Tag Archives: toy business

THE GLOBAL ECONOMY AT RISK DUE TO CHINA’S NEW COVID LOCKDOWNS & WAR IN UKRAINE

THE GLOBAL ECONOMY AT RISK DUE TO CHINA’S NEW COVID LOCKDOWNS & WAR IN UKRAINE

The term ‘turbulent’ is becoming very boring as it is getting repeated so often these days – but what better word is there to describe these times we are living in? This week, China rolled out extensive lockdowns due to a rise in Covid cases topping 5,000 cases. In a country which has a Zero Covid strategy, this was inevitably going to lead to a major response from the authorities.

For the toy business, most critically, Shenzhen and Dongguan are locked down, although some media reports confirm that those factories in Dongguan who don’t have Covid cases can carry on producing under strict conditions designed to minimise any risk of escalating Covid cases. With so many workers living in dormitories in factories, the hope is of course that toy production will not be badly affected.

The timing is bad though, typically toy factories reach peak production from May through to August, but due to the ongoing container shipping crisis, many toy companies have placed POs early and planned to get stock on the water as soon as possible after notification of listing by key retailers. In short, the latest Covid issue in China is not going to help already disrupted supply chains.

Looking more broadly at toy manufacturing, this latest challenge in China as we get towards the main production period of the year is just going to further strengthen the gradual shift of toy production away from China. Any toy companies who don’t have a risk diversification strategy well underway on their sourcing efforts are taking a big risk.

In Europe, the dreadful war in Ukraine is continuing. The horror of this war makes any commercial considerations seem meaningless, but there will be some loss of sales to the ever more isolated Russian market. This shouldn’t have too adverse an affect on the overall toy industry though as the Russian toy market accounted for just a few percent of the global total before the currency was devalued by the current war. Toy companies have been admirably doing their bit to provide toys and other critical items, as well as funding, to the people of Ukraine. Looking forward we are now seeing suggestions of a peace deal being reached in the foreseeable future, we hope this comes as quickly and effectively as possible. Oil prices have receded significantly from their highs of the last few weeks, where prices went above $130 per barrel, such exorbitant prices only previously being exceeded during the global financial crisis. At the time of writing this article, the cost had slid back to just under $100. The issue for the toy business here is that plastic materials purchased now as production starts to ramp up will inevitably be significantly more expensive, as will transportation. In short, the terrible war in Ukraine will only add to the general inflationary pressures we are seeing in the world today. We would expect yet more difficult conversations with retailers about pricing as things stand.

 

We run a Consultancy business helping toy & games companies get ahead. For more information, check out www.KidsBrandInsight.com/services

We also run a Strategic Sourcing Consultancy advising toy & game companies around the world on their Sourcing strategies, reviewing their vendor base & suggesting improvements. To date our Sourcing services have saved our clients $tens of millions. For more information on how we can help, just go to: www.ToyTeamAsia.com

 

3 Reasons To Cancel A Toy Or Game In Development Before It Hits Shelves

3 Reasons To Cancel A Toy Or Game In Development Before It Hits Shelves

One of the peculiarities of the toy & game business is that the level of due diligence applied to product selection is far lower than in many other industries or consumer products categories. This is largely due to the fact that most products in market don’t carry forward to the next year. In our business, if a new product launch fails to live up to expectations, the implications are normally not that severe in terms of lost revenues – we budget for some markdowns and stock clearance across our product range and we clear the failed product and move on. In other industries where products can stay in market for years, and where the average value of a new product is far higher, more due diligence is applied before, during and after the product development stage.

The bottom line is that sometimes it just makes more sense to launch something (even if we’re not sure it will sell well) than to leave a gap in our topline revenues by not launching something.

There are some products though that should never see the light of day, regardless of how far advanced the product development is, because the risks of complete and utter failure are high.

