It Takes Time To Build In The Toy Industry…
Newcomers to the toy industry are often unpleasantly surprised by the timelines – by just how long it takes to get things done. At the time of writing (September) most companies are beginning the sell in process for products which will hit shelves in around one year’s time. For those who enter the toy industry from other industries, this elongated process can seem bizarre at best, and highly obstructive at worst.
For certain, when it comes to setting up and building new toy companies, one of the major challenges is just how long it takes to complete the process and receive the funds from sales. If in the meantime the founder has to live, eat and play then we have a potentially huge barrier to entry for any one without significant capital at hand.
Even when a company is established to some degree already in sales terms, it can take some time to reach critical mass, and sometimes even longer to reach profitability. One client company we consulted with had virtually no sales in the first year of trading, some sales in year 2, very good sales in year 3 (but significant loss), breakeven in year 4, and finally profit in year 5. That’s a very long time to deliver a profit! Moreover, this is not entirely uncommon - it takes time to make progress in the toy business.
One major reason for this is that retailers are not keen on taking on new suppliers in most circumstances. New businesses must build a distribution base from the ‘ground up’. This process varies massively depending on which market the company begins in – for instance in the UK (my home market) there is a comparatively small independent toy shop sector, with the vast majority of sales being via national chain retailers…exactly the type of retailer which tends to prefer not to take on new suppliers. So in the UK market the new toy company tends to work hard to build a limited distribution base, and from there normally companies will tend to add a few national retailers during each sales cycle i.e. a few new customers per year. So we can begin to see why it takes so long to become established. – it can take 5 years, or sometimes longer to reach full distribution.
There are shortcuts in terms of distribution – distributors with existing trading accounts can get the products of a newer toy company on shelf, but this comes with challenges in itself – lower margin, less control, less focus – not always a recipe for success. It is not unusual for companies to start with distributors, before eventually taking back the business to supply retail direct with now established products, yet even this takes time.
Furthermore, when we look at the giants of our industries, we see further proof of just how long it takes to grow a successful toy company:
Hasbro – originally founded as Hassenfeld Brothers in 1923 as a company selling textile remnants, began selling toys in the 1940s, before shortening the name from Hassenfeld Brothers to Hasbro. Until comparatively recently, a member of the 3rd generation of Hassenfelds involved in the business was Chairman of Hasbro, and before CEO. (I myself even worked under Alan Hassenfeld in my time at Hasbro). So we can see just how long a journey Hasbro took to get to where they are today.
Mattel – Founded in 1945, the founders themselves continued to work in the business for 30 years, before leaving in 1975. While certain new product/brand introductions and acquisitions catapulted Mattel forward, they started quite some time back and took time to grow.
Lego – founded in 1932, this iconic brand and company has gone from humble beginnings in a small carpenter’s workshop, as a wooden toy company to a huge global juggernaut. The Lego brick in it’s current form was launched as long ago as 1958 though, and the company is now in the hands of the grandson of the founder, so again we see just how long it takes to reach the top of the toy trade.
We could look at more and more examples, but one very noticeable factor for long term success is the prominence of family originated businesses at the top of the tree – one major reason for this is that building a toy company from start to finish can be more than one generation’s work!
When we consult with smaller or newer companies, we often find a huge amount of impatience relating to sales growth, but the reality is usually that prudence and incremental solid progress are the foundation of ongoing success, and the smash hit products or landmark acquisitions are usually additional stepping stones along the way.
We run a Consultancy business helping toy & games companies get ahead. For more information, check out www.KidsBrandInsight.com/services
We also run a Strategic Sourcing Consultancy advising toy & game companies around the world on their Sourcing strategies, reviewing their vendor base & suggesting improvements. To date our Sourcing services have saved our clients $tens of millions. For more information on how we can help, just go to: www.ToyTeamAsia.com