The Perfect Storm

]> Has the toy industry experienced its perfect storm this quarter as a number of ne

April 6, 2018

10 Min Read


Has the toy industry experienced its perfect storm this quarter as a number of negative factors collide? License! Global takes a look at the international toy market.

The perceived wisdom is that during tough economic times, the children's market—and toys in particular—is relatively immune. People spend on their kids to the last. However, the start of the fourth quarter in October saw what some commentators describe as a perfect storm for the toy industry as the global credit crunch, closure of toy factories and manpower shortages in China and increasing commodity prices hit at the same time. i1_491.jpgi1_t_110.jpg

Indeed, the whole year has seen pressure on the supply chain as new safety measures put in place by licensors hit by product recalls in 2007 slowed toys getting onto retail shelves and further challenging fourth-quarter sales, which account for up to 45 percent of toy sales.

Yet, consumer and retail research group NPD predicted substantial growth over the next two years in its latest report on the sector, "Global ToyTrends and Forecasts," which was published in September. NPD reports that worldwide toy sales topped $71.96 billion in 2007, a 5 percent increase on the $68.5 billion generated in 2006. At that pace, NPD expects worldwide toy sales to rise to $86.3 billion in 2010—a figure it may choose to revise following fourth-quarter trading.

According to the report, North America, Europe and Asia will have roughly similar levels of sales by the end of this year, and sales in Asia will grow at a faster rate than the U.S. and Europe by 2010. Sales in the BRIC countries—Brazil, Russia, India and China—also are growing faster than the total toy market. (See story on page 27 for more information on the NPD report.)

Looking specifically at the U.K. toy market figures, NPD data to the end of October indicated that the toy market was flat. However, licensed product had shown growth of 10 percent over the previous year, according to Frédérique Tutt, director of NPD U.K. Some properties have stood out this year, she says. In the preschool market, Peppa Pig is doing well, and for tweens, High School Musical, boosted by the release of the latest movie, and Hannah Montana were significant. "Licensed products are strong throughout the U.K. market, and the U.K. is the best performer for licensed toys among European countries," Tutt says. "But Ben 10 has been one of the drivers in the U.K.—and the show does not have such a high profile in other European countries. Further, In the Night Garden has become as big as Thomas in one year." i2_211.jpgi2_t_104.jpg

The U.K. market is "ahead of the trend" as far as the European market is concerned, but Tutt also notes that each individual market has its own personality and driver—a fact that will see success of different toy properties at different times in different markets.

Looking at the landscape across Europe, Studio 100 Media in Belgium—the children's television production and distribution business, which also has its own toy company—is so far unaffected by the economic troubles. Director Jo Daris says there are a number of reasons for this buoyancy in its core markets of Belgium, The Netherlands, Germany, Austria and Switzerland. "We have hardly felt the effect of the economic situation so far. But we operate in the mass market, and we have a large promotion business. This means that we are sold in non-traditional toy retailers—supermarkets and discounters, for example—as well as through media promotions."

Properties in the toy portfolio, which include the EM Entertainment library bought earlier this year, feature Mega Mindy, Bumba, Pirate Pete, Samson & Gert, Anubis House, Maja the Bee, Wickie the Wicking, Tabaluga and Heidi, as well as third-party toy deals on Dive Olly Dive, Big & Small, Kerwhizz and Zigby.

Daris says: "The traditional toy market is facing doom and gloom, but sales in the non-traditional sector is largely compensating for the loss. People still want to invest—but there is a shift into the mass sector."


In the developing markets of Eastern Europe and Turkey, retail sales also have been affected in the current quarter as consumers hesitate about what 2009 will hold for them. But Hakan Durdag, chief executive of European Licensing Company and president of Lisans in Turkey, is relatively optimistic about the licensed toy sector.

Referring to the financial crisis in Turkey in the early years of this century, Durdag, whose clients include Warner Bros., New Line and Cartoon Network, says: "Once the initial shock was over, our licensees and sales of their product lines were the least affected in the market. In the current situation, we are fortunate to be involved in toys because they provide products that appeal to the emotions—and people still spend on their children in hard economic times."

Because ELC operates in markets that have untapped potential for licensed toys, Durdag says: "In some of our markets, there will be room to maintain levels of business because the dynamics are different to markets where licensed product has been established for 10 to 15 years. In Turkey, for example, the market is significantly more developed than in Poland.

"What sells is different in each market, too. In Eastern Europe, educational toys are much more in demand than in Turkey. You cannot generalize about the market as a whole," he says.

In the U.K., the market hit absolute crisis in November, with unprecedented waves of discounting. Nickelodeon U.K.'s Clare Piggott, vice president of consumer products, believes that while retailers have absorbed price increases during 2008, it will be different in 2009. "Retailers have swallowed the costs this year, but next year will bring its problems. Retailers are being more flexible than historically—but we're all in for a tough year ahead," she says.

One way of mitigating difficulties is to work more directly with retailers both on product and marketing, Piggott maintains. "We are looking at engaging with retailers directly through direct-to-retail deals and other models, such as exclusives and customized programs for retailers."