 

REASONS TO CANCEL PRODUCT IN DEVELOPMENT

  1. RETAIL RELATIONSHIPS – retailers hate over stocks or slow selling products. If you ship a complete and utter dog of a product to your biggest customers, they will certainly not thank you. They may also be less inclined to take your next wave of product launches. Retail buyers are assessed and incentivised on selecting products that sell. So, if you get quite a long way into the cycle and become convinced that there is something fundamentally awry with the product in terms of commercial appeal or functionality, then perhaps you should cancel the project & put the inventory budget against upping the marketing on your other lines.

 

  1. RISK OF DAMAGE TO BRANDS – one $multi-million product line I worked on was a brand extension of one of THE most iconic brands both in our industry, but also in terms of broader consumer society. We developed a new version of this product involving an added technology element. But as often happens with technology development the end result did not live up to expectations, and we had to decide fairly late in the game whether to pull the product or not. We should have pulled the product because it bombed in retail, left a nasty hangover for both our company and the retailers, but perhaps more importantly it risked the health of a mighty cash cow of a brand.

 

  1. FUNDAMENTAL CONCEPT OR FUNCTIONALITY FAILURE – due to the prevailing lack of structure and due diligence in product development processes in the toy business, sometimes products make it a long way through before some fundamental flaw is discovered. I can think of one very painful experience for a client when I research tested their new major product release and discovered that both the underlying concept for the toy and the dexterity fit between the product and the target demographic were a complete mismatch. I made the rare recommendation that the product should be dropped before launch as it was genuinely so bad! Alas at this stage, the product had already begun tooling and the client chose to proceed. They shipped out in the region of $1m of inventory to the market and had to markdown or clear nearly all of that stock. The costs of this failure were close to catastrophic for the company, and they had to curtail 2 or 3 rounds of product development after. The cost to the company overall of proceeding with the product was $millions.

 

In conclusion, there are so many product concepts out there that we need to have robust product selection and product development review processes to filter out products that will fail badly. The earlier in the process we can find that a product has serious issues the less we have invested and the more we can put into alternative concepts with more ‘legs’.

 

We run a Consultancy business helping toy & games companies get ahead. For more information, check out www.KidsBrandInsight.com/services

 

We also run a Strategic Sourcing Consultancy advising toy & game companies around the world on their Sourcing strategies, reviewing their vendor base & suggesting improvements. To date our Sourcing services have saved our clients $tens of millions. For more information on how we can help, just go to: www.ToyTeamAsia.com

THE FUTURE OF RETAIL!

THE FUTURE OF RETAIL!

http://playingatbusiness.libsyn.com/playing-at-business-episode-5-the-future-of-retail

If there ever was a year when the future of retail was tangibly more up in the air (especially in the toy business) it would be 2018. The turmoil caused by the Toys R Us debacle is ongoing, and country by country around the world we seem to be seeing more and more physical retail store chains fighting desperately hard to stay in business.

The online retail juggernaut though has not been a sudden surprise! I can remember sitting in an office building in 1999 and having discussions about how online shopping and Amazon was going to change EVERYTHING! Fast forward to today, not far off 20 years later, and we’re suddenly looking at an over dramatised ‘retail apocalypse’ as though it was a surprise!

The scenario we find ourselves in today was an inevitability 20 years ago, yet some physical retailers have fundamentally failed to adapt and change. How come there are still some retailers who were major players in 1999 who are still among the the major retail players today? Why is that? Well, a number of factors are at play, but I believe we have to look at the fundamental point of difference and advantage of physical retail vs online. For sure online can be much more convenient, it is easier, far quicker and far more thorough to price check online and for some people far preferable/easier to let the retailer do the work of getting the product delivered direct to consumer. These factors are a major part of why online has been the nail in the coffin for some physical retailers. We can observe that some of those who have failed did not have great online offerings and often were very late to the party in terms of online adoption/online investment and thus some of them missed the bus. It is no surprise that those market leading physical retailers from nearly 20 years ago are now leaders both offline and online.

There are however, some strong, and very under utilised advantages which are inherently part of physical retail. Those retailers who capture these advantages at the very heart of their shopping experience will be the ones who are still here and thriving in another 20 years time. There’s a clue in this paragrah as to what the fundamental advantage for physical retail is, and will increasingly be.

