7 Dec 2018
Brexit, Black Friday and Toys R Not Us: The Toy Fair Season Looms
- Photo: Toys R Us, Tariffs R U.S. and Blighty’s Brexit blight: Topics to toy with for 2019 expo-goers.
- Photo: Hong Kong: 7-10 January (distance travelled HK: 0 km)
- Photo: London: 22-24 January (9,621 km)
- Photo: Nuremberg: 30 January-3 February (10,614 km)
- Photo: New York: 16-19 February ((plus return to Hong Kong) total total: 29,938 km)
- Photo: Baulch: “Volatile and unpredictable”.
With the Big Four shows that constitute the 2019 Toy Fair Season already waiting in the wings, it's time to brush up on all those issues that are certain to dominate showroom chat and exhibition stand gossip for the next month-and-a-half…
In just a few short weeks, the crucial festive trading period will be over for another year and – almost without missing a beat – the thoughts of the toy community will turn to Christmas 2019. Planning for which, of course, always kicks off in Hong Kong.
No sooner will the bells have finished ringing in the New Year than toy suppliers and retailers from across the globe will board planes heading to 'Asia's World City', where, every year, the Toy Fair Season begins in earnest. Over six subsequent weeks, three further toy shows will take place – in London, Nuremberg and New York – before retailers head home to finalise their 2019 festive (and not-so-festive) selections.
It is no exaggeration to say that this six-week period is crucial to the fortunes of the majority of toy companies, with the decisions taken during this month-and-a-half just as likely to break as make many manufacturers. Essentially, all the hard work devoted to product development by suppliers over the past six months will be summarily judged by retailers, resulting in either glorious affirmation or crushing disappointment.
As ever, product is king in the toy trade. With buyers having had a precious few days to forensically analyse their festive sales figures prior to the commencing of Toy Fair Season, they will arrive in Hong Kong with a clear idea as to which categories performed well, which need freshening up and which areas may find themselves Not Wanted on Voyage, with new product sectors having emerged to annex their shelf space.
In addition to the opportunity to assess which products retailers will be backing over the coming months, the Toy Fair Season also represents the perfect opportunity to network with peers and colleagues. Ideally, it also inculcates a better understanding of the business challenges that lie ahead.
Many believe that the toy industry – and indeed the entire retail sphere – finds