Looking at the U.S. market, Eric Karp, executive vice president of worldwide licensing and merchandising at Chorion, concurs. He says that the impact of the credit crunch and low retail inventory will come after the holiday period in the toy industry's leanest time of the year. "It is difficult to tell exactly how consumers will react. Luxuries get cut first. But very few families consider toys to be a luxury at Christmas—they are a necessity regardless of family income. Traditionally during downturns, the effect is less severe in the toy market—but is this going to be the recession that families use to teach their kids to live more frugally?"

What is consistent across markets is that while the preschool sector is pretty straightforward—spurred on by the addition of technical innovations—toys for girls and boys are facing difficulties as media fragmentation hits this market hard. Action toys for boys are in high demand, but both girls and boys are migrating away from traditional licensed toys to new media and content-driven activities.

Karp says: "It's important that with technical innovation, toys maintain the play value in each item, as well as being beautiful, right priced and reaping the value of the excitement from the entertainment show." However, use of the latest technical innovation can push prices up. For Karp, that's a risk worth taking. "The right price is critical, but the market is full of me-too toys, and it will only be businesses who are willing to take that risk who will have meaningful success."

In the tough market, the winners are likely to be those that engage beleaguered consumers with marketing to create demand and offer enticing products at attractive prices.

At Toy Fair, Twentieth Century Fox Licensing & Merchandising (Fox L&M) will introduce a line of action figures, vehicles and role play toys from Bandai for the upcoming Dragonball. In 2009, a glow-in-the-dark flashlight and Albert Einstein talking bobblehead from Excalibur Electronics will be showcased for Night at the Museum: Battle of the Smithsonian. Ice Age returns to the big screen with Ice Age: Dawn of the Dinosaurs, and Fox L&M is set to unveil plush and figures from Planet Toys (a Toys "R" Us exclusive), Beenie Babies from Ty and a new View-Master from Fisher Price. Products for Alvin and The Chipmunks: The Squeakuel will include numerous licensees from publishing to apparel and plush to gift and novelty.


Fox L&M will introduce new toy line extensions for "The Simpsons," "Family Guy" and "24."

CBS Consumer Products heads to Toy Fair 2009 with new toys and games for its TV and theatrical properties. CBS Consumer Products will introduce Star Trek board games from Fundex and USAopoly, as well as a wide range of collectibles and gift items from Funko and Vandor. In addition to Star Trek, CBS Consumer Products also will expand upon its hit series on the CW, "90210," and tap into its classic TV library to introduce new merchandise for "Twilight Zone" and "I Love Lucy."

Nickelodeon & Viacom Consumer Products will unveil a range of products at Toy Fair 2009.

Nick Jr.'s "Ni Hao, Kai-lan" will expand into educational and interactive toys for the first time. "iCarly" will debut new partners for the successful live-action series at the show. "SpongeBob SquarePants" kicks off its 10th anniversary with a talking plush from Play-A-Long, a line of classic games from Hasbro and educational toys from LeapFrog.

Fisher Price will introduce an interactive dancing doll based on the "Dora Saves the Crystal Kingdom" TV event, along with an interactive kitchen. "Go, Diego, Go!" and the musical "The Wonder Pets!" will launch new products from Fisher Price in 2009.

Nickelodeon will unveil its first line of SLIME! products from Jakks Pacific, including a Super Slimer, 8-ounce SLIME! Can and a 20-ounce SLIME! Bucket.

At Toy Fair 2009, Scholastic Media will unravel the mystery surrounding its new multi-platform property, The 39 Clues, with both University Games and Trends showcasing product at the show. Briarpatch will showcase its award-winning line of I Spy products, as well as discuss their upcoming plans for "Wordgirl," with product set to release in 2010. Scholastic Media also will introduce its new series on qubo, "Turbo Dogs," to the toy industry for the first time. Clifford the Big Red Dog will have many new licensees exhibiting product, including Yottoy and Mattel.


Elmer's Products is launching portable arts and crafts activities featuring Disney properties, including My Friends Tigger & Pooh, Camp Rock, Cars and Toy Story.

Some of the products in the line include wallet-size scratch art activities; fun and functional roll-up pouches filled with markers, stickers, pads of paper and more and backpacks that fold out on kids' laps to become all-in-one art studios.

The products range in price from $5.99 to $14.99 and will be available spring 2009.

Elmer also is introducing Kinder-Ready, the company's first line of early learning products, featuring artwork from The World of Eric Carle collection. Also new is a licensed line of MythBusters science activity kits. Both will be available for summer 2009.

At Toy Fair 2009, American Greetings Properties will be featuring new products and seeking new partners.


Care Bears will feature the launch of product from new global master toy and game partner Hasbro, as well as new CGI entertainment. The Hasbro collection will include figurines, basic plush, feature plush and puzzles. AGP currently is seeking partners across categories including apparel, publishing and bedding.

AGP will be re-introducing Strawberry Shortcake with Hasbro. Product scheduled to hit shelves in fall '09 include a variety of dolls and puzzles. Big Time Toys is planning to introduce toys for AG's Sushi Pack in fall 2009. AGP is seeking partners for Sushi Pack across toy, activity, games and novelty.

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