Global Toy Industry Q4 2023 Outlook: What’s Going On & Will Product Sell Through Retail This Q4?
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This newsletter instalment takes a look at what’s happening in the global Toy business as we head deeper into peak selling season. Also below is a link to my latest podcast episode looking at how Toy companies are bought & sold, how to go about selling your company and how to get the best possible price for your company if you choose to sell it.
HOW DID 2023 LOOK BEFORE WE HIT Q4?
Before we take a look at the outlook for Q2, it’s worth setting the scene. Firstly our industry had a terrible Q4 2022, due primarily to high inflation causing a cost of living crisis across major Western economies. The failure of the consumer to show up in Q4 2022 left over abundant inventory in retail and eventually as that stock was aggressively cleared out by Toy companies eager to protect their cashflow. As a result, stock commitments for the back end of 2023 are by all accounts conservative to say the least.
I’m going to analyse some industry stats here, but before I do, I just want to give kudos to Circana (Previously NPD), who throughout my c. 25 years in the Toy business have been (in my opinion) the best Toy market data provider for me and my clients based on my experience & interactions. To read more from Circana, check out their Toy portal here: https://www.circana.com/industry-expertise/toys/ The stats quoted in the next two slides come from reports released into the public domain which can be accessed via the link above.
Circana recently reported that US Toy sales were down a whopping 8% year on year for the first 9 months of 2023 versus the same period in 2022. That’s clearly not great news, although we have to put it in the context of numerous good years previously. Circana also reported that c. 80% of consumers they interviewed have or plan to cut back on spending due to cost of living challenges.
Circana also reported that YTD end August 2023, the 7 biggest Toy markets in Europe were down 3.6% vs the same period in 2022. Clearly this is a less dramatic reduction vs the USA, but nevertheless supports the idea of consumers finding things tougher than in previous years and again challenges our usual presumption in the Toy business – that being that our industry always does well regardless of the financial circumstances.
The reality for most of us working in Toys is that we have not worked through a period of high inflation and reduced disposable spending by consumers. I’m no economist, but there are clearly signs that inflation is dropping in major Western markets, and that wage growth has started to rebalance the situation for consumers wages vs costs of living.
The day after I wrote this article just as I was about to hit the ‘Publish’ button, the UK & USA announced their latest inflation data. The US government announced an inflation rate of 3.2% based on their Consumer Pricing Index – 3.2% would not normally be considered as massively excessive, so it looks like the world’s biggest Toy market is on the road to moving past high inflation.
The UK has had a more profound issue with high inflation due to being less fuel independent than the US and therefore more impacted by the rise in domestic gas and oil prices coming out of the Russia-Ukraine conflict. Just like the U.S., the UK also handled the Covid-19 pandemic by printing extra money on a massive scale and scattering it around like confetti, which was always going to push up inflation according to my economist sources. Finally, the self-harm that Brexit represented pushed out low-cost European labour (primarily from Eastern Europe) putting up wages in the UK. But despite all this the annual inflation rate has just dropped to 4.6% in the UK down from an annual rate of 6.7% measured just the previous month. I could go through more major Toy markets but the point is made already here – inflation seems to be dropping.
The counter issue with inflation dropping is that it has been largely leveraged down by interest rate rises which tend to dull consumption and can cause economies to contract, which could lead to recessions in major western markets. However, as long as wage growth has equalised out the cost of living increases we have seen in the last few years, the Toy industry is proven to be recession resistant, so this would be less of a worry going forward versus perpetually high inflation.
In conclusion then from a macro-economic perspective, we’re not out of the woods yet. It looks like there will still be some issues heading into 2024, but we are heading back towards more typical inflation rates which should (fingers crossed) facilitate the return of consumers to Toy aisles going forward!
2023 Is Almost Predestined To Be A Reset Year
One of the key cycles I have observed across c. 25 years working in this marvellous Toy business of ours is that Inventory levels often work in a cyclical way. We can look at inventory levels as a pendulum that swings back and forth. In Q4 2022, when consumers didn’t show up in retail as per previous years, the pendulum swung dramatically to the side of inventory being heavily over stocked. What normally happens in the Toy trade after a situation with heavy inventory is a vicious inventory reduction program with markdowns in retail and heavy clearance/closeout activity by Toy companies. Shipments in to market tend to be highly conservative through the next sales cycle (which in this case is 2023), as discounted inventory clears through the system over time, and as retailers and Toy companies choose to batten down the hatches and only ship in what they are certain will sell in order to protect cashflow and avoid any further inventory overstocks.
