Tag Archives: toy expert

Toys R Us – The Retail Growth Story Of The Next 5 Years?

Toys R Us – The Retail Growth Story Of The Next 5 Years?

 

One of the little reported facts pertinent to the media circus recently surrounding Toys R Us’ bankruptcy filing is that the companies over reported debt pile was primarily due to the ‘leveraged’ purchase of the business by investment firms. I am no financial guru, but as I understand it, the system we work in allows buyers to buy an asset i.e. a retailer like Toys R Us mostly via loans/financing secured by/put against the business itself.

I’m not going to pontificate about the rights or wrongs of this – reality speaks for itself. There are several notable examples of this type of transaction working (or at least not killing the business in question), but in the end the benefiting party is most likely to be the owners who risk the business itself to  pay off the loans. The business is then saddled with significant interest fees & repayment fees which can’t fail but to constrain development of the business.

Frankly, this is one of the most infuriatingly under reported aspects of Toys R Us’ tribulations – the underlying business is sound! Reporting an operating profit of $460m and EBITDA of nearly $800m in the last full reported financial year. Interest paid in the same financial year = $457m (!).

So to be categorically clear – there is nothing fundamentally wrong with this business! This is a business generating significant positive cashflow aside from the debt used to purchase it.

(please can any one of the hundreds of journalists who have covered this story with apocalyptic doom & gloom in the last few weeks please advise if I have missed anything fundamental here, or failed to read the financial results properly?)

I’d like to highlight the positives of the situation from the toy industry’s perspective and highlight why I believe TRU could become the growth story of the next 5-10 years in toy retailing:

Firstly, there is one positive reality likely to come directly from the TRU bankruptcy filing – the company is generally expected to emerge from Chapter 11 with significantly reduced borrowing, and therefore much less of a millstone around the neck of this toy industry flagship retailer.

Secondly, this will free up money to invest in the refurbishment of stores and growth plan.

Thirdly, the support of toy companies has been almost unprecedently loud and vociferous. Toys R Us is definitely ‘too big to fail’ as far as the major toy companies are concerned – therefore the company has much goodwill in terms of suppliers offering support of all kinds.

Fourthly, once the long term future & security of TRU is confirmed post Chapter 11, it should prove easier to expand further the global footprint.

Overall, the toy industry has shown it is unwilling to let TRU go to the wall. There aren’t many retailers which enjoy such nearly unconditional support. Viva Toys R Us!

 

 

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents. Steve also advises investment companies via leading expert networks like Gerson Lehrman (Steve is an acnowledged GLG toy expert).

 

 

Is 2017 Turning Into An Annus Horribilis For The Global Toy Industry?

IS 2017 TURNING INTO AN ANNUS HORIBILIS FOR THE GLOBAL TOY INDUSTRY?

The global toy industry has been on the up for several years now. A magnificently packed movie slate has seen the toy industry nudge upwards year on year ever closer to the magic $100billion global retail sales level.

The acquisition of Lucasfilm & Marvel by Disney has been a huge supporting driver for the toy industry, as the consolidated control of a huge slice of ‘toyetic’ movie franchises has lead to a much more co-ordinated slate with fewer roller coaster rides of big movie years followed by a drop of the edge of a cliff the following year as used to happen sometimes in the past.

However, there are some rather worrying signs of this growth cycle coming to an end or at least taking a temporary setback:

Summer box office 2017 disappoints – summer 2017 has been a damp squib for the movie industry – summer 2017 is the first since 2006 not to surpass $4billion in North American box office revenues (as per this article in Fortune magazine: http://fortune.com/2017/08/31/hollywood-summer-box-office-movie-stocks/). Clearly this ‘soft’ summer for Hollywood is going to have a negative impact on toy sales, as the less kids get enthused and massively ‘into’ a movie, the less of them will buy toys, and the fewer toys overall will be sold. Unfortunately, a weak performing movie slate is a double negative…much is made of the double sales driver of a movie in the summer followed by a DVD release heading into the back end. Alas, a weak movie most likely heralds weak DVD sales, and therefore a smaller corresponding sales spike for toys.

Franchise fatigue – there has been considerable speculation around the movie going public suffering franchise fatigue. Never before have we had so many movie franchises with so many versions. Has this taken the freshness, the air of excitement, even some of the magic out of going to the movies? There is clearly an argument in this direction, however, I’m not convinced when it comes to kids/family targeted movies and especially toyetic movies – because the consumer i.e. kids move through the target age group comparatively quickly – a 5 year old child who went to watch Cars 1 in the cinema in 2006 would now be 16 years of age. A 7 year old child who watched Transformers in 2007, would have been 17 when Transformers: The Last Knight disappointed at the box office in June/July 2017.  Perhaps annual sequels & prequels is a bit too frequent, but that really comes down to franchise management by the movie studios – really the only difference I can identify is that certain movie franchises have almost got too frequent for last years merchandise to have been fully moved through retail.