To get an explanation in full of physical retail’s advantage, please check out our fairly new podcast – Playing At Business. In this podcast we take a look (each week) at a different key issue/trend/theme in the toy industry, or talk to someone interesting from the business.

TO LISTEN TO EPISODE 5 OF THE PLAYIING AT BUSINESS PODCAST – Episode 5 – THE FUTURE OF RETAIL, JUST CLICK THE LINK BELOW:

http://playingatbusiness.libsyn.com/playing-at-business-episode-5-the-future-of-retail

P.S. If you find our cheap trick (of trying to get people to listen to the podcast to find out physical retail’s advantage) to be annoying, unethical or idiotic, please feel free to drop us a line & we’ll supply the key advantages in bullet point format (although genuinely the explanation on the podcast should be more illuminating than the factors themselves!)

Toy Industry Outlook – Post Toys R Us Situation

TOY INDUSTRY OUTLOOK – POST TOYS R US SITUATION

What a horribly tumultous week this has been. Last week I wrote about the monumental news that Toys R Us UK would close all stores. Since then the bombshell has dropped that the USA and several other key markets will also liquidate & are set to shut all stores based on current latest information released.

While the news about Toys R Us in the UK was immeasurably sad (see my thoughts on that here: TRU UK shuts stores), the news from the other side of the water is much more traumatic & massively disruptive in a really bad way (at least short term). The UK toy market will take a bit of a hit, but has successful toy specialist retail chains ready to push forward and take that TRU market share. The challenge in the USA is that there is no national specialist chain to pick up the slack – it is more than a decade since KB Toys folded after all.

For sure, those much vaunted ‘mom & pop’ stores will see some opportunity from this. But the reality is that there is no other physical retail showroom for the toy business like Toys R Us in the world’s biggest toy market. That breadth of range, year round has more than just a statement effect – in fact kids start looking at what they want for Christmas way ahead of when the product gets bought, and the biggest range you can see on a mass market pan-American basis has been Toys R Us. So this will really hurt the toy business, at least short term, which in the end will cost jobs, restrict investment in new markets, product development and marketing, and that’s before the huge impact on the 30,000+ workers at Toys R Us who look set to lose their jobs.

All of this has already been said a thousand times elsewhere, but what appears much less prevalently is what happens next? A big chunk of toy distribution looks sadly set to disappear almost overnight. So what happens next? This is a hugely critical point to consider for toy companies as they begin to plan for what a world post Toys R Us (in the current format at least) will look like.

Here’s some thoughts on that:

  • TOYS R US – THE OUTLOOK – Like all toy people I hope someone pulls a rabbit out of the bag and we can just go back to where we have been with the Toys R Us we know and love. Alas, that is looking less and less likely. The reality is Toys R Us in the current form looks gone. However, there is huge equity in the Toys R Us brand and also equity in some retail locations/markets and website. Therefore, it looks fairly likely to rise like a phoenix from the flames in some shape or form – the only matter of contention seems to be the scale of that re-emergence! The consortium reportedly being lead by Isaac Larian of MGA Entertainment fame is well placed enough to have some really serious conversations….predicting the outcome of that consortium’s approach is not possible as only those inside know how the numbers look – but from a holistic toy industry perspective, it is hard to see how that would not be a credible option with huge supplier support. Fingers crossed for that – but if not, at the very least expect the much maligned ToysRus.com to arise back as an e-commerce operation. Here’s hoping whatever version of TRU comes through this is as big, viable and successful as possible!

 

  • MASS MARKET RETAILERS – the reality is that we can probably expect Target, Walmart & others to pick up some of the Toys R Us business. We may even see some of these generalist retailers expand their toy ranges. After all, some multi-category retailers use Toys as a loss leader to drive traffic into store at peak season, so logically they must be targeting some of that TRU business right now. They do however have physical limits in store – we may see a space increase for toys, but it is hard to see how that could ever be more than a 10-25% increase, because their business model relies on offering a broader range than just toys, and each of their other non-toy categories has demand dynamics also/needs a minimum of space. More likely, we’re going to see somewhat increased sell through numbers in these mass market stores. The challenge though with that from the toy industry standpoint is these customers are unlikely to throw caution to the wind and massively increase stock holding on lines they have listed. If you had to sum up the stock buying approach of many mass market chains in two words you could be forgiven for using the words ‘risk’ and ‘averse’! Therefore, it seems likely that those categories which can more quickly re-order and re-supply will do better from increased consumer demand at these stores. Longer term, we can expect these mass retailers to do well from the sad news about Toys R US, but probably not well enough to fill the gap left in terms of sales numbers.

