Chapter from: "A Profile of the United States Toy Industry: Serious Fun"
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Business Expert Press
Length: 24 pages
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Abstract
This chapter is excerpted from ‘A Profile of the United States Toy Industry: Serious Fun'. The toy industry is one of the most consistently misunderstood sectors of American business. That's no surprise because on many levels it resists easy definition. It's a commodity business. No, it's a fashion business. No, it's a consumer products business. No, it's an entertainment business. The fact is it's all of these businesses, each of which addresses and responds to market forces differently and often, especially with the larger, publicly traded companies-all of these businesses share a balance sheet. Toy consumers are equally diverse, ranging from grandparents planning a splurge, to parents hoping to give their kids a leg up in learning to kids parting with their pocket change. They cross every demographic category. As we often say, if you're going to reproduce and buy stuff-or if you know someone who is-you're a toy consumer and those consumers have more than 160,000 different toys to choose from at any time-ranging from the hot, TV-promoted items to inexpensive impulse toys. It's also the only industry where the performance of a multi-billion, multinational company can be largely dependent on the whims of an 8-year-old. The toy industry in the United States is about $22 billion per year at wholesale for traditional toys, excluding video games, which are not the subject of this book. That figure, adjusted for inflation, has remained constant since the 1990s. The United States is also the largest toy market in the world, and more often than not, the trends and products that are launched here influence the global toy market. (Those products or concepts that come from overseas, notably the recent boom in Japanese Anime inspired properties, achieve global significance once they have cracked the US market.) Given the stable size of the industry, the business is particularly dynamic. This year's hot company may be, as they say, sucking wind next year, depending on the product cycle. A hit product and a strong year, in other words, are neither an indicator nor a guarantee of long-term performance for any given company. The history of the contemporary toy industry is littered with companies (Coleco, Trendmasters, DSI, etc.) that grew as a result of a hit only to collapse when the hit wasn't hot. Sustainable growth over the past two decades has come from acquisitions, whether product lines or entire companies. Given the hit and miss nature of the business, you might expect that products come and go with some regularity, and you'd be correct. Approximately 40 percent of the toys on the market in the United States each year are new introductions. There is not other consumer products business that has that level of inventory turnover in any given year. While the industry is led by such giants as Mattel, Hasbro and LEGO, there are major players in the second tier, including LeapFrog, Spin Master, MEGA and MGA. There are also smaller companies that serve market niches or concentrate on specific channels of distribution. There are more than 600 toy companies operating in the United States. Each of these companies has different structures and strategies, and one needs to understand the various ways these companies handle operations, manufacturing, merchandising and marketing to begin to get a sense of the industry as a whole. Entertainment companies have a huge impact as well, both in determining what kids see and want and in driving products through licensing programs. Licensing is a high stakes, competitive business, and the growth of media outlets and the Internet are changing that structure as well. The evolution of media has had, and continues to have, a profound influence on the toy industry overall, both in terms of products and marketing. The final piece of the puzzle is retailing. Mass-market, big box retailers exert tremendous control over the industry from the products themselves to pricing to merchandising and advertising. Negotiating the complex and dynamic retail landscape is an ongoing challenge. Recent price pressures and growing competition between brick-and-mortar and online shopping as well as pressures from investors and the struggle to calibrate and predict consumer demand make this pivotal sector of the business an ongoing challenge. In addition, changes in ordering and merchandising practices continue to shift risk to the manufacturers. While this study will focus on the US toy industry, it would not be complete without an analysis of the manufacturing market in Asia, notably the Guangdong Province of China. Students of the toy industry need to understand how changes in manufacturing practices, labor, raw materials and global commodities like oil have a profound impact throughout the supply chain. This book will provide a concise and in-depth introduction to the structure, practices and market forces that impact the toy industry. It will offer a short history of the industry, a description of the current market landscape, major and emerging industry competitors, contemporary trends, changes and expectations for the future. It will further cover aspects of retailing, consumer behavior, and financial markets as they relate to the industry. As noted, the book will focus primarily on the US toy industry, but will provide guidelines for extrapolating the information to the global toy market and a highlight of those issues, such as manufacturing, that are relatively consistent worldwide. The book is intended to provide a foundation for understanding the diverse and changing nature of the toy industry and to help readers develop a context for appreciating it relevant to other, more predictable and definable industries. Many students-and professionals for that matter-come to the toy industry ill equipped for success because they are unable to understand the various disciplines and business practices it encompasses and to apply those practices appropriately for the product or product category. A preschool toy will never behave like a toy from a hot movie. It's something many successful people in the business know and have learned over time, but it remains a mystery to the uninitiated. This book is intended as an initiation into this fascinating, fast-paced and fiercely competitive business that is very often more an art than a science.
