State of the Industry
How Will the U.S. Toy Space Change This Year? A look at current trends and a peek at the future
by Lutz Muller
W
e all know that the toy market is going to change this coming year. The only question is, which direction is this change going to take? Pessimists point to the decline in toy sales over the past 10 years, the impact of smartphones and tablets, the impoverishment of the middle class, and the declining toy space at retail. They predict that all of this is going to spell doom for our industry.
The Glass Half Full All of this is very true, but there is another way to look at the picture. Yes, the toy market has been either flat or declining since 2003. However, this is measured in dollars, and the picture is quite different if you consider the market in units. In unit terms, it is estimated that the U.S. toy market grew somewhere between half a percent and one percent every year over the last 10 years— pretty much in line with population growth. The difference between the two trends is due to the migration of manufacturing to the Far East, where production costs were (and still are) much lower than in the U.S. This resulted in lower retail prices, hence, eroding toy dollar sales. However, this is about to end. My friends in China tell me that their production costs last year rose by about 10 percent, and this is going to be passed on to the consumer in the form of price increases. This, in turn, will result in increasing overall sales over the next decade. The question that is often asked is whether a yearly price increase in the 5 to 10 percent range could, in fact, stop sales growth. This is somewhat unlikely for one simple reason: Half of the toys sold this year did not exist last year. Increases will be
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loaded into those items where there is no way to compare prices. Advertising and promotions will do the rest. Also, the statistical data underpinning toy market estimates do not take into account a major factor: Skylanders and Disney Infinity. The NPD Group, which puts out these market statistics, considers these two products video games, not toys. However, the majority of the sales dollars spent on both ranges is now on the physical toys and not on the game or the console. Had these two product ranges been included in the toy category, there would have been an uptick in 2012, when Skylanders was first released, and again last year.
Smartphones in the Toy Space The impact of smartphones and tablets on the toy market is real, but difficult to measure. Since spending is a zero-sum game, there is no question that the acquisition of a $200 smartphone
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FEBRUARY 2014