Spielwarenmesse Nuremberg Review & 2024 European Toy Market Outlook
SPIELWARENMESSE 2024: ANOTHER SUCCESSFUL SHOW
Freshly back from the annual pilgrimage to Nuremberg for the Spielwarenmesse trade show, I’m writing this through the usual fog of fatigue, sore feet (c. 50 miles or 80 KM walked during the show), social and business dialogue overload and a low-level continuing hangover!
This time around there were some travel challenges around the show. There was a train strike in Germany planned to last until later on Monday but called off earlier than planned. I had already booked onto the highly efficient transport organised by the Spielwarenmesse team. Arriving by coach from Munich was a first for me but I would say that this coach substitute is a testament to a well organised show, I can't imagine show organisers arranging alternative transport to deal with a strike happening in every other trade show venue. In the middle of the show we also had a strike at some of the major airports on Germany which caused problems for those attending only the first few days of the show.
Nevertheless many people managed to get to the show. Nearly 60,000 attendees from 125 countries had 2,354 exhibitors to visit with from 68 countries. I’ve never been to a Toy trade show where there wasn’t someone claiming the footfall was down regardless of the actual official head count. I always find overall visitor numbers to be basically an irrelevance to exhibitors. It’s all about the quality of visitors. Not the quantity. If you are selling to retailers & you are visited by the top ten retailers you work with or want to work with, that’s 2 meetings per day across the show, so who cares what happens in between those meetings in terms of tangible results, you aren’t there to be entertained by a constant stream of people to talk to, you are there to sell to the right people! Forget the visitor numbers, success depends on quality of ‘prospects’ you meet with.
You can never meet every customer or partner who is at the show, so why does the overall number of visitors matter? The point is the quality of the people you meet. As I walked about the show this year I realised that I knew at most a few percent of the c. 60,000 attendees after a quarter of a century since I first visited the show. I find that both really inspiring and frustrating at the same time – so many years of visiting and so few people met vs. the potential! If you are a roaming show visitor like me walking between the Halles, you can fit in maybe 60 or so meetings throughout the days Spielwarenmesse is on. So you will never maximise the results you could get from all the people and companies., in fact you will only ever touch a fraction of the opportunity. The bottom line here then is that if you can't get Toy business done at this show, the issue is with you, your staff or your products, not with the show!
Trend wise – the big 3 themes (observed from my perspective) were sustainability (again), Kidults and ever green licenses as we head into a year with a relatively weak movie slate.
EUROPEAN MARKET UPDATE ON 2023 PERFORMANCE
Based on my conversations and on data released by the national Toy associations, overall it looks like most of the bigger European markets were down c. 3-5% overall in 2023. This is not great clearly. Moreover, the data I have seen in the public domain suggests that the major European Toy markets are back to around the market size they had in 2019 pre-Covid in € value, which could be seen as an ok situation until you factor in inflation, most of those markets have seen inflation of 15-20% since 2019, which means that in ‘real terms’ the market has actually declined.
Another concerning data point I read came from the UK. The British Toy & Hobby Association released data from Circana which showed that the market was down 5% overall but the Kidult market reportedly accounted for 28.7% of the UK Toy market in 2023. That sounds great as the Toy trade pivots to exploit this opportunity of selling Toys to adults & teens, but I suspect that if you looked at the ‘Kidult’ market share ten or 15 years ago, then it would have been c. 15% of the market at most. This then means that the market for Kids Toys has shrunk considerably, and with the UK (but also many other major Toy markets) suffering from a dropping birth rate, this is not a positive trend. I love this industry, and as a point of principle take the glass half full perspective on this business we all love, but I’m currently struggling to see significant market growth in Kids Toys for the next decade. The Kidult thang is no longer just an opportunity, it’s an imperative, and while it’s harder for some companies to pivot than others, that’s where future growth lies.
That slightly depressing point having been made, the reality is that Toy companies care about their own performance. If you are up 5%, but the market was down 50% you would probably still be happy! A shrinking market normally comes under pressure to reduce space allocation by retailers, which is not good, but again if the total number of Toy & Game SKUs goes down, but your listings increase you are probably still satisfied.
Also we must consider the fact that we are in turbulent times economically speaking. Our industry is famously ‘recession resistant’ in that the market performed ok in the tough times of the global financial crisis of the noughties, and in that parents always deliver on their children’s experience of the festive season. However, most of us have not worked in this industry during an inflationary crisis. As I have written before, if parents have to choose between paying for their homes, heating their homes or feeding their families over Toys we will always lose out. Whereas in recessionary times, some people struggle financially, but not all. Inflation has affected everyone and clearly damaged the disposable incomes of families across Europe.