This process normally ends with either an under stock towards the end of the reset year, or if the initial over stock was really high as it was at the end of 2022, then the following year (2023) should end up with a fairly clear market. In theory then, the pendulum should then start to swing back in the other direction heading into 2024, as long as there are no further major shocks to consumer demand.
Lower Demand Has Seen Sanity Return To Container Shipping Rates
One positive point in 2023 has been that the reduced demand across consumer product categories appears to have facilitated the return of viable container shipping prices after counter-seasonal sales surges caused havoc on shipping costs during and immediately after the pandemic. Rates of $20,000+ per container were not unheard of at the peak of the problem, whereas a more typical cost in 2023 has been more along the lines of c. $2,000 USD.
Maersk, one of the world’s largest shipping firms, has announced 10,000 job losses worldwide in 2023 alongside a 92% reduction in profits. While few of us will be too worried about shipping companies making less profit after they fleeced the heck out of us in recent times, cutting 10,000 jobs is a major move and is another indicator of far more conservative shipping volumes across consumer products in 2023.
THE CORPORATE VIEW OF Q4 2023
The major Toy companies varied in their performance for YTD through to the end of Q3 2023. Mattel obviously benefited considerably from the massive success of the Barbie movie, which at the time of writing is sitting at 14th highest grossing movie of all time – that’s a ridiculously successful movie for a Toy based movie. But even Mattel with the momentum of such a great media even on their flagship Barbie brand have cautioned against a tough market out there as follows:
“The company is operating in a challenging macro-economic environment with higher volatility, including inflation, that may impact consumer demand”
Reporting a significant decline in year-on-year sales, Hasbro informed markets that: “We have a cautious outlook on the holiday. We do not have a real solid view on where the market will go.”
Max Rangel, Spin Master’s CEO stated that: “As macroeconomic pressure continues, we have seen POS and orders for toys slow down, particularly from mid-October. We expect this trend to persist for the remainder of 2023.”
So the reality is that Q4 2023 Toy market performance could be constrained for a variety of factors, not least of which is low expectations and lower inventory commitments. The best thing we can hope for at this stage is that whatever happens retail inventory ends up clean heading into 2024, discount channels enjoy a bumper year but also end up clean and our industry can regroup and hope for a more uplifting 2024!
ON A BRIGHTER NOTE
One brighter bit of news in recent times has been the performance of Japan’s Toy market, which was up 7% for the year ending March 2023 according to the Japan Toy Association. This suggests that the cost-of-living crisis experienced in the major Western economies was not having the same detrimental effect on the Toy market in Japan through 2022 in the same way it negatively impacted performance elsewhere! This is a reminder that when some markets are down, others are up, and this speaks to the importance of geographical diversification in selling. The Japanese market is a notoriously tough one to crack, so I’m not directly suggesting we all switch our focus from the U.S. or Europe to Japan, but just making the general point that there are always green shoots and upside somewhere across distribution channels and markets, and that when the going gets tough, the tough get selling!
N.B. All trademarks and data featured herein are the property of their respective owners.
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 & 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.
AND FINALLY…
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.
Here’s a profile of some recent projects:
· Helped several Asian Toy companies to grow distribution in ‘Western’ markets & to recruit key staff to build distribution with new retail accounts opened up.
· Advised a leading high end Toy brand on marketing and licensing strategy.
· Advised multiple Amazon vendors on accessing traditional/offline distribution channels with various distribution deals signed across North America, Europe & Asia.
· Toured a leading U.S. company around India’s leading Toy factories leading to factory selection, production start & significant cost savings.
· Advised a leading Toy industry association on trends and data related to Toy Sourcing.
· Reviewed and scouted available Toy manufacturing facilities in Europe for a major Toy Co.
· Advised the board of a leading factory group on sales trends and best practise in the Toy business.
For more information on our services, click here:
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