State of the Industry
Some Trends Are Not Friends by Sean McGowan continued from cover NPD says a strong surge in sales in the final 10 days of the year brought December sales to an increase of 6 percent, fourth quarter sales to an increase of 3 percent, and full year sales to an increase of 4 percent. But if retailers, seeing flat sales (at best) in the weeks before that, got nervous and canceled orders, the surge came too late to help shipments, although lower inventories in stores after the surge probably helped. Reviewing my article in this space last year, I think my predictions were mostly on target, but they were also pretty timid, so I don’t want to crow too loudly. My predictions boiled down to four essential points: 1) Emerging markets were finally big enough to “move the needle” for the major multi-nationals, and this would continue; 2) The freshly launched PlayStation 4 (PS4) and Xbox One consoles would take more money from family budgets in 2014 than that category had taken in recent years; 3) Labor costs would continue to rise, but other commodity costs would not rise in a way that couldn’t easily be offset by price increases; and 4) Toys “R” Us could be staging a comeback, but in its efforts to improve its efficiency, it could still wind up not buying a lot more product from its suppliers. As noted, these were not terribly bold predictions. Emerging markets do matter much more to the results of the
48 • THE TOY BOOK
industry’s largest players, and the growth potential in these markets remains one of the industry’s brightest bits of potential upside. But, as Dallas Cowboy fans learned in the playoffs this year, the gods giveth and the gods taketh away. Just as Russia, for example, became one of the fastest growing emerging markets for Hasbro and Mattel, the ruble plunged, taking that economy into recession. Sales of PS4 and Xbox One consoles have exceeded all estimates, Nintendo staged a bit of a comeback late in the year, and the continued success of Disney Infinity and Activision’s Skylanders means that a greater portion of the family “fun” budget has gone to the video game sector, to say nothing of Candy Crush and other addictive mobile games. Commodity costs did, in fact, stay in a manageable range, at least on average, and are actually poised to provide some upside in 2015. And Toys “R” Us did improve its operations considerably—managing inventories better and improving margins— but still saw a drop in holiday sales. For 2015, I will make a few more predictions than last year, and will try to be a bit bolder with each. First, I predict that overall toy sales at retail will grow slightly in 2015, driven mainly by greater consumer discretionary spending (driven by lower gas prices) and by a solid license-driven product cycle. Disney Frozen merchandise should be up in the first half of the year, against sales in early 2014 that were constrained by short supplies. Sales of Star Wars merchandise should be very strong at year-end. (These “Disney book-
FEBRUARY 2015