Three Reasons Why I Think 2012 Was a Bad Year for the Toy Industry

 

Perhaps you saw these headlines the day after Christmas:

“Shopping data a coal in stocking for retail stocks” – Associated Press

“Holiday Retail Sales Up Just .07%” - San Francisco Chronicle

“US Holiday Retailer Record Worst Holiday Season Since 2008” - The Globe and Mail

A bit unsettling, don’t you think?  But why were sales down?  I have done some reading and thinking on the subject.  The various commentators have their theories and I have mine.  Below is a list of what they saw as the problem followed by my insights. 

First, here are the reasons cited by the commentators: 

• Super storm Sandy had a big impact on the Northeast, particularly the greater New York retail economy.
• Concerns over the Fiscal Cliff caused people to hold back on spending.
• The horrible shooting incidentin Newtown Ct. depressed people.

While I think that these reasons are all germane, I believe there are other causes that are of more concern as they are not momentary but part of a longer cycle that we are going to face for the next several years:

1. Sales of apps undercut the retail market.  Because apps are extremely inexpensive (many are free) and seen as having such high perceived value, I believe that some spending shifted from high retail consumer products to very low cost virtual ones.  In other words, people still bought gifts; they just got them for far, far less.
2. Consumers spent differently.  For example, while toy and video game sales were off this year, the theme park industry was showing an increase.  According to Theme Park Post, Universal reported that its theme park business was up 5.8% in the third quarter while The Walt Disney Company reported a record year, due in part to increases at all of its theme parks.  Money spent on trips was money not spent on toys.
3. More play supply than demand.  Let’s face it; the world has never had so many ways to play.  You can take your pick between a bevy of toys, video games, apps, digital games and more.  How can the toy industry expect to be up when there are so many play options?

Bottom line to me is that people are still buying gifts and spending money on play.  It is just that that money is not being spent in traditional retail outlets and on traditional toys.  Until the various play industries adjust to this new reality, I think we could see continuing challenges in growing market share.

Why do you think 2012 was a bad year?

               

 

 

 

Comments

[Markas]

Why nobody speaks about quality, impact of advertisment? Made in china :) no good quality.

[David Murray]

Richard, The economy may be the major factor in sales of Toys,not sure. Original design may
be lacking also.
The Phobia about made in China is not so fair
as many US Co's source there and they have people who are responsible for Quality etc.
Some products just can not compete labor wise
with US workers.Starting in about 1962 Barbie
costumes were sewn in Japan,sewn onto a card
shipped to Calif.and final packed there.China
came later as the workers were typically female and the dexterity and attention to the work was exceptional.
I worked in Asia for over 20 yrs.overseeing
production on many consumer products.
David

[Mark]

Why does everyone analyze everything but the quality of the products. I was not very impressed by the toys on the market this year. Rehashes of previous brands! Another Marvel action figure! How about a plush product? In order to cut costs, toy companies also seem to be cutting back on features and fun. It appears that creativity and imagination has also been cut this year.

[Richard]

Well said.

[Brian Torney]

It would be interesting to see how gifting of app games and activities impacted overall toy sales. I know iTunes giftcards are always a popular present, but are parents and relatives broadly digitally gifting? I'm sure it is on the increase, but I imagine the digital gifting of choice remains a giftcard, since Christmas is still about unwrapping. Still, this is an interesting thought, Richard, and one I know I would love to see fully explored!

Your comments on consumer spend are also of interest. Do you see a correlation between theme park visits and perhaps bigger ticket purchases? Are families spending more on experiential options? Theme park visits increasing seems to indicate parents are spending time and money engaging in family-wide entertainment and togetherness.

It's uncanny how commentators use everything from natural disasters to mass murder to explain away a continued change in retail sales. The Colorado theater shooting only demonstrated a few weeks of declined ticket sales; I think these tragedies have impact on consumer habits, but not in the way many commentators are alluding. Your explanations are much more realistic.

