Toy industry Analysis & Characteristics. The end-users of Toys might be children but it’s actually a very big business over the world. One can find a wide category of toys in the market and there are always more that are waiting to be introduced by companies.
Toys is a fast-moving business; toys that are hot today might end up in clearance sale section six-months or one year down the line.
Seasonal and Fad Driven
The toy business is extremely seasonal, with a huge amount of sales made around the holiday season, especially Christmas. October, November, and December see the maximum sales compared to the rest of the months.
Also, toys are heavily inspired by the latest trends, you will find all kinds of toys designed based on some latest fad.
Demand for fad-driven toys can reach boiling point in just a few days and it could evaporate equally fast as the market seeks the next hot product.
So, from the business perspective, rapid changes and uncertainty are characteristics of the toy business, as demand spike and disperses quickly in this industry.
Toy business involves capitalizing on leading and viral trends, so the supply chain of toy companies has to be flexible enough to meet the sudden demands in the toy business. They need rapid turnaround times if they are to profit from these trends, which spike and disperse quickly.
Scarcity is Good for the Market
It’s not difficult to figure out why scarcity is good for the toy-makers.
Often, you will find that the in-fad toys get sold quickly and then the shelves stay empty for few days (many a time it’s done intentionally), and rumors soon start spreading about how good the product is.
As a result, the next batch of products gets sold at lightning speed.
So scarcity is good at times, especially during the must-have Christmas season.
And that is why the top toy companies often try to make the supply just about the same as the demand and rarely oversupply.
Smaller shelf Life
Because the business is seasonal and fad-driven, it usually means that toys do not usually have a very long shelf life.
Toys that are hot today may not find any-takers a year down the line and may disappear from the shelves a year later.
Thousands of toys are introduced in the market every year but only a very small percentage of the toys really succeed. A very tiny percentage of the toys last longer than one of two years.
In fact, when it comes to the sale of toys, their pattern reflects that of laptops, printers, and other electronic items. Just like laptops and electronic items, toys also not have a very long life.
For example, laptops and personal computers lose value when they leave the factory and reach the retail stores. The same goes for toys as well. If you own one of these and decide to sell it even after a few months, you’re not going to get much for your product.
So, the top toy companies make most of their sales around the holiday season, and during the off-peak season they look for other opportunities such as Hollywood releases to make more sales.
Experience Significant markdowns
Fad-sensitive fashion apparel fetch high margins when they first appear on the shelves but can experience significant markdowns later on. Toys also experience significant markdowns when they are left longer on the shelf.
In fact, oversupply in the toy industry often leads to significant markdowns and can also kill demand for fad-sensitive products.
US Kids Consume Most Toys
This may not be surprising to some; US kids consume the most toys on this planet.
While only around 2 percent of the world’s children reside in the U.S., those kids consume almost fifty percent of the world’s toys.
While adults make toy purchases as well, the children are the toy industry’s primary consumers.
Toys also need to meet strict safety norms as the end-users are children. Consumers and the government want more transparency on how the toy is produced and what goes into it.
Because the end-users are children, and because of the several incidents of toy recalls, the top toy companies implement adequate checks in the operations to ensure quality standards are consistently met.
Toys can be quickly recalled from the market if safety standards are not met, and such instances often impact the brand image.
In the past, several toy companies, including Mattel, have faced product recalls.
Lot of Impulsive Buying
A lot of buying happens on impulse, especially when kids accompany parents to toy stores. Children cry and plead for the shiniest new toys that toy-makers usually launch around the holiday season.
The holiday season is when toy companies make the bulk of their sales. It is also the time when kids accompany their parents to stores to buy their favorite toys.
When children accompany their parents for shopping trips, there is usually a lot of impulsive buying, as the kids cry and plead for the shiniest new toys that toy-makers usually launch around the holiday season.
Read: Brief History of Toys
Movie Based Toys
Toy makers now regularly partner with Hollywood studios for film-related merchandise. Toy releases are coordinated around movie releases to create off-peak demand, especially during traditionally slow-selling months.
Toy makers nowadays carefully plan licensed toy releases around the release of big films for maximum impact. Because movie-based toys witness a strong burst of sales in a short period, timing is important for the toymakers. After a few weeks of the release of the film, the sale of such toys stagnates.