Lego sales decline – seemingly heralding the end of another monumental growth story in the toy industry, Lego has announced their first half year sales decline since 2004, alongside a wave of job cuts. Lego has been the darling of the toy industry since rising like a phoenix from the flames back in the mid noughties. Unfortunately, every strategy reaches zenith status eventually, and the hugely successful, industry leading brand extension and co-licensing strategy of  Lego has possibly run out of steam. There are only so many niches of substantial size (Lego after all only relatively recently launched a concerted push to firmly recruit more girls into the brand via Lego Friends, Elves etc). However, I don’t see a great deal of doom and gloom ahead – ok, there has been a sales correction, which may at least partly be due to the recently announced weak box office performance, but Lego is still a huge iconic and highly aspirational brand – much loved by both parents and kids, Lego has achieved the holy grail of the toy business in getting both sides of the toy purchase dynamic to love the brand!

Hasbro & Mattel shares take a hit – Both Hasbro & Mattel shares have been hit by weak box office performance in 2017, combined more recently by a further hit with the announcement of Lego’s sales decrease and fears about the future of Toys R Us (see next headline). Hasbro’s corporate strategy is much more focused on Hollywood movies – both with their broad relationship with Disney/ Lucasfilm/ Marvel, and with their own franchises like Transformers. Mattel on the other hand have followed a strategy for at least the last few years which is primarily about their own brands i.e. Fisher Price, Barbie, Hot Wheels etc., with licensed product as a secondary focus. Mattel appear to be further into their process of change and reinvention than Hasbro, largely prompted by challenges for the flagship cash cow Barbie and the loss of the perennial Disney Princess license to Hasbro. For Hasbro themselves, I suspect the corporate strategy may need an overhaul to look beyond the movie business for further growth. It’s been a little while since either of these two behemoths made a significant acquisition of another toy company, so don’t be surprised if big moves are made to buy future sales growth via acquisition in the short term to relieve the pressure from Wall Street.

Toys R Us looks to restructure debt, with talks of bankruptcy protection being an option – on the back of all this doom and gloom came the announcement that Toys R Us has hired a law firm specialising in debt restructuring to help manage a $400m debt which falls due in 2018. One of the possible ways of managing this debt could be bankruptcy filing to give the chain protection from creditors. While this is clearly worrying news for investors, it isn’t that uncommon for retailers to have big chunks of debt in this day and age. Moreover, Toys R Us has a somewhat challenging business model in general – a big warehouse packed full of stock which tends to sell in high volumes for only around 2-3 months of the year. That has never been a particularly easy business model/risk to manage. Obviously if there is a weakness at the box office, a big warehouse full of movie licensed toys is going to bear the brunt as much as any other retailer, so there can be no doubt that these are challenging times. However, the toy companies and Toys R Us have a very symbiotic organisation, so there will always tend to be a great degree of goodwill and practical support in terms of trading terms etc. offered to TRU from the toy industry. Therefore, it seems clear to me that a business which is profitable and which is relied on to a fair degree by it’s suppliers is not at existential risk. While I have no financial expertise whatsoever, I would speculate based on pure opinion only that the financial investors to Toys R Us are at more risk than the toy industry itself in this instance.

Inventory Hangover – the major issue for the toy industry as a whole is doing what needs to be done to reduce inventory hangover – because often where movie licenses fail to drive sales to the levels expected, inventory is a big problem, and if not dealt with the carry over can impinge on the following years sales – common sense suggests that if the shelves of retailers like TRU are still packed full of stock from movies from last year, then this years stock may struggle to get onto shelf. One major challenge for the toy industry is the timings of Star Wars movie releases – presumably to avoid cannibalisation, Disney Corp has seemingly targeted December movie release for Star Wars instalments. While this may make sense from a movie perspective, it is difficult for the toy industry to maximise based on that release timing – because a huge chunk of toys are bought well before December i.e. kids Christmas lists are usually completed in October, a December movie release date fails to capitalise fully on the selling window, and if there should be inventory hangover, there is very limited time to markdown and try to move stock through before peak season sales die off.

