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The European Toy Market, A Practical Overview

The European Toy Market, A Practical Overview

Europe has just under 10% of the world’s population, approximately 16% of the world’s GDP (just a little bit less than the USA & China) and more than 50m children. Europe therefore represents a significant commercial opportunity for those in the toy business – the market size is in excess of €18billion.

The challenge of course is that Europe is a more complicated region in terms of disparity and local language and cultural difference. Europe has 44 sovereign states and 24 official languages, and so it is a complicated place to try to do business. Most of Europe’s nations are part of the European Union, a political and economic union bringing together 27 countries. European law stands above local national law for members of the European Union. The EU nations use the €uro currency which is used as the national currency in 19 countries. Before the €uro was established setting pricing for European markets was a nightmare, as local currency fluctuations made it exceedingly difficult to fix a price that worked across markets. This was further complicated by one of the primary treaties of the European Union – namely The Treaty of Rome which legislated for free movement of goods across the zone.

Practically speaking The Treaty of Rome causes a lot of problems for those trying to patch together a network of distributors across Europe, as it is all too easy for them to effectively ‘steal each other’s lunches’ by selling into customers in each other’s markets. When talking to potential new distributors in one European country one of the first question’s they will ask is who is distributing for you in the other markets – because from this they can work out how big a challenge they will have with cross border shipments. The massive growth in Amazon’s power in the market has exacerbated this, with Amazon being a major opportunity as well as a major challenge for efficiently running a Europe wide business.

One of the most effective ways to enter the European toy markets is to work with distributors. There are sales reps in Europe, but they tend to work in only one or two countries at a time, and with each country having various differences in culture, law and distribution channels there is a lot of complication involved in trying to sell via reps across the whole of Europe. Distributors take away a lot of the workload, but on the flip side also take away margin from your bottom line!

There are some extremely valuable trade shows in Europe. Firstly, Spielwarenmesse, the biggest toy trade show in the world is held in Nuremberg, Germany at the end of January every year (in normal circumstances): www.spielwarenmesse.de. This massive trade show features nearly 3,000 toy companies from all around the world. There is no better place to get an idea of the European toy market and to seek commercial opportunities. In addition, Distoy takes place in London, England every May (again under normal circumstances), this less well-known show is a show specifically for toy distributors, and with over 400 exhibitors much business is done here: www.Distoy.com. There are also national shows in other markets in Europe, which may be of interest to attend if you are particularly focused on that country. But overall, if you had to attend one trade show to maximise access to the European market it would be Spielwarenmesse.

The biggest toy retailers in Europe (in no particular order) include: Smyths Toys/Toys R Us, Carrefour, Auchan, Argos, Amazon (of course!) and there are thousands of independent toy stores across Europe.

By far the biggest toy markets in Europe are the UK, France & Germany. Even within these 3 markets there is a massive disparity in terms of products, culture and retail structure, as well as 3 different national languages. The UK tends towards more licensed toys, having one of the highest market shares in the world for licensed toys, whereas Germany has one of the lowest market shares for licensed toys in the world. The UK and France toy buying structures tend to be centralised with a central buying team, whereas Germany is very fragmented and buying (or at least replenishment) is often more localised.

Warehousing can be a challenge also in Europe. Many companies will have just one central warehouse, often in Belgium or the Netherlands. Brexit has complicated the logistic situation somewhat (damn we knew we had to mention Brexit at some point!), because there are new rules & restrictions on trading between European Union countries and the now ex-EU country of Britain.

Compliance and safety regulations are demanding in Europe. Whereas the USA has ASTM standards, the European Union has EN71, a massive set of restrictions and mandatories that even teams of experts often can’t easily understand! Going forward the UK will have its own (different) standards. We highly recommend specialist expert help in the area of compliance for Europe for toy companies!

The final complication we are going to mention here is that of trying to supply your products in the right language versions, but with as much efficiency as possible. The more countries you can ship the same product version to the better and more efficient your inventory control will be. For some products this is less of an issue, for instance, basic plush might only need a label with brand name and a few other company details which can be shipped right across Europe. For other categories though things can get more complex, board games for instance are often language-based products with significant ‘content’ on cards which is integral to the play experience. This means that often different language versions are needed for each new country. With time though you learn that some countries will need dual or even tri-language packaging. In some cases (most notably Eastern Europe) there might be the need for a dozen or more languages to be somehow included in the product. Sometimes things can be simplified though, for instance in Scandinavia the level of English spoken is so good that sometimes board games companies can get away with supplying English language product with local legal lines & instructions, normally though this risks reducing the amount of sales achieved, so there is a trade off to be made for simplification.

So overall, there are many challenges involved in selling across Europe, but it is also a strong and vibrant toy market, with many great people working in it, and with consumers who love toys and see them as an integral part of childhood.

 

Our team has been working across the European toy and game market since the end of the last millennium. We have sold products into every country in Europe, and regularly help toy & game companies access the European toy market. For more information on our Consultancy services: www.KidsBrandInsight.com/services

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The European Toy Market – Large But Fragmented!

The European Toy Market – Large But Fragmented!

The European market might appear exotic and potentially lucrative at first glance. With the 2nd and 3rd biggest retailers in the world based in Europe (Carrefour & Tesco), with a population of c. 730m and a combined economy ranked by the IMF as the largest in the world, it is an opportunity too big to ignore.

Those wandering over there bright eyed with $$$ signs in their eyes however,  should beware, because while Europe combined is huge commercially speaking, it’s also highly fragmented, and very easy to bite off more than you can chew. There is a large degree of homogeneity (in practical terms) about the US market for instance, but Europe doesn’t work like that.

While Europe may be of a similar(ish!) size geographically speaking to the USA, there are 44 sovereign states with their capitals in Europe, and 50 who have some territory within Europe. And for every one of those there are local customs, laws, retail differences, and in general bucketloads of cultural, legal and commercial diversity.

Furthermore, there’s a very significant language barrier to doing business, with 23 official languages of the European Union, and a mind blowing 230 languages and dialects in total. An English only speaker can’t always easily operate in every market as a sales person. To illustrate this – imagine you want to sell to retail in France or Spain, but you don’t speak French or Spanish. What can you do? You can dial head office anyway and speak English, but as we all know, it’s often fruitless calling retail switchboards in markets where you can speak the language, it doesn’t get any easier when they don’t speak the same language as you!

You can engage a distributor, which generally would be recommended to begin with, but there are market dynamics at play which complicate matters. For instance, if you sell to 2 distributors, with one in France, and one in Benelux (Belgium, Holland and Luxembourg), then their retailers might overlap territories, and generally pricing is lower in Benelux, so grey market shipment by retailers could destroy your French business and leave you with an irate, alienated distributor.

Of course product localisations are needed, with some markets needing 3 languages per product or more, and in the same way as a typo would look outrageous on English language packaging, so an error in any one of those 23 official languages will also.

Our journey to securing European distribution has yet another hurdle to over come yet, in terms of customs regulations and movement of goods. Now the good thing is thanks to the European Union, trading is harmonised across EU member states, with a mostly effective ‘free’ market in operation. The challenge comes when trying to ship in Europe outside of the European Union, which at the time of writing means Iceland, Liechtenstein, Norway and Switzerland (the EFTA countries – don’t ask!), Russia, the Ukraine, Croatia, Bosnia, Macedonia, Turkey & Belarus. Now frankly, the majority of the opportunity is within the EU countries, especially UK, France, Germany, Spain & Italy, but every extra roadblock laid reduces the low hanging fruit.

As if this wasn’t all complicated enough so far, currency is another major factor. The UK has the £pound, the other EU states mostly have the €Euro, stock is bought from China in $USD, and there are a litany of other local currencies to boot (most notably in Sweden, Denmark, Poland and Switzerland)! Currency management is a vital part of trading in Europe, if you don’t want to deal with that complexity, you’d be wise to trade $USD FOB only!

Staffing is even more complicated with different employment laws in each country, as well as European wide legislation which tends to be more employee friendly than in North America. Commercial agents have guaranteed residual commissions owing to them across the European Union, so beware on that front. And if you considered hiring staff in France, my advice would be don’t do it lightly without due diligence. There is a disgusting but perhaps not inaccurate saying that it’s easier to chop off your own hand than to fire a French employee!

There are numerous other significant barriers to doing business which I don’t have space to go into here, but nevertheless, we can clearly see that while the opportunity is large in Europe, it’s not that straightforward, and ‘gung ho’ megalomania should be tempered with a harsh dose of practical reality!

Having emphasised the difficulties, there are some clear forward paths we can look at now. The first and most prevalent of which is to utilise distributors, at least in the first instance, who understand the local nuances, have the retail relationships and take legal responsibility for trading in each market. This may not be a long term strategy you are very comfortable with, but it took even the Hasbros & Mattels of this world decades to set up an office in every decent sized market in Europe.

The second option is the ‘beach head’ strategy, whereby you pick one market to trade direct to retail in, thus establishing your beach head and branch out from there over time. For English speaking companies e.g. from North America or Australia, in most instances the beach head market would be the UK, as we tea drinkers speak (nearly!) the same language, the Licenses tend to convert as well here as anywhere (although we don’t play the same kind of football, so sports doesn’t tend to cut it), and this is one of the three biggest individual toy markets in Europe. Latin American companies may head to Spain first as their beach head market due to language similarities.

The third option is to sell to distributors and retailers on an FOB basis meaning only outlaying the cost of two sets of air fares and hotels at risk, versus everything that comes with setting up offices.

And in case you’re already established in one or more EU markets, here’s my rough list of priority for your distribution efforts and why (although this will depend to some degree on your product category, as category strength per market varies, it’s not a bad starting point):

The UK, as mentioned is one of the three biggest markets. France of similar size as a toy market, although with significant local challenges & diversity factors. Germany would be next on my list, it’s a large market, but very decentralised, and retail is massively fragmented – in fact Germany is home to the largest specialty market in Europe, plus the product mix tends to differ in Germany versus many other markets. Spain would be next, although expect to TV advertise everything, closely followed by Italy. Then the next tier would include the Nordic countries, Holland, Poland, the Czech Republic and other markets East of Germany!

Rolling out all those markets would keep most businesses busy for a decade or more, so I’ll write another article in 2022 with some suggestions on where to go to next!