Alarm bells were ringing through the toy industry last week after Hasbro’s decision to axe its 40-strong European marketing department.
But, looking at the industry’s healthy seven per cent growth last year, it would appear that the toy market is not in trouble. This surge in sales was helped by Harry Potter and a long-overdue return to genuinely innovative new products – notably Lego’s fantasy product, Bionicles. This growth – bringing the value of the UK toy industry to £1.9bn – follows years of relative stagnation. In 1994, when measurement company NPD Eurotoys conducted its first UK study, the toy industry was valued at £1.6bn.
Most observers agree that toys have become much more “faddish” in recent years, with the industry’s fortunes closely tied to the success or failure of blockbuster movies or hit television shows. Hasbro’s woes date back, ironically, to its massive success with Japanese children’s cartoon PokÃ©mon, which became one of the hottest toy licensing stories of the Nineties.
But, as a key PokÃ©mon licence-holder, Hasbro was distracted from its core products, which include Action Man, Transformers and Micro Machines. When the PokÃ©mon craze subsided, these classic, previously stable brands suddenly looked vulnerable.
Hasbro tried to inject a more fashionable buzz into its range by becoming the major licence holder for Star Wars Episode One, which was released in 1999. But this hugely hyped film failed to live up to merchandising expectations, and the UK’s number two toy company took a financial hit from which it is still trying to recover, posting a $144m (£99m) loss for 2000.
What is particularly interesting about Hasbro’s decision to withdraw on-the-ground marketing personnel from Europe – the company will instead co-ordinate everything from the US – is that it highlights a major debate in toy marketing: global versus local. By cutting back its European marketing presence to a small team in Amsterdam, Hasbro is following a similar move by rival Mattel.
In announcing the retrenchment, Hasbro head of international marketing Jonathan Evans referred to “the increasingly global nature of the toy industry.”
Vivid Imaginations chief executive Nick Austin does not believe that global marketing is the way forward. A centralised approach only serves to restrict the flexibility of toy giants in reacting to trends, he says.
Turnover at his company, which is now the third-largest toy company in the UK (with more than five per cent market share) after Mattel (ten to 11 per cent) and Hasbro (seven to eight per cent), has grown from nothing to £80m in just ten years.
Vivid Imaginations’ success has come partly from riding the character-licensing wave, and the company hopes to profit handsomely from a recent deal over the Spider-Man movie. But more importantly, claims Austin, the company has been faster and nimbler than the US-based players in reacting to trends: “We think we have a business model that makes a lot more sense for this industry than those of the big multinationals. Response time is absolutely vital, because trends come and go very, very quickly when you’re dealing with children.”
Austin argues that the toy industry – particularly in the UK, where there are more than 350 toy companies – remains stubbornly resistant to globalisation. This is why the biggest players – including Lego, which has a market share of three to 3.5 per cent – still account for a relatively small slice of the market.
Austin asserts: “It’s still incredibly fragmented, almost a cottage industry. No other industry has so many players battling it out for a total market that is worth less than £2bn.”
While Austin concedes that some toy brands, such as Barbie, have a genuinely global appeal, he thinks too many local opportunities are missed by the multinationals. He says: “Vivid Imaginations got started by seeing the potential for Thunderbirds, which now wipes the floor with brands like Action Man over here. But in the US, they still haven’t got a clue what Thunderbirds is.”
However, industry leader Mattel believes that the toy industry is becoming more global. A Mattel UK spokeswoman says: “At the end of the day, children are the same all over the world. And we’re now in a much better position to launch things almost simultaneously in different countries – there used to be a big time lag.”
As well as the global-versus-local debate, the toy industry faces several other challenges. On the one hand, there is the phenomenon known as “kids getting older younger” (KGOY) – also referred to as the “tweens” effect. Children aged between nine and 12 are being tempted by what they consider to be grown-up purchases – such as music, clothes, cinema visits and computer games.
The last-mentioned began life as part of the toy industry, but has long since emerged from its shadow. The recent console wars between Sony, Nintendo and Microsoft’s Xbox have accentuated the difference in marketing muscle enjoyed by the electronics giants over traditional toy makers.
Meanwhile, research by the British Toy and Hobby Association shows that children are spending more of their pocket money on snacks and soft drinks – which are supported by huge advertising budgets – at the expense of toys.
The KGOY factor means that products such as Barbie, which as recently as five years ago appealed to girls as old as nine, are now having to segment their target markets. While only the very young now respond to fantasy, older Barbie buyers must be tempted by fashion and multimedia initiatives such as last year’s Barbie in the Nutcracker video. Industry experts believe the KGOY trend is likely to go further in coming years.
Seeing this shrinking demographic, toy manufacturers are beginning to pay more attention to the pre-school market, with brands such as Fisher-Price and Lego set for major product launches over the summer. The growth potential here comes from older, better-educated parents with more disposable income. These people are geared to a more competitive society and view the mental stimulation provided by toys as an important source of early learning for their offspring.
Perhaps the biggest fillip to the toy industry in recent years has been the strange flipside to KGOY. Dubbed AGYO – adults getting younger older – this has led to a boom in nostalgia toy sales and a blurring of the line between the hobby, collectibles and toy industries. Companies that have benefited from this include Hamley’s, which plans to extend its Bear Factory franchise; and Hornby, which also climbed aboard the Harry Potter bandwagon with a special edition train set. Hornby’s other main product, Scalextric, has been a major beneficiary of AGYO.
Hornby marketing manager for Scalextric David Lubliner notes: “The brand has benefited from the nostalgia craze, which has seen adults with disposable income reacquaint themselves with one of the much-loved toys of their childhood and, in many cases, pass the experience on by buying for their offspring.”
So, is it a case of back to the future for this somewhat becalmed industry? A little too whimsical, perhaps, as a basis for serious long-term growth. But the shifting demographics and unresolved global-versus-local debate should make toys an interesting marketing battlefield in the years ahead.