by STEVE REECE, Managing Director, Toy Workforce Asia, Youngsters Model Perception
On a worldwide scale, there is no such thing as a doubt that the toy business fared higher than most industries amid the COVID-19 pandemic. Total, our business benefited strongly from the lockdowns, as mother and father determined to occupy and entertain their offspring sought new toys and video games to excite bored children.
Previous to final 12 months, we noticed sturdy momentum earlier than we hit the headwinds of upper inflation than most of us have skilled inside our working lifetimes. The accelerated charge inevitably squeezes shoppers and shrinks disposable incomes. That’s a transparent menace to our business as a result of if shoppers have to decide on between feeding, heating, and sheltering their children or shopping for them toys, we all know what’s going to occur. Nonetheless, the toy business tends to outperform others within the face of sturdy financial challenges. Nevertheless, with inflation near a charge of 8%, then “actual” gross sales should enhance by 8% in precise {dollars} for the market to stay flat.
Initially of 2023, it was tough for a non-economist to foretell what’s going to occur with inflation — and it nonetheless is. Nevertheless it appears possible that the speed will stay increased than we’ve been used to in earlier a long time. This possible implies that among the identical challenges from final 12 months will stay with us by the subsequent gross sales cycle. That stated, the opposite looming problem is a possible recession, however the toy business is famously “recession resistant.” After all, most of us haven’t skilled a recession mixed with excessive inflation, however a recession impacts individuals on a person foundation greater than inflation. Inflation applies to everybody, however not everybody loses their job in a recession. So, in abstract, whereas the macroeconomic image is hard heading deeper into 2023, we all know how resilient our business is.
NEW PRODUCT DEVELOPMENT
As all the time, there’s a lot occurring with loads of shifting and shaking occurring behind the doorways of the key toy and recreation firms. The bigger firms have an in depth vary of unique content material due for launch this 12 months, however a robust slate of toyetic movies is on the horizon, together with some from confirmed franchises.
Extra broadly, the contacts that I communicate with are discussing extra centered ranges, and established business creatives appear to be hustling tougher than standard to seek out work. This implies that product growth budgets might have been trimmed throughout the board. If we glance again to the worldwide monetary disaster of the late aughts/noughties, firms did reduce and concentrate on fewer, much less dangerous product growth initiatives. The large change since then is the breadth of product launch platforms and mediums that are actually obtainable. Prior to now couple of years, my firm has consulted with quite a few upstart firms that developed merchandise and went direct-to-consumer (D2C) through Amazon and different platforms. These firms have offered a whole lot of 1000’s — if not thousands and thousands — of models with none conventional gross sales channels and wanted my assist to entry toy distribution. These newcomers arrive in our enterprise with no business baggage and with all of the tech savvy to take advantage of alternatives with out a big, long-standing infrastructure. That is each a menace and a possibility to individuals in our enterprise. Firms that adapt and pivot can take benefit whereas those that persist with the identical previous methods of doing issues will discover it tougher and tougher in powerful occasions to even tread water. Business newcomers can steal the lunch of slow-to-adapt established gamers.
FIXING THE SUPPLY CHAIN
One other space of our enterprise that has skilled a difficult few years is sourcing and provide chain. We live by a interval of inevitable transition by way of toy manufacturing, and whereas we could also be centered on the subsequent promoting cycle and the place our stock is coming from for the subsequent spherical of buy orders we’ve to fill, we additionally want to concentrate on ongoing modifications in manufacturing. This consists of the continued shift away from China for toy manufacturing.
Briefly, earlier than China’s rise to prominence, we sourced toys from a mixture of locations, together with factories in Japan, Taiwan, Hong Kong, Haiti, Japanese Europe, and so on. Then China opened up, and a whole lot of thousands and thousands of actually ravenous individuals with very low wage expectations grew to become accessible to the worldwide toy business. From that time within the late Nineteen Seventies, China started a meteoric rise in manufacturing capability and capabilities.
Till round 10 years in the past, China remained each extremely environment friendly (comparatively talking) and comparatively cost-effective for toy manufacturing. A brand new problem emerged as thousands and thousands of individuals had been lifted out of abject poverty and into aspirational positions the place staff can discover higher work exterior of the factories. The ensuing labor scarcity creates a brand new backside line: The China of right now is best suited to fabricate actual vehicles versus toy automobiles.
China nonetheless manufactures greater than 80% of the world’s toys, however that is an more and more difficult established order to carry onto. We will fall into the entice of trying too far into the long run when most firms are simply trying on the subsequent 12 months. However in the event you instantly want to maneuver numerous toy manufacturing to a distinct geographic area, it takes work, planning, and preparation. We will see this most clearly with publicly traded toy firms – these massive company entities have groups of individuals whose sole job operate is to anticipate threat and scale back the probabilities of them materially affecting monetary outcomes. These firms even have bigger quantities of producing to maneuver versus smaller firms. For instance, I may show you how to transfer $1 million in toy manufacturing tomorrow, however $1 billion wants a extra strong and strategic effort. Lately, a number of main toymakers have reported to shareholders that they’re now sourcing 50% or extra of their merchandise from exterior of China. Should you haven’t questioned the function of China as your major sourcing geography, shouldn’t this be some meals for thought?
The largest problem in shifting manufacturing is that worthy alternate options are restricted. Vietnam is essentially full and India has huge potential capability and an affordable — and big — labor pool, however has not but taken benefit of the alternatives up to now. Different international locations all through Asia can decide up a little bit of slack, and nearshoring is feasible and due to this fact rising, however stays costly. The truth is that there is no such thing as a single good different to China, and in consequence, toy firms will have a tendency to wish a multi-hub sourcing resolution going ahead versus the single-hub mannequin most are used to.
Simply because it took China a long time to turn out to be the first manufacturing hub for the business, its standing within the provide chain continues to decrease over time whereas different hubs rise to prominence. Whereas the state of geopolitics is above my pay grade, clearly the connection between the U.S. and China will not be as pleasant because it as soon as was. There may be a lot speak of decoupling and “friendshoring” ought to pressure really come to a boil between these two nice buying and selling companions. Ought to that occur, then all bets are off and we will count on a frenzied race to seek out manufacturing capability exterior of China.
As ever, these are fascinating occasions within the toy enterprise, so right here’s to hoping that 2023 pans out in addition to could be anticipated, and let’s be pleased about the resilience of demand for nice new toys and video games.
A model of this text was initially printed within the 2023 version of The BIG Toy Guide. Click here to learn the total situation! Wish to obtain The Toy Guide in print? Click here for subscription choices!
