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No child's play: Toy industry not as lucrative as one might think

Hey there, time traveller!
This article was published 6/12/2014 (987 days ago), so information in it may no longer be current.

Ray England has seen trends come and go in the toy industry over the last 40 years, from Beanie Babies to Cabbage Patch Kids.

Today's trendy toy can just as easily be tomorrow's collector of dust particles, he says.


Ray England, one of the owners of Toad Hall Toys, recommends choosing toys that touch on a potential hobby for the child.

JOE BRYKSA / WINNIPEG FREE PRESS

Ray England, one of the owners of Toad Hall Toys, recommends choosing toys that touch on a potential hobby for the child.

As co-owner of the family business Toad Hall Toys -- founded in 1977 -- in the city's Exchange District, England has also learned the newest or costliest toys don't always amount to getting your money's worth in playability.

"A good way to measure a toy's worth is dollar value per hour of actual play," says England, who was a toy buyer for a large retailer before getting into independent retailing.

For example, a toy that costs $30 and results in about 10 hours of play works out to $3 per hour play value. But a toy that costs $90 and ends up being played with for about 20 hours would ultimately offer fewer bangs for your bucks.

Then again, like all goods, toys cost more than they once did, so most toys don't offer as much value as some did decades ago. While prices have changed, as well as the amount families spend during the holiday season, it's largely relative, England says.

"Forty years ago, we were able to sell miniature steam engines by an English company called Mamod for about $10," he says. "Now it's hard to buy one for $150, but wages have changed a lot, too."

Today's toy industry is worth about US$83 billion annually. That's certainly not child's play (well, actually it is), but sales in recent years have remained relatively flat, says Adrienne Appell of the U.S. based Toy Industry Association.

"We attribute that to (how) even in rough economic times, parents are willing to forgo things for themselves to get their children gifts for the holiday," she says.

In North American and other developed markets, sales simply aren't as robust as they once were. In some cases, they're falling even with the ascent of video-game consoles. This is largely a function of demographics. Families are smaller. At the same time, parents in North America are spending a little less, inflation-adjusted, annually per child on toys than they did 15 years ago, an annual report by NPD Group states. Last year, families spent about US$371 annually per child on toys, compared with about US$333 in 1999, which is more like US$440 in today's dollars.

The largest expenditures occur in December, accounting for more than one third of sales.

Overall, emerging markets are keeping many toymakers out of the red. Yet because families in these nations spend only about 10 per cent of what families do in developed markets, the overall effect is muted, a recent report by Euromonitor International determined.

Between 2006 and 2011, growth in developed countries averaged about one per cent, while emerging countries posted an average annual growth of 13 per cent. In the future, this growth may bode well for toy manufacturers such as Mattel and Hasbro, which are the largest toy companies in the world -- something forward-looking investors might want to take note of if they're looking for potential buys.

Video-game makers are doing even better. For example, Electronic Arts, known best for its NHL and NFL simulation games, has a market capitalization of more than $13 billion, while Mattel is worth about $10 billion.

One reason for limited revenue growth in the last few years has been toy prices have remained relatively stable, which is good news for parents, Appell says.

"The good news is that for consumers, nobody is getting priced out," she says.

For retailers, however, the margins are thin and getting thinner.

To stay in business, small retailers can no longer carry products large retailers carry. They need to find a niche and often stay away from popular brands that involve licensing agreements with media conglomerates such as Disney.

"Licensing increases the cost of a toy by about 10 to 25 per cent," says England, who adds Toad Hall focuses on quality toys with high-playability value.

Yet even the largest retailer, Toys "R" Us, faces a difficult future. Analysts have been speculating about its long-term viability for the last few years. A Bloomberg report from January, for example, focused on whether the company can continue servicing its high-yield debt. A privately held company, Toys "R" Us was supposed to go public last year, but those plans were cancelled when it appeared it wouldn't be a lucrative venture for ownership group KKR & Co., Bain Capital LLC and Vornado Realty Trust, which borrowed about US$6.6 billion to buy the company in 2005.

Certainly, if Toys "R" Us is sunk by its US$5-billion-plus debt, children and parents would feel the loss come holiday season.

Parents still often rely on big-box stores to meet their children's rising expectations for toys. Even if sales are flat for many families, spending does seem to be going up every year for the holidays. Just ask Winnipeg mom Emilie Lemay.

"Spending has gone up every year," Lemay says while shopping with her five-year-old daughter Charlotte at Polo Park earlier this week.

This year, Charlotte is asking for Hasbro's FurReal Friends Get Up & GoGo My Walkin' Pup Pet from Santa.

"It's one of those furry, battery-powered dogs that moves, and you can pull him around the floor on a leash," says Lemay. Priced at about $30, this digital doggie won't break the bank.

Still, the Lemay family expects the toy tally to be more than $200 for the holidays -- about $50 more than last year.

England says parents who want to get the most mileage for their dollars may not want to choose presents based on price tag or trends. Instead, they may want to consider toys that will help them and their children develop mutual interests.

So if parents enjoy 'playing' with toy trains or kites, it doesn't hurt to introduce their children to the hobby with a holiday gift in the same vein.

This often helps children develop a healthy sense of situational play -- playing pretend -- that is less common now that video games hold sway.

"Quite often, if people in the home are not hobbyists, the child is likely to have less grasp of this aspect of play," he says. "It's really what they've been exposed to in the home."

 

joelschles@gmail.com

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