So in summary, this looks like being a challenging year for the toy industry as a whole. There are however several major reasons why the current summer slump is not necessarily the harbinger of doom some seem to foresee! Here’s some powerful reasons for the toy industry to be cheerful:

Hollywood could reduce the frequency for sequels & prequels and rebalance versus original movies – the movie business will have learnt a lot from this disappointing summer. Perhaps the movie slate has become too unbalanced in favour of existing franchises versus new movies/new concepts. Hollywood needs to reintroduce the magic sparkle of anticipation, of the anticipation of the unknown versus over reliance on a limited number of franchises, and certainly needs to review time in between movie instalments. You can imagine right now there are some contentious conversations going on in tinseltown!

Lego has already reset corporate strategy – concerns about Lego seem to be definitely over egging the pie. Following the recent announcements about Lego’s sales decline I was interviewed by a journalist for a leading national newspaper who asked all the usual questions – is Lego over priced, should it be cheaper etc. The reality is that Lego offers huge play value versus other toys which even when they are expensive often only get played with on Christmas day. The fundamental appeal and benefits of Lego have not changed, all that has happened is that one strategy has run its course, and that strategy has been in place since the company’s much publicised troubles of the mid noughties. Lego has already reset corporate strategy by restructuring and the ex-CEO moving upstairs to orchestrate a more holistic brand strategy versus a focus mostly on toys. When we conduct qualitative research groups and playtesting sessions, it is very clear that parents and kids still love Lego, a short term blip is not likely to be a long term problem therefore.

When licensed toys go weaker, own IP brands tend to see a resurgence – not everyone loses when movies fail to live up to expectations. There will be many toy companies out there having very successful years. Those companies who have perennial products that sell year after year probably won’t see much difference just because Hollywood delivered a disappointing raft of summer movies. In fact, we can expect even those toy companies who are knee deep in licensed brands to redouble their efforts to grow their own brands to reduce the risk of under performing licenses.

Developing markets are advancing at pace – whereas we in the West/Northern hemisphere tend to see the world from our own perspective – are Walmart, Carrefour, Argos etc. up or down – the reality is that the next few decades of growth in the toy industry are not going to be driven from our mature markets to the degree that they were in the past few decades. The gigantic populations and economies of China and India are going to be the driving force of the next decades of growth. China has moved to a consumer based economy and that trend will continue. India has further to go in terms of overall economic development, but a toy industry which is currently worth only a few hundred million dollars must inevitably increase in size by tenfold or more over the next decade or so.

The Global population is rising – the success of the toy industry is closely aligned with birth rates for one obvious but critical reason – when children are born, they inevitably become a new consumer of toy products. The overall global populaton is growing – 7.5billion people today is expected to be 8.5 billion by 2030 – and all of that extra billion people will be toy consumers at some point in the next 15 years. So aside from Wall Street’s pre-occupation with short term focus on the next quarterly earnings reports, the reality is the toy industry can only grow while the global population continues to grow.

So, while 2017 is panning out to be a tougher year than most of us in the toy industry expected…the overall prospects are good for the toy business (eventually!).

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents. Steve also advises investment companies via leading expert networks like Gerson Lehrman (Steve is an acnowledged GLG toy expert).

One of the major long term trends we have observed is the need for lower cost manufacturing alternatives to China. We help toy companies find manufacturing in India – India is set to receive as much as $5-10bn in toy manufacturing in the next decade. If you’d like to find out more about Indian toy manufacturing you can contact us via the company website above!

Are Toys Still Relevant For Today’s Kids? Erm Yes, Rather!

ARE TOYS STILL RELEVANT FOR TODAY’S KIDS? ERM YES, RATHER!

Those outside the toy industry often seem to ask whether toys are still relevant to ‘Generation ipad’. Today’s children have so many more media to consumer and engage with than previous generations, that they don’t seem to spend as long with their toys.

Yet they tend to have many more than previous generations. Each item is played with for less time on average, but consumption/purchase/accumulation of toys has definitely increased over time. So how do we explain this? Kids are playing with toys less but we seem to be selling more toys to them – how is that?

Well, there are two compelling reasons for this:

TOY STOCKPILING – I’ve written previously that retail pricepoints for toys have often not changed since the ’80s. if you go back & look at old TV ads, you’ll often find that the same product selling 30 years ago is still selling at the same prciepoint today – despite 30 years of inflation. As a result, traditional toys i.e. action figures, fashion dolls, board games etc., have become (over time) more or less throwaway items. $20 is not nothing, but it certainly is not worth what it was 30 years ago. $10 is a lunch or a few coffees in Starbucks. So it has become easier to buy toys as throwaway gifts, therefore whether kids are using toys or not, toys are now an obvious gift for kids of a certain age. When going to another child’s party, a toy is a typical gift now, so if 10 or 20 kids attend, that’s 10 or 20 toys sold. Most of these may end up at the bottom of the toy chest, but the accessibility of toy pricepoints today makes purchase much easier/likely versus the past.