I think the biggest reason toy sales continue to decline is that the products continue to skew away from modern user behaviors and instead innovate merely sustainedly. The time is right for disruptive toys to better reflect a changing audience and the way they play.

[Diana]

I found the toy market saturated with the same types of toys. If a company had success with a toy there were 10 competitors coming out with the exact same style toy. My company developed something unique only to have 3 other companies copy and cheapen the item. It would be nice if there were more innovators in the toy market and less imitators putting out 'me too' products. We all would win.

[Chris Devine Dailey]

Simply put . Lack of innovation in toys and spending by Toy companies on new innovation , Kids are playing differently --Toy Companies need to adjust !!

[Tom Goddu]

1) Kids are being invited to use tablets in their classrooms and parents are having to pony up a couple hunnerd right there. 2) Toy shopping at retail is grossly unpleasant and the accumulation of toys at home is unpleasant for the child as well as the adult. Apps don't have either of those drawbacks. The viral Japanese video Pon Pon Pon can be seen as a reaction to toy and cuteness overload, and it's coming to a tween near you. 3)Parents want a little quality time with their kids, not better pacifiers or maturity accelerators. So look to the theme parks, unplugged tourism and toys that foster parental interaction.

[Tom Goddu]

4. You couldn't get a TV ad in sideways before the November 6 election day.

[Brian Maggio]

Richard: a quick counterpoint here. Perhaps it was a bad year for Toy companies (I know Game companies suffered in lockstep.) However, this industry hardship will be better for consumers in the long run - while it hasn't been personally rewarding for us and our friends, I ACTUALLY WELCOME IT. Why? As sales $ decline, retail space allocated to traditional toys & games will shrink (as it did in some outlets this year). As retail space shrinks, the surviving vendors will need to amp up innovation and create more compelling product in order to stand out and get placement. As a handful of vendors set the bar higher by creating said product, other vendors will have to follow suit in order to compete. And in the end, creativity and innovation will prevail, the way we've all hoped it would the past decade or so. Maybe...

[Suzanne]

I would think that increased spending for theme parks came out of people's vacation budget, rather than toy buying. To see if this was true, we should see if vacation spending on non-theme park destinations fell at all.

When parents don't know when to shut off the TV and take away the electronic gadgets so kids can get a rest from them, the kids tend to play with traditional toys less. Traditional toys are not as addicting as electronic games, this might well be intentional on the part of video game designers. I know of 1 game designer who says “I used to value the ability to turn the user into your slave." (He says he doesn't do it anymore.)

[Nate Scheidler]

Companies were reporting higher sales than last year at the Chicago Toy & Game Fair.

I think the lack of innovation suggestion above was the best one. A lot of toys and games tend to fall into variations on certain themes and interactions. Its even more prevalent in the "app world", with anything moderately successful spawning a bunch of copycats (some admittedly better than the original).
I don't think it is worthwhile, or even valid, to consider video games (regardless of platform) a "threat". They offer a different sort of interaction and feedback, which is not without its own limitations. It is up to the toy or game manufacturer to highlight the differences and benefits between their products and any digital equivalent, and look for ways to enhance the experience. And hopefully soon, because its important for the news media to have the "hot toy" to point to every holiday season...

[Linda Stortz]

Hi Richard, thank you first of all for all of your hard work and thought provoking analysis of our industry. I'm entering my 9th year as a Canadian toy distributor, and the challenges faced by my traditional retailers are daunting. Consumers now openly "showcase" in stores, taking up the retailer's time and attention to explain a game or help select the perfect gift, then say "thanks, but it is cheaper online" whip out the iPhone, scan the code and brazenly order it for crazy low discounts right in front of the poor store owner. The insanely expensive, out of synch testing requirements are huge hurdles placed in front of innovators too - why can't all of these governments get together and establish one consistent set of test criteria? Why force inventors to test for the same thing for every jurisdiction you sell the toy in? Only the test labs are laughing here, or making money. Much appreciate your great articles, Linda