What happens next? Predictions for the future of the toy industry • The Toy Book

by Sean McGowan, Managing Director, Gateway Investor Relations

Of all the comparisons I’ve read regarding what 2020 will be remembered for, the one I’ve found the most useful is 1918 + 1929 + 1968 = 2020.

This year we have experienced a deadly pandemic, economic collapse and an explosion of social unrest. I will leave historians of the future to debate whether these three conditions in 2020 were rooted in COVID-19, but there is no doubt that the effects of this confluence are being felt around the world, by every citizen and every segment of the world. economic in each country. So, in this context, what has changed in the toy industry? Well, pretty much everything.

The last time the economy suffered a massive and sudden collapse was in 2008, and we all wondered then, “How much of what was changed by the Great Recession will be left, and how much will come back?” to ‘normal’? , most of us have speculated on what the “new normal” would be. One conjecture, for example, was that even people who had not lost their jobs would realize how little they actually needed to spend to get by and, as a result, would remain permanently more frugal than themselves. had not been before the shock. But, we now know that most people have finally reverted to their old ways.

And this time it’s a little different. It is clear that the pandemic has caused many major changes in the short term, and I think some of those changes will persist. Others will not only linger but give rise to – or at least accelerate – other changes indirectly related to COVID-19.

SHORT-TERM EFFECTS

It’s certainly been a tough year, and it seems increasingly likely that the recovery won’t have a V-shape. (In fact, it’s not even clear when we hit the bottom, or how long it will take. We will need to realize it has been affected.) Supply chains have been disrupted from the start, and while most have improved dramatically, there is still disruption. Toy sales in most categories fell sharply in the first half of the year, and the costs of dealing with disruption kept companies’ cost structures high. Unless, of course, they’ve laid off employees, which unfortunately many companies have done.

Part of the downsizing could fall under the rubric of ‘Never waste a good crisis’. There are always savings to be found and an economic setback makes cost cutting less out of place, but our industry is seeing reductions that go way beyond tweaking and pruning.

Consumer demand for toys has been quite strong in the first six months of the pandemic, driven in part by the need to keep children occupied when they are suddenly stuck at home, and because sales of toys are generally resistant to macroeconomic downturns. But because retailers have never faced an environment like this, they were understandably reluctant to take more inventory in the first half of the year. As a result, retail toy stocks are quite low. It is not clear at this time how consumer demand, retailer orders, and manufacturers’ willingness to stockpile for the rest of the year, so we could envision a tough year for sales of toys, regardless of the state of the pandemic.

Even before we get to the holidays, of course, we have a few other hurdles and waypoints to go through. “Back to school” meant something different depending on who you were talking to. It was not a clear sales event. Toy Fair Dallas was canceled and Halloween was by no means business as usual.

Hasbro Ghostbusters: Afterlife Ecto-1. Source: Hasbro

Even the usual flood of holiday movies can be little more than a trickle this year, which means the toys are hoping to get a boost from a theatrical release (Ghostbusters: the afterlife, a few Marvel movies, etc.) will have to wait a bit longer, and releases such as Mulan that were moved to Disney + did not attract the same audience size as initially expected. As it happens, sales of action figures and collectibles related to entertainment content have lost ground to toys and activity games in recent months, and it is not clear whether the release of new ones. films would have reversed this trend.

Another change that we can expect in the short term is the decrease in events such as birthday parties, where children would be given new toys. It will surely come back at some point, but not until parents feel safe having their kids in a group, doing typical birthday party stuff like yelling and singing.


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But one of the biggest short-term changes we’ve seen over the past seven months has been the big shift to e-commerce. Even though stores have reopened, e-commerce remains strong at high levels. Despite the habits of late night shopaholics, shopping online tends to lead to less impulse buying compared to walking into a store. Shopping has become more “mission-oriented”, and that can go on for a while. Additionally, the in-store pickup (BOPUS) online shopping options offered by many retailers have the same low impulse effect. You’re in the store, in the parking lot, but you’re not dragging your kids out yelling “Mum, Dad, I NEED this!” “

LONG-TERM EFFECTS

Longer term, some changes brought on by COVID-19 may also last well beyond the holiday season, and possibly well beyond the development of an effective vaccine. In my opinion, the economy will not fully rebound next year. Not all jobs will be restored, and those that are may pay less than they paid before. Too many businesses have suffered too much damage for the recovery to be complete in a matter of months.

Plus, the idea of ​​focusing on value takes center stage, even for those who haven’t lost their jobs or suffered pay cuts. Economic uncertainty breeds frugality. Toys are resistant to economic downturns, but they’re not immune.

On the bright side, the low retail inventories that we’ll likely see over the next year should allow for more shipments as inventory builds up, but it will take some time. And, again, we can see consumers’ changes in buying habits persist for longer, and there will be more concern about shopping in a clean and safe environment; more mission-oriented purchasing; and more parent-focused shopping. Additionally, if in the past seven months people have created online accounts with retailers that they have never purchased from before, they are more likely to continue shopping from these sites in the future.

One of the results of the accelerated shift to e-commerce could be a re-evaluation of the packaging. The essence of toy packaging is to make the product stand out on the shelves and cut the noise. If the product has already been purchased by the time the buyer sees or touches it, such elaborate packaging is less necessary. This was already true and has been a topic of discussion for proponents of sustainable development for some time. Likewise, if BOPUS continues to grow, do we still have to spend so much on in-store merchandising? Probably not.

Postponing so many films to 2021 could create an overcrowded landscape for licensed products. It’s not like nothing was planned for 2021 before the pandemic, and now the 2020 versions have been added to the mix for next year. If the room openings pile up, it could lead to unconsciousness if there are too many tent pole openings. Of course, with all of this entertainment content, there should be a surge in sales of action figures and collectibles. But there may be too much content for all of them to be successful, it is known.

And what could be the longer-term lessons of 2020? Do we still need cinemas? We may see an acceleration in direct streaming video-on-demand (SVOD) outputs, which has worked well for businesses, including DreamWorks with Trolls: Around the world and Warner Bros. with SCOOB!


RELATED: Toy Fair New York Is Set To Return In May 2021


WHAT IS GOING FOR 2021?

It’s only been a little over six months since Toy Fair New York in February, but the show has already been postponed from May 1-4 of next year. We are tempted to think that 2022 will see a return to normal, but is that certain? In February, would anyone have thought that next year’s shows would be shut down? And assuming the shows return, will they ever be the same? It’s fair to assume that many attendees re-evaluate the need to get together in large numbers with people from all over the world.

Beyond the end of 2021, it’s much more difficult to predict the lingering impact of COVID-19 on the toy industry, other than having accelerating trends in place already. We’ll all probably start shaking hands, going to parties, and taking our kids to the movies again at some point, but it might not be on the same levels. Of course, all of this assumes that we are in control of this thing. In the meantime, stay safe.


This article originally appeared in the October 2020 issue of the toy book. Click here to read the full issue!

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