Christmas comes but once a year. But for the UK’s toy industry, that is no longer often enough.
The estimated 1.2bn industry is going through a period of rapid transition with takeovers, mergers and the restructuring of marketing departments as manufacturers come to terms with the speed at which children’s tastes change. Verdict Research estimates that sales increased by five per cent last year. But this year there are predictions of a five per cent fall in toy sales, putting the traditional toy store under increased pressure.
One of the main problems facing manufacturers is that children are reaching for a computer mouse even before they get to school. In the pop psychology of the toy industry, the term for the phenomenon is KGOY or Kids Getting Older Younger.
The industry as a whole is suffering. Hasbro managing director Bryan Ellis blames what he calls a “performance problem”.
“Fundamentally, toys are a difficult product to retail, they tend to be low value and highly seasonal with a poor record for product failure, they are therefore not competing well with other product categories,” he says.
Retailers and manufacturers alike have been affected. The takeover of UK companies Spears and Waddingtons by US giants Mattel and Hasbro respectively means that four companies dominate the industry in the UK – Mattel and Hasbro, and from Japan, Tomy and Bandai. There is an increasing tendency for toy makers to become part of the wider children’s leisure industry rather than a dedicated toy industry.
Traditional toymaker Bluebird joined with Disney last month in a lucrative deal to produce miniatures based on the US entertainment group’s entire range of fantasy characters.
Hasbro’s Ellis says UK manufacturers have been badly affected by falling prices, causing several well-known companies to fall by the wayside, including Airfix, Pedigree and Lisney/Matchbox.
Into the gap are stepping US toy giants Mattel and Hasbro, which between them have a near 200m share of the market. They have already started their annual jostle for parents’ Christmas spend in the UK.
However, smaller players are active, too. Hong Kong newcomer Playmates plans to set up a UK company next year (MW October 27).
But manufacturers, large and small, are facing a new threat: television channels tailored for children. This development, coupled with the fickleness of playthings, has increased the pressure on toy companies to be more innovative. A car that moves is no longer enough – its mechanical features have to be replaced with electronics for it to attract sales.
As a consequence, toys and technology are now merging, and manufacturers from the two markets are forming powerful alliances. In September Compaq Computer Corporation and Fisher-Price, a division of Mattel, announced they were teaming up to create a series of hardware, education and entertainment software products to bring a new dimension in play and learning.
The range, designed to link education, entertainment and PCs, is expected to be out next year through both computer and toy retailers.
Byron Davis, president and chief executive of Fisher-Price in the US says: “The enormous popularity of home computers means it is possible to add a new dimension to how pre-school age children play and learn.”
Japanese toy giant Bandai and Apple Computer announced late last year that they plan to go into direct competition with Sega and Nintendo by targeting the home-entertainment console market.
The marketing of computer software to children is also changing as it targets those of pre-school age.
Peter Brown, chairman of toy company K’Nex and chairman of the British Toy Manufacturers Association, believes the traditional toy will be replaced by CD-Roms and a wider range of gifts and electronic entertainment products.
This is a view challenged by Dave Allmark, managing director of Bluebird, the company behind Polly Pocket. He believes traditional toys are still the driving force behind the market’s success. His company has produced only one electronic product – launched this year – a girl’s electronic organiser called Secret Diary. “The Bluebird organisation has more traditional toys and hasn’t moved the electronic way,” he says.
Hasbro and Mattel have Bluebird in their sights, but all three deny there is a takeover in the offing. Interest in a traditional toy maker suggests such products still have much to offer.
Hasbro group marketing director Nicola Basham says traditional toys, which encourage children to become involved in play, will always make up a large part of the market.
“You can’t replace the physical element – moving arms and moving legs – things you can’t get from a mouse and a button,” she says.
Consumer expenditure on traditional toys has remained static over the past five years, according to Fisher Price group managing director John Harper. He blames this on the combination of minimal growth in consumer expenditure and the KGOY factor.
Harper suggests it is down to toy retailers to find alternative ways of selling. To that end, the world’s largest toy retailer, Toys ‘R’ Us, is hoping to strengthen its position by launching a customer loyalty card in the UK (MW October 6). The Geoffrey Gold card – named after the store’s giraffe symbol – offers customers incentive discount vouchers.
The exception to the general decline is Mattel’s Barbie, which is still posting year-on-year sales increases. According to Hamleys, the London store, about 8 million Barbies are sold worldwide.
“There is a lot of prejudice about Barbie – that she’s just a blonde bimbo,” says Mattel group marketing director Denis Horton. “But Barbie has been a doctor, a vet, a model, in the army and gone to the moon.”
Boys on the other hand prove a lot more fickle. The core market for boys’ toys is between the ages of three and 11, with action products targeting boys aged four to nine.
While Barbie has remained steadily popular among girls, boys have had their fads over the past ten years including: Masters of the Universe, Ghost Busters toys, Teenage Mutant Ninja Turtles and, lately, Power Rangers.
The changes in ownership and approaches to children have fuelled extensive restructuring in the marketing departments of the larger toy companies. The emphasis has shifted to new product development.
Hasbro has decided to consolidate its sales and marketing into two divisions. Marketing director Ian Hassard left the company in September following the announced changes, which came as part of a worldwide re-organisation of the company (MW September 22).
Mattel UK group marketing manager Sandra King was made redundant last month as part of a shake-up. The company cut 1,000 jobs from its international workforce at the end of last year.
The market is changing at such a speed that many of the companies are struggling to keep up. It seems inevitable that there will be more casualties and takeovers. But it is not just that children are growing older more quickly and their tastes are fickle. Toy makers and retailers are now part of the wider leisure industry and are facing fiercer competition than ever before.