One final note on 2023 market performance, I met a lot of people in Nuremberg who claimed to have grown in 2023, but nobody who admitted to a sales reduction (!) despite the market being down…which leads us to the conclusion that you can’t believe everything you hear!
2024 MARKET OUTLOOK
Looking forward to 2024, with a comparatively weak movie slate, and no obvious trend tsunamis apparent, a flat market would be a good result for the European toy market this year, but a single digit decline would also not be a surprise. The good news though is that when the movie slate is weak, the market drivers become perennial brands, play patterns and innovations. In years gone by before the mighty Walt Disney company acquired so many toyetic franchises, and we got years of stacked blockbuster slates, a quiet movie year increased the health of the industry with more profitability as well as more investment into own IP and new product development. Hopefully we will see that same effect in 2024. The headline sales may be flat or even down a little, but it is most likely that the industry as a whole will see higher profitability.
More broadly, looking at the economic climate, 2024 should not be quite so severe as 2022 and 2023, as inflation slows in most of the major European Toy markets and as wages start to recoup the ‘real term’ losses of the last few years. I don’t think 2024 will see a massive resurgence in consumer spending, BUT inventory is much cleaner than it was going into 2023, and economic conditions are not quite so bad for many consumers.
The counterbalance to that is the preponderance of short-term fixed mortgage rates in Europe (versus the long term home loans which are more standard in the USA). As central banks have raised interest rates, so we have a looming iceberg of substantially higher mortgage payments coming in for many consumers across Europe. Right now though the pressures are growing for interest rates to be reduced as inflation drops. Rates are unlikely to return to the low level of pre-pandemic any time soon, and so while the increased mortgage payments shouldn’t be quite so dramatic as soaring inflation overall, some consumers will clearly be impacted.
Geopolitics - I find that Geopolitical analysis is an increasing part of my professional role as clients ask me for insights and opinions on how the many geopolitical tensions and conflicts in the world today are and could affect the Toy industry. I’m going to keep this section brief, as I could write a book on this topic right now, but for brevity I see 4 key elements to consider for 2024:
· Elections in the USA - I’m avoiding party politics, but should Donald Trump be elected again, that could lead to more trade friction with China, and potentially further accelerate the current dripping away of Toy manufacturing business away from China.
· Russia-Ukraine –aside from the loss of some opportunities in the Russian market, this horrible, terrible conflict has not had a huge impact on the global Toy market. By the way, some of the lost revenue has been circumvented by shipments into Russia from neighbouring countries – many countries have seen a huge increase in orders from countries like Kazakhstan!
· Conflict in the middle east – at the time of writing we are seeing significant disruption to shipments from Asia to Europe due to conflict in the gulf. Houthi rebels targeting commercial shipping has led to many container ships taking the long detour around the bottom of Africa. This has increased costs (although not to the levels we saw during the Covid period) and lead to delays. For most of the European Toy business the impact of this is annoying but not substantial, as a higher percentage of annual shipments comes from the summer onwards heading towards peak season in Q4. Should the situation remain this bad heading past April/May this could have a tangible impact on product availability and profitability.
· China, Taiwan & what could be – again I’m going to avoid the politics of this and go straight to real implications. Major retailers are instructing their suppliers to move specified and significant chunks of manufacturing from China to resist the potential risk of conflagration in and around Taiwan. Should conflict ensue, sanctions would follow, shipments would be at least detoured a long way and at worst restricted or banned. Let’s hope the uneasy status quo remains.
Having looked at some dark clouds around us, I just want to end this section of the newsletter by reiterating how great it was to be back in Nuremberg, meeting with old colleagues and friends. If we take a long term perspective, most of us will look back at out careers and remember the ups and downs, the good times and the tough times, but we will also always remember that we have worked in an industry which has a very positive effect on the development and enjoyment of children and their parents, and in which we get to work on fun products with good people.
CURRENT PROJECTS
Here’s some of the live projects I’m working on:
· Finding international distribution for a major Outdoor Toy vendor in India.
· Finding international distribution for PRISMIC – an innovative new creative play product experience with a stunning end result. We showed this new brand at New York & Spielwarenmesse Toy fairs & have had a great response. Distribution for some markets is still available though, please dm for further details: https://www.youtube.com/watch?v=Cbnwuh4C1TY
· Recruiting for a USA General Manager role.
· Just about to go live with 3 Account Manager roles for UK, France & Germany.
· Working with leading board games factories in India & China to find new clients.
· India’s leading Toy factory – helping my clients to find geographic diversification in their supply chain.
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