Via Financial Times

Parents of a certain age will remember all too well the rush to buy the toy of the moment — a Beanie Baby, Buzz Lightyear or Care Bear — in time for Christmas. One year a store stampede for a giggling bug-eyed doll called Tickle Me Elmo put a Canadian Walmart worker in hospital.

These days toy aisles are less frenzied. In 2019, sales across the world’s 13 largest markets tracked by the market research firm NPD fell for a second consecutive year, down $1.5bn to $50bn.

Retailers from Target in the US to the UK’s J Sainsbury, owner of the catalogue chain Argos, said toy sales over the last festive season had been poor. Some blamed a dearth of popular items: Walmart’s chief executive Doug McMillon said he struggled to remember the last time there was such a weak selection. He said the most popular items over the holiday season were inexpensive miniature grocery replicates. “There’s not really another hot item. That’s unusual.”

This week toy makers sought to fight back, showcasing releases for next Christmas at the annual Toy Fair in New York.

Mattel, the maker of Hot Wheels die-cast toy cars, previewed a $400 miniature version of Tesla’s futuristic Cybertruck. Hasbro presented an “animatronic” Baby Yoda that sleeps and coos — part of a renewed deal with Walt Disney to produce Star Wars toys.

Bar chart of US revenues ($bn) showing Toy sales decline in most categories

But several attendees said that — despite some splashy announcements — the industry’s overall line-up was uninspiring.

“It’s just been a bit dry,” said Rena Nathanson, chief executive of Bananagrams, a game maker. Too many companies, she said, were churning out different varieties of the same old franchises.

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Ben Kaufman, co-founder of the upstart US retailer Camp, added: “There really isn’t too much interesting stuff going on right now . . . I think the innovation side is going to get tougher before it gets better.”

Industry pressures are being compounded by macroeconomic concerns. Trade tensions between the US and China added uncertainty last year, and now the coronavirus outbreak is disrupting supply chains from China, where the toy industry sources more than 80 per cent of its products.

The toy manufacturer Mattel, whose portfolio includes Fisher-Price and American Girl, has lost more than half its market value in the past three years. Hasbro, home to Play-Doh, Monopoly and My Little Pony, has held up better, but its shares have dropped by about a fifth in the past week.

Away from the public markets, some smaller companies are suffering. Imperial Toy, the California-based maker of Bubble Blitz, filed for Chapter 11 bankruptcy in November.

And the sector is still feeling the fallout from the demise of the retailer Toys R Us two years ago. The liquidation of Toys R Us didn’t just close off an important route to sales. The retailer stocked so many items that it became an ideas incubator, said Nelo Lucich, co-founder of Skyrocket Toys, which makes the popular Pomsies interactive pets. “Without them, it’s very very difficult” for start-ups, he said.

Steve Pasierb, chief executive of The Toy Association trade body, said: “Everyone had their horns pulled in because they had big financial problems with Toys R Us . . . Everybody played it safe. But safe does not sell toys.”

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He added: “Walmart, Target and Amazon aren’t the ones who are going to take chances on brands.”

A lack of must-have playthings is also problematic because top releases drive footfall into stores. “Magical toys lift all boats,” Ronnen Harary, co-founder of Etch A Sketch-owner Spin Master, said at the Toy Fair.

For some, retailers also bear responsibility because they lack an inspiring environment for children. Camp’s Mr Kaufman said his company was drawing crowds through activities from toddler yoga to magic shows.

Line chart of Normalised showing Toy stocks underperform market

As well as the challenges facing bricks and mortar retail, upheaval in media is also disrupting toy makers, which are increasingly competing with smartphones and computer tablets for children’s attention. Nor can they rely on television advertising to drive sales.

“The kids don’t watch TV any more,” said Isaac Larian, founder of MGA Entertainment. His company’s LOL Surprise miniature collectibles were the biggest selling toy of 2019, with sales partly driven by social media.

YouTube is transforming the sector: a child from Texas launched a YouTube channel — Ryan’s World — and after attracting millions of viewers now sell toys under his own brand. 

Several traditional toy companies are pushing into media to add new revenue streams. The Danish group Lego launched a film franchise six years ago. Hasbro, which turned its Transformers figures into Hollywood blockbusters, last year spent £2.9bn to buy Entertainment One, the production company behind pre-school animation series Peppa Pig.

Toy Story 3 premiere - London...(Left - right) Toy Story characters Jessie, Woody and Buzz Lightyear at the UK premiere of Toy Story 3 in Leicester Square, central London. PRESS ASSOCIATION Photo. Picture date: Sunday July 18, 2010. Photo credit should read: Dominic Lipinski/PA Wire
Past successes: ‘Toy Story’ characters Jessie, Woody and Buzz Lightyear © PA

John Frascotti, Hasbro’s chief operating officer, said the group had a “deep vault of brands, ripe for story development”.

Mr Larian said his rivals’ focus on media distracted them, and he criticised Mattel for being too reliant on cost cuts. The toy manufacturer has been trying to reduce its $2.85bn debt pile — equivalent to about 70 per cent of its market capitalisation.

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Ynon Kreiz, Mattel’s chief executive and chairman, said in a presentation at the Toy Fair that having cut costs and reduced capital expenditure to its lowest level in more than 25 years, the California-based company was now in “growth mode”.

He expected Mattel to increase revenues up to 2.5 per cent this year and it is banking on new products — such as politically-correct Barbie dolls, with larger bodies, physical disabilities and skin conditions — to revive sales.

Executives said they were confident the industry would bounce back. “It’s cyclical,” said Spin Master’s Mr Harary, adding that there had been “other years in the past when there just hasn’t been that magical toy”.

In the meantime, toy makers can always count on adults who are keen to relive their childhoods. Among the winners of the 2020 toy of the year awards was Pictionary Air, a high-tech version of the 1980s classic game.

Mr Pasierb said there was no shortage of ideas in the sector. As toy makers recover from the Toys R Us collapse, he added, he is optimistic that soon parents will be scrambling over the 2020s equivalent of the Furby or Cabbage Patch Doll.