing challenges for toy companies not just for 2022, but for the next decade. If you want my take on this – go to YouTube & type in ‘Toy Sourcing: The Next 10 Years’, and you should find a video presentation I recorded which explains why China will not remain the sole primary toy manufacturing hub going forward. If you can’t find that video, feel free to reach out via the ‘Contact’ pages of our websites & we’ll share the link to the video directly with you.
Moving now onto the reasons to be cheerful and optimistic about 2022:
As we already discussed demand remains strong, there is unlikely to be a very significant drop in 2022.
There is a massive movie year on offer in 2022, although release dates are subject to change, Disney’s 2022 slate includes a new Dr. Strange movie, Lightyear (the origin story of Buzz Lightyear), a new Thor film, a Black Panther sequel, and potentially Avatar 2 at the end of the year.
Traditionally a big movie year has uplifted the toy market by a factor of 2-5%.
Also, in addition, Disney+ continues to grow which is proving to be another major driver of toy sales.
Economies are still growing despite the pandemic, and disposable income is growing in developing countries which in turn is set to push toy purchasing up over time.
And of course, last but not least, toy trade shows should return in force in early 2022, which should help many toy companies more effectively advance in 2022.
So, while I must admit I am naturally an optimist in general, and specifically about the toy business, the drivers for 2022 do seem to look good overall. While we may not see double digit growth again after what looks like two years of achieving such heights, the market should remain strong.
These may be turbulent times, but the toy business is managing it well, and the outlook is good heading into 2022 and beyond
And that’s about all we have time for on episode 48 of the Playing At Business podcast
So, we hope you enjoyed this podcast if you did, please give us a good review or rating on the podcast platform you are listening to, and a reminder again to check out our Blog websites: toyindustryjournal.com and www.boardgamebiz.com
Please share the podcast with your friends and colleagues in the industry and stay tuned for new episodes coming soon!
If you’d like to find out more about our Consultancy services, which we have delivered for more than 100 companies around the world at this point, please visit KidsBrandInsight.com/services In particular, I work as a board adviser or independent director for a limited number of toy & game factories. So, if you would like senior level advice, resource and inputs to help you drive growth in your business, feel free to get in touch.
For information on our venture helping toy companies find manufacturing in India, just head to ToyTeamIndia.com
For Strategic Sourcing consultancy go to ToyTeamAsia.com
That’s all for now, I’ve been your host Steve Reece, this has been the Playing At Business podcast and we’ll see you next time.