QUARTERLY EARNINGS SHOW GLOBAL TOY INDUSTRY COPING WITH TRU DISRUPTION
Q2 2018 earnings are in for the major publicly listed toy companies, and as ever some are ahead of expectations and some are behind.
But overall, the industry is looking remarkably resilient bearing in mind the seismic shockwave of the collapse of TRU in multiple major markets (long live TRU in the remaining markets!).
Going back around a decade when KB Toys went under it looked like a massive opportunity for Toys R Us to kick on and move to new highs. If back then someone had predicted that TRU itself would fold in the USA inside a decade it would not have seemed credible. In fact, it was inconceivable back then, and even until quite recently.
As we move from the shock of TRU going under to the reality of the toy business and market without them, the situation does not look quite as catastrophic from a macro level as many feared. We should in no way underplay the huge impact of mass redundancies and the loss of such a toy culture icon 🙁 but we can also take pride that the industry is resurgent nonetheless. We’re yet to see where that business goes, which retailers will take share and yet to see the execution of new ramped up toy strategies from key retailers, but based on this quarters earnings the toy industry is managing the situation.
Looking at this company by company:
Hasbro continues to thrive as their content based strategy delivers yet again. Moreover, with Power Rangers in the bag, Hasbro have (yet another) long standing perennial content driven action brand in the bag!
Mattel are still seemingly amidst turnaround mode. The positive results for key owned brands Barbie and Hot Wheels offered long awaited good news, although the earnings announcement overall disappointed and with more than 2,000 job losses announced, Mattel is clearly suffering some short term pain from Toys R Us and other factors. Longer term though, it does appear that new CEO Ynon Kreiz is willing to make the major organisaitonal changes that his shortlived predecessor perhaps could not envisage or execute. While Mattel is still a company with major challenges, it could finally be on the turnaround.
Jakks Pacific’s earnings were behind analyst expectations, but not that far behind their performance for the same quarter last year, which bearing in mind the impact of lost TRU sales is not a bad performance. Admittedly Q2 should have been a good quarter for Jakks due to the success of The Incredibles 2 movie, and indeed without this movie the earnings would have been much worse probably.
Overall in the industry we’re hearing that the immediate impact of TRU is as much about next year as this year, as toy companies come to terms with the changed market place product development slates have been reduced in many cases and projects shelved across the board as companies tighten down on cash and look to ride out the short term tidal wave. This is likely to be a turbulent year, with considerable short term impact, but as per our previous comments there are no fewer kids in the world this year and there will still be a few more next year, therefore demand is still there, but how we reach that demand may take 12-18 months to rebalance.
In the meantime it’s a case of ‘batten down the hatches’ and ride things out, but overall the industry is coping with a difficult situation and will come back stronger as it always does.
by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com, a leading toy expert consultancy to toy companies around the world. Services include Sourcing/factory finding especially in India & other ‘new’ manufacturing economies, toy business consultancy and product representation.