 

  • SPECIALTY RETAILERS – Specialty retailers have a big opportunity to take advantage of a very unfortunate situation. In many towns across North America & other markets, we look set to have a gap in toy retail destinations. The footfall though (as Toys R Us has experienced) will not necessarily come automatically. As ever, those Specialty stores which deliver great experience, service and range have the best chance of increased business.

 

  • PRODUCT RANGES & PRODUCT DEVELOPMENT – in my 20 years in the toy business I can’t remember such a broad array of quirky, funky genuinely fresh products out there. The tsunami like rise of the internet has had the effect of facilitating the launch of a much broader, less risk averse product universe than we’ve seen in recent decades. This effect can be found in two ways primarily: firstly the internet has hugely increased the effective points of purchase i.e. aside from the upsurgence of the mighty Amazon – Target, Walmart and other retailers tend to have a significantly greater range on offer online versus in store, because a picture on a page of a website is a lot less limiting vs physical space you have to rent and pay for! Secondly, niche products which have breakout potential have never had more chance of seeing the light of day due to crowd funding sites and niche e-commerced stores. Sadly the impending implosion of Toys R Us looks like a setback in terms of breadth of toy product ranges. The nature of the Toys R Us format has meant that toy companies could comparatively easily leverage addtional sales out of product ranges/brands by making a few more products per range vs what the mass market generalist retailers would take. These items typically found a home at Toys R Us, giving them differentiated offerings vs. their cut price box shifting competitors and therefore delivering them greater margin on some items to balance out margin lost due to the necessity of price competition/promotion. It is currently hard to see where these products would go to deliver enough one drop payback to justify development costs. Therefore, at least short term, I expect toy ranges to narrow slightly going into 2019.

 

  • TOY LICENSING – Toys R Us backed some licenses which other bricks and mortar retailers did not have space for. Therefore, I foresee an ever greater reliance on corporate movie blockbusters in the short term. After a very disappointing (at the box office) and very formulaic 2017 movie slate, 2018 has started with a real bang with the massive box office success of the highly toyetic and original Black Panther (closing in on $1.1bn at the global box office at the time of writing). Hopefully we will see the momentum on movie licenses staying strong throughout 2018 to bolster those toy company P&Ls in the wake of the hit from the tribulations of Toys R Us.

 

  • LONG TERM TOY INDUSTRY OUTLOOK – emotions are raw right now, and rightly so. I can’t think of a worse happening in my time in toys than the Toys R Us situation. Like many, I still find myself thinking how did it get to this??? Short term this is going to be tough and painful for a lot of people and a lot of businesses who relied on Toys R Us. Longer term though, despite this setback the toy business looks set to bounce back from this stronger than ever. This is not naive hope on my behalf – today’s global population is currently estimated at around 7.6 billion people…by 2050, the world’s population  is projected to hit 9.7 billion, even by 2030 we’re due to hit 8.5 billion people. So in 12 years time we will have another 900 million people on the planet, and by 2050 an incremental 2.1 billion. While this is bad news in many ways for our species and the planet re. emissions, food, real estate availability etc., for the toy business it must surely herald a glorious future, because every single one of those billions of incremental people will start life as a baby, and move on through the toy categories before eventually casting us aside as they near double figures in age…even then we will eventually get them back as parents! At this stage, we don’t know where the toys for these kids will be bought, but they will certainly be bought. As ever, toy companies need to evolve and ride the waves of huge and distresing events like the Toys R Us situation towards a brighter future.

 

#I’m a Toys R Us Kid

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world. Specialties include Sourcing/factory finding, brand development and product representation.