As China eats away at its market, India’s toy industry is pinning its hopes on e-commerce — Quartz India

Last year, only 20% of India’s 8,000 crore ($1.3 billion) toy market was served by Indian toymakers.

The rest came from China and Italy, two countries that dominate the Indian toy market. Imports from both countries grew at a compound annual growth rate of more than 30% between 2001 and 2012.

This strong growth has been fueled by growing demand in India, especially from a growing middle class that could grow to over 200 million people by 2020.

But the export spiral has also decimated Indian toymakers. Over the past five years, according to industry body Assocham, 40% of Indian toy companies have closed and 20% are on the verge of closing.

Indian toymakers are now hoping to make a comeback online.

“The largest chain of toy stores in India must have a maximum of 150 stores in the country,” explained Harsheel Jain of Karma Solutions, a Mumbai-based toy importer. “Just getting the toys to customers is a big challenge here.”

This is especially true for areas outside of first-tier cities, which have seen strong growth in e-commerce.

And “due to the low number of outlets, we plan to start selling more online. There is no other choice for many retailers. Otherwise, a lot of investment is needed to reach more customers,” Jain added.

India’s e-commerce market has exploded in recent years, growing from $3.8 billion to $12.6 billion between 2009 and 2013.

Domestic toy makers could also benefit from changing consumer habits as more affluent parents turn away from the unorganized toy market, which is estimated at over Rs 1,500 crore ($245 million) and dominated by Chinese imports.

“Customers who buy online are more attentive to brands and quality. They won’t spend money if they don’t know it’s reliable and safe to buy this toy,” said Adnan Chara, Vice President of Upright Toys and Games at Mitashi. “In this way, the share of the unorganized market will also decrease.”

While most major e-commerce companies like Flipkart and Snapdeal sell toys online, baby products e-commerce portals like Babyoye also offer a collection of toys. There are also specialty online toy retailers like Yellow Giraffe, which sell toys based on age and skill level.

“Achieving scale is easier for Indian players,” said Mike Fulkerson, senior marketing manager for Mattel Asia Pacific. Indeed, when international players look at India, it is often seen as an important market to achieve scale due to latent potential.

Simultaneously, the traditional global toy market has also been threatened by smartphones and tablets. In the United States, for example, children under the age of 12 play more frequently with touch screen (pdf) devices than with board games, constructions and blocks, or dolls and action figures.

In India, this may not be the case.

“We have noticed that even with increasing access to digital options, traditional toys are holding their own,” said Vivek Jhangiani, chairman of the All India Toys Manufacturing Association.

“Children choose to play with traditional toys when playing with their family and with digital toys when playing with their friends.”

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