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NPD Group’s star analyst in Europe, Frédérique Tutt, recently posted a blog post looking at what has happened in the toy business in the first part of 2022. Following some good years for the toy industry during the Covid pandemic, Tutt reports that global sales were up just 1% year on year for the months January to April 2022.

While a performance which is more or less flat year on year would not normally be seen as a negative thing, especially when the previous few years were so positive. The issue of course at the time of writing is that we are seeing high inflation rates – 8.3% year on year for the USA & around the same for the UK. These official interest rates tend to significantly underplay reality, as the list of items which are tracked to monitor inflation often exclude items with high inflation. In the UK currently for instance, household energy bills have soared massively in excess of the official figures, as have fuel prices at the pumps for fossil fuel powered vehicles. The true inflation figures I suspect could be as much as double what is being reported by governments.

The issue then for the toy business is that when inflation is so high, an increase of market value of 1% is in fact a decrease of at least 7%, if not twice as much as that in ‘real terms’ taking account of inflation and the devaluing of consumer disposable income.

I am known for being an eternal optimist, with some of the more cynical souls in our industry rejecting our content output for being overly optimistic. Bearing in mind my natural propensity for optimism about the prospects for the toy business, I am concerned for the first time in more than 20 years in the toy business that we could see the first significant market reduction in all that time. Our industry which is so famously resilient to tough times, made it through the dot com bust of the turn of the millennium, the global financial crisis and the Covid pandemic. However, we have not seen such high inflation since the 1970s, and when consumers are struggling to find the funds to fuel their vehicles, struggling to heat their homes and struggling to pay for food and other costs which are in an upward inflationary cycle, the prospects for toy sales must surely be lower.

We know that toy pricing has gone up & will go up more, but I don’t see that as a fundamental problem, because our retail pricepoints have been kept artificially low for years by price pressure from big box shifting retailers. On a comparable basis, toys & games, even at higher pricing represent good value for consumers versus other product categories and their comparative price inflation over time. The issue is more one of Maslow’s hierarchy of needs. Quickly explained, Abraham Maslow modelled human needs, with the more basal needs coming first, and then moving upwards to less physical, rudimentary needs. The issue we have now in the toy industry is that if consumers are pushed further back down the hierarchy of needs by inflationary pressures on their household finances, then it could have a negative impact on demand.

I sincerely hope that I am wrong, in fact I will be delighted if I have got this wrong, but it looks like to me like 2022 could be a tough year for the toy business, and we may be in for a couple of tougher years than we have experienced in my couple of decades in the toy business. It could be time for toy companies to batten down the hatches and ride the stormy waves ahead…

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