SPECIAL REPORT: Goldman Sachs Gets it Wrong; Toy Stocks Suffer

I have, since October 15, 2012 been investigating a troubling report by Goldman Sachs that toy industry had experienced a 30% per capita decline in sales since 1998 and that as a result “that traditional toys and games are likely in the early stages of secular decline in developed markets.”

The reason for my investigation was that the 30% number seemed much too high and that I could not find support for it anywhere else.  The claim that the industry was in what amounted to a long term decline was a major statement that needed to be explored because it caused toy stocks to decline and it called into question the very health of the toy industry.

As a result of my discussions with the author of the Goldman Sachs report, Michael Kelter; the toys and games analyst for Euromonitor International, Utku Tansel, Head of Toys and Games Research at Euromonitor International and a subsequent article by NPD Senior Vice President,  Russ Crupnick, I have found the following:

The Goldman Sachs number of 30% is too high by anywhere from 17% to 25.3%.

Per Capita sales for all toys

Goldman Sachs                       -30% since 1998

NPD                                        -13% since 1998

Euromonitor                            -4.7% since 1998

Per capital sales of toys to children are actually up since 1998:

Per capita sales for sales to children

Goldman Sachs                           NA

NPD (ages 0-11)                        +13% since 1998

Euromonitor (ages 0-14)           +4.7% since 1998

Michael Keltner and Goldman Sachs stand behind their report.  Based upon the information from NPD and Euromonitor, however, it simply does not appear that the toy industry is in the midst of long term decline.  In fact, all things considered, despite the competition from digital and other new forms of play, the toy industry appears to be holding its own.

For those of you who have the time to read more,  I will provide a review of the details of how events  occurred and what I learned in my next posting.

 

Comments

[John]

Thank you for the detail. A 30% decline would be troubling, but based on the extent to which NPD follows the industry I find their numbers a lot more believable. It would be interesting to see what sort of amplified impact the extended recession has had on any of these numbers as well. I think we might find a heavy anchor hanging on to the last three years.

[Tom Rushton]

Thanks Richard. Your "watch-dogging" efforts of the experts are much appreciated. Please keep up the good work.

[bob grosch]

Goodman Sachs numbers shouldn't be trusted. Their credibility as reliable source of investment information has come into serious question. If your reputation is tainted due to a lack of ethics by senior employees why believe them on statistics.

[Howard McAuliffe]

It would be interesting to see how much they invested into the toy industry after bringing down prices with that report. I hope you cover their methodology, if they gave it to you, in the next post.