Distribution of such toys often happens through mass retail channels such as Walmart as its the quickest way to reach out to many customers within a shp=ort span of time.
New Toys are Based on Successful Themes
Even though the industry releases thousands of new products every year, many of them are simply new versions of popular themes. Many of these toys are just mere extensions of current products or are based on a successful toy platform. Toy-makers commonly use this technique in order to reduce risk.
The Best example is that of Mattel; they have expertly used this approach to turn Barbie into a billion-dollar product line. LEGO has also become so successful by introducing many different products but all of them are practically based on the same concept. There are many more such examples.
Care for the Environment (Green Toys)In recent years, top toy manufacturers have been adopting measures to make their manufacturing process more eco-friendly and also trying to reduce their overall carbon footprint.
Top companies such as Lego, Hasbro, Mattel, are trying to be more environmentally conscious with their products, whereas several upcoming companies are producing environmentally-friendly toys right from the beginning.
Some of the steps taken by companies include reducing the amount of plastic used in the toys and its packaging, making the packaging part of the toy itself, using more recycled packing materials, etc.
Lockdown and Changing Play Patterns
While several industries were impacted by the Covid-19 pandemic, toys did decent business as parents looked for ways to creatively engage their kids. In most countries, toys were deemed as essential service during the lockdown.
Earlier, parents would just buy toys for their families and leave them alone with the toys, letting them enjoy their playtime. But, during the lockdown, parents were looking for solutions to keep the kids entertained in a creative way and were also spending time playing with their kids.
The return of family game nights and demand for more educational toys and building kits were great opportunities for growth during the lockdown. Also, most parents are ordering toys from familiar brands.
While the lockdown presented opportunities, it also presented unique challenges to the toy companies.
As more families were spending time playing together, parents were critically evaluating the toys that their kids were playing with.
And because kids were not accompanying parents to the toy store, there was less impulsive buying, and moms were taking a closer look at the price tag and avoiding the expensive toys (which is easier to do so when kids are not around).
For the top toy brands, this means introducing new toys around familiar themes, and also products that families can enjoy together.
Toy Companies are Reaching Out to Parents
During the Covid-19 pandemic when children were getting less involved in the buying process, toy companies used strategies to appeal to parents as they were making most of the decisions.
Toy brands are looking for new opportunities for parents to interact with the various toys. Instead of waiting for the parents to come to the stores, they are trying to reach out to families (product demonstrations in the neighborhood; closer to where people live).
Toy companies are also making their digital infrastructure more robust so they can better engage parents through the digital medium. Toy companies are also making better use of social media in order to garner more support for new toys that companies are planning to launch, as parents may check online to see what other parents are buying.
Manufacturing is Outsourced
Outsourcing has been the general trend in the last few years, as companies try to keep costs low amidst increased competition. They are always using innovation, outsourcing and using efficient production and distribution to stay competitive
A lot of the top toy companies get their toys manufactured in cheaper locations to save on costs. Several toy companies have their manufacturing plants in places like China, Indonesia.
Toy companies are also trying to make their supply chains more flexible in order to meet the fluctuations in demand, which is the characteristics of the toy industry. Toy manufacturers also aim for faster turnaround times to deal with the spikes in demand.
Use of Technology by the Toy Industry
Toys are typically low cost products and pose challenges for manufacturers as they have to assemble these efficiently in order to reduce labor efforts and cost.
Automation plays an important part in toy manufacturing considering the number of toys that gets manufactured every year. However, what prevents further automation of the production lines is the uncertainty in demand and also because certain toys can be complex to make. Using technologies such as automation enables the Toy industry to manufacture products faster and put it on the shelves for the consumers, and it also helps generate faster action at the cash registers.
EDI (Electronic Data Interchange) technology enables direct exchange of electronic documents in a direct way between computers freeing human resources from low value-added and repetitive activities. Most big toy retailers are keen to make use of standardized invoices and purchase orders that will replace paper, and will save manual efforts. That is where EDI is expected to play an important role.
Funtoyworld is a family-managed website with me (Ben), and my wife doing most of the work. We are proud parents of two wonderful kids and love reviewing toys. We have a firm but friendly “democratic parenting” style and offer several practical suggestions backed by extensive research. Our own experience with raising two children prompted us to share our knowledge. Read more.