THE PURCHASE DYNAMIC – people buy stuff for all kinds of reasons. Their motivations are not always the same as our anticipated selling points. I’ve always felt that’s something to embrace as toy company, not to worry about – the point is to sell appealing saleable products & to achieve commercial success while delivering worthwhile products to people. If they buy them but don’t use them, for sure that’s kind of wasteful and not going to win many friends with environmentalists/anti-consumptionists, but the reality is we all do that! How many people reading this have bought clothes they never really wore, or DVDs they only watched once, or books they didn’t read etc? The clear answer is going to be ‘many’.

The toy purchase dynamic is usually about a parent (or grand parent) and the child. Aside from party gifting or other purchase dynamics, the biggest volume and $amount of toys are bought by parents for their own kids. Now being a modern parent is challenging in several ways, not least of which is trying to leverage/crowbar your child away from tablet devices! Kids will sit and play on/passively watch content on tablets for hours if left to their own devices, which we all know is unlikely to be very good for them. So toys today are hugely relevant and important to parents who want their kids to get off screens. Today parents use toys as much as a screen time antidote as they do to provide a primary play pattern. For sure you will get those kids who are obsessed with Lego, or the latest hot collectible toy brand, but we in the toy industry are selling more and more to parents due to the compulsion to get kids off screens.

There have always been some toy categories which were more parentally appealing – board games, construction, creative play etc., but today toys of all kinds are becoming increasingly popular with parents.

Children by the way don’t necessarily want toys any less – if you watch kids watching kids TV channels, you will still see that TV advertising for toys makes them really want the toys featured – just that they are more addicted to/find screen time more compelling (in general/overall), and therefore spend more time on screens if given the choice.

This is indirectly a good thing for the toy industry overall, as we are ever more the parents preferred activity, while still being desired by kids.

So toys are ever more relevant, even if overall kids play with them less.

 

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading toy expert consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents. Steve is an acknowledged toy expert, and regularly advises investment firms on Hasbro, Mattel & other major toy companies via leading expert networks including Gerson Lehman & others.

Product Launch Timings – When Is The Best Time?

PRODUCT LAUNCH TIMINGS – WHEN IS THE BEST TIME?

We recently wrote an article for Spielwarenmesse.de – the official blog of the Spielwarenmesse/Nuremberg International Toy Fair looking at when is the right time of year to launch new products. Clearly the industry has the ‘standard’ timings of 1st half & 2nd half of the year, but this article discusses other options in more detail:

http://www.spielwarenmesse.de/magazine/article-detail/strategy-for-launching-new-toys/?L=1&cHash=3c5dbb839f2a28fcfa3af4e9cc7f19a4

 

by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading Consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents.

Toy Industry A-Z – A is for Action Man

Toy Industry A-Z – A is for Action Man

For those of my generation in the European toy industry, especially those who worked for Hasbro, Action Man is a huge iconic action figure brand.

Action Man was officially launched in 1966 by Palitoy, as a spin off under license from Hasbro’s G.I. Joe.

Image result for hasbro action man logo

Over time, Action Man moved with the times, from being a primarily military figure to being more of a modern day hero/adventurer.

The accessories and features were always much talked about in the playgrounds of Europe, with older generations referring to ‘Eagle eye’ Action Man and more recently accessories like blowpipes or karate weapons etc.

 

 

I was fortunate enough to market research/playtest many Action Man products and adverts (albeit 15 years ago), and while I won’t be giving away any trade secrets, it will be no surprise to anyone if I highlight just how much kids loved Action Man.

While Action Man is not commercially available any more, it remains a huge and iconic part of European toy history.

For more information on the history of Action Man, the Wikipedia page is quite revealing: https://en.wikipedia.org/wiki/Action_Man

To see reviews of some of today’s top action figures, check out this page on The Toy Verdict website: http://www.thetoyverdict.com/category/action-figures/

 
by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com,  a leading Consultancy to toy companies around the world, which helps companies with product reviews & awards, find the right toy & game factories, consumer research test their products with kids and parents and secure export distribution/market entry around the world.