These are interesting times for the global toy industry. In an industry which has over time proved to be remarkably resilient, there are arguably more threats and risks in the vicinity than at any other time in modern history.
The following SWOT analysis takes a holistic view of the medium term outlook for the toy business globally. The following toy market analysis has been conducted by toy experts who are actively involved in the business, this is not an academic exercise from our perspective:
The last decade or so since the global financial crisis has seen significant growth for the global toy business. The innate need of children to play, and the ongoing desire for parents to develop, educate, entertain, occupy and reward their children are the fundamental pillars of demand for toy products.
The industry has a wide range of companies of varying sizes, from multi $billion global companies with iconic brands through to a vibrant start up scene. Therefore there are sufficient existing toy companies to ensure broad consumer choice as well as to take advantage of opportunities of all sizes.
There are a broad number of retail access points where consumers can purchase toy products. This includes both physical retail and online retail. In all major markets, a multitude of distribution opportunities abound.
There is a large capacity and capability for developing new toys, both from a creative standpoint between in house designers and toy inventors and from a production and engineering standpoint between the in house resources of toy companies and those working in the factories that produce toys.
There are also many certified, experienced toy factories offering toy production at commercially viable pricing, albeit primarily in China.
From a marketing perspective there are a number of global, regional and local marketing platforms offering cost effective marketing solutions for toy companies looking for marketing opportunities for their products.
There is a plethora of kids entertainment brands for toy companies to produce toys around, alongside this there are a number of major entertainment brand licensors actively pushing toy licensing opportunities and an ongoing move slate offering major global entertainment events around which to launch new toys. Licensing remains a major part of the global toy industry.
The toy industry is not far from being a $100bn category globally, with a large number of globally iconic brands which look certain to stand the test of time, in short the strengths of the global toy industry are many.
The toy industry is arguably over reliant on a never ending cycle of product development. Each year in the region of 2/3rds of all toy products on shelf are ‘new’ in some way, yet this 2/3rds of all products only accounts for 1/3rd (approximately) of total sales. In other words, the same old products which were on sale the year before account forthe vast majority of sales. Therefore an inherent weakness of the global toy industry is the huge investment of focus, money and resources on products which deliver a minority of sales.
The development and selling cycle for toys tends to be quite slow e.g. between 10-24 months, which means it can be an industry which is slow to react sometimes. Certainly forecasting is notoriously difficult, with either too much stock or too little stock being common place when a toy performs better or worse than predicted. (For more on the difficulty of accurate forecasting, check out this interview conducted by the BBC in London back in 2014 where our CEO Steve Reece explains why there was such a shortage of toys for the surprise hit ‘Frozen’) https://www.bbc.co.uk/programmes/p022bk27
Toy companies and toy retailers are very reliant on stock to sell, and as such the business is inherently risky as a large proportion of annual turnover can be held in stock which can be dependent on a comparatively narrow selling window (toys sell disproportionately higher amounts during peak season from late October to mid December).
Toy demand is increasing globally. Strong opportunities exist in the fast developing economies of Asia, especially China and India, which have traditionally and historically been of lesser importance but are now offering major growth opportunity for the toy industry. These two markets look likely to see annual double figure growth for the foreseeable future. Major toy companies are investing heavily in these markets to position themselves for future growth and market share.
We see an ongoing opportunity in terms of increasing need and demand for toys as the trend to device obsession continues. Parents are increasingly seeing toys as a vehicle towards prying tablets and phones from the hard gripping hands of their children.
The toy industry has opportunity to reduce manufacturing costs and therefore profitability by moving some toy production from China where wages have been rising for some time to other Asian countries where wages are significantly lower e.g. India and Vietnam. (For more on the Indian toy manufacturing scene, we run a venture in this space) https://www.toyteamindia.com/
We see 2 major threats to the global toy industry at this point:
Firstly, we’re starting to see a consumer backlash to excessive and needless plastic consumption and waste, which in turn has lead to polluted oceans and other environmental damage. This backlash is in the early stages, but we see the risk of a future threat to demand for toys since somewhere between 80-90% of all toys sold are either entirely made of plastic or contain a significant amount of plastic. We see this as a major short to medium term threat, although longer term we expect other materials to come to the fore to lessen the risk for the toy business. We also expect toy companies to get better at utilising other existing materials over time.
Secondly, we see the over reliance on China as a toy manufacturing hub as a threat, as it is not easy to move the vast majority of production capacity in a hurry. This has been exacerbated by the Trump-China tariff situation. Some major companies have been strategically relocating production for some years, but as the top 10 toy companies account for only around a quarter of the total market, the risk is that the thousands of smaller companies who make up the bulk of the market fail to relocate in time to avoid cost inflation as China’s economy develops further leading to even higher wages and labour shortages. This could lead to price rises, supply shortages and lost revenues for the global toy industry.
At the time of writing (Sept 2019), we appear to be heading towards a cooling off of the global economy caused by a number of factors, lessening consumer demand, uncertainty over Brexit, the USA-China tariff spat and other factors. However, we don’t see this as a major risk to the global toy market because the toy category has proven itself to be recession resistant during previous economic downturns.
An additional complication/change factor affecting the toy business is the ever changing face of retail. Over time we have seen a big shift from physical to online retail, with Amazon becoming a major global player in the toy category. Yet the toy market has adapted comparatively easily to this change, and we expect to see this trend continue. The bigger risk we see is an over reliance on a limited number of mass market retailers in the bigger markets. As per the failure of Toys R Us in the USA previously, any issues with a major national retailer in a major toy market can have a very disruptive effect on the toy market around the world. We don’t see any issues on the immediate horizon, but post Toys R Us we would be amiss not to mention this risk factor.
While there are many change factors ongoing affecting the global toy industry we are optimistic about demand in the short and medium term.
This article is written by Steve Reece & the team from Kids Brand Insight, a world leading toy business consultancy offering the following services:
- Toy Business Consultancy
- Export Sales Consultancy
- Sourcing Consultancy (India & China)
For more information on Kids Brand Insight/our services, please visit our website here: http://www.kidsbrandinsight.com/services/