About
Abstract
This chapter is excerpted from ‘A Profile of the United States Toy Industry: Serious Fun'. The toy industry is one of the most consistently misunderstood sectors of American business. That's no surprise because on many levels it resists easy definition. It's a commodity business. No, it's a fashion business. No, it's a consumer products business. No, it's an entertainment business. The fact is it's all of these businesses, each of which addresses and responds to market forces differently and often, especially with the larger, publicly traded companies-all of these businesses share a balance sheet. Toy consumers are equally diverse, ranging from grandparents planning a splurge, to parents hoping to give their kids a leg up in learning to kids parting with their pocket change. They cross every demographic category. As we often say, if you're going to reproduce and buy stuff-or if you know someone who is-you're a toy consumer and those consumers have more than 160,000 different toys to choose from at any time-ranging from the hot, TV-promoted items to inexpensive impulse toys. It's also the only industry where the performance of a multi-billion, multinational company can be largely dependent on the whims of an 8-year-old. The toy industry in the United States is about $22 billion per year at wholesale for traditional toys, excluding video games, which are not the subject of this book. That figure, adjusted for inflation, has remained constant since the 1990s. The United States is also the largest toy market in the world, and more often than not, the trends and products that are launched here influence the global toy market. (Those products or concepts that come from overseas, notably the recent boom in Japanese Anime inspired properties, achieve global significance once they have cracked the US market.) Given the stable size of the industry, the business is particularly dynamic. This year's hot company may be, as they say, sucking wind next year, depending on the product cycle. A hit product and a strong year, in other words, are neither an indicator nor a guarantee of long-term performance for any given company. The history of the contemporary toy industry is littered with companies (Coleco, Trendmasters, DSI, etc.) that grew as a result of a hit only to collapse when the hit wasn't hot. Sustainable growth over the past two decades has come from acquisitions, whether product lines or entire companies. Given the hit and miss nature of the business, you might expect that products come and go with some regularity, and you'd be correct. Approximately 40 percent of the toys on the market in the United States each year are new introductions. There is not other consumer products business that has that level of inventory turnover in any given year. While the industry is led by such giants as Mattel, Hasbro and LEGO, there are major players in the second tier, including LeapFrog, Spin Master, MEGA and MGA. There are also smaller companies that serve market niches or concentrate on specific channels of distribution. There are more than 600 toy companies operating in the United States. Each of these companies has different structures and strategies, and one needs to understand the various ways these companies handle operations, manufacturing, merchandising and marketing to begin to get a sense of the industry as a whole. Entertainment companies have a huge impact as well, both in determining what kids see and want and in driving products through licensing programs. Licensing is a high stakes, competitive business, and the growth of media outlets and the Internet are changing that structure as well. The evolution of media has had, and continues to have, a profound influence on the toy industry overall, both in terms of products and marketing. The final piece of the puzzle is retailing. Mass-market, big box retailers exert tremendous control over the industry from the products themselves to pricing to merchandising and advertising. Negotiating the complex and dynamic retail landscape is an ongoing challenge. Recent price pressures and growing competition between brick-and-mortar and online shopping as well as pressures from investors and the struggle to calibrate and predict consumer demand make this pivotal sector of the business an ongoing challenge. In addition, changes in ordering and merchandising practices continue to shift risk to the manufacturers. While this study will focus on the US toy industry, it would not be complete without an analysis of the manufacturing market in Asia, notably the Guangdong Province of China. Students of the toy industry need to understand how changes in manufacturing practices, labor, raw materials and global commodities like oil have a profound impact throughout the supply chain. This book will provide a concise and in-depth introduction to the structure, practices and market forces that impact the toy industry. It will offer a short history of the industry, a description of the current market landscape, major and emerging industry competitors, contemporary trends, changes and expectations for the future. It will further cover aspects of retailing, consumer behavior, and financial markets as they relate to the industry. As noted, the book will focus primarily on the US toy industry, but will provide guidelines for extrapolating the information to the global toy market and a highlight of those issues, such as manufacturing, that are relatively consistent worldwide. The book is intended to provide a foundation for understanding the diverse and changing nature of the toy industry and to help readers develop a context for appreciating it relevant to other, more predictable and definable industries. Many students-and professionals for that matter-come to the toy industry ill equipped for success because they are unable to understand the various disciplines and business practices it encompasses and to apply those practices appropriately for the product or product category. A preschool toy will never behave like a toy from a hot movie. It's something many successful people in the business know and have learned over time, but it remains a mystery to the uninitiated. This book is intended as an initiation into this fascinating, fast-paced and fiercely competitive business that is very often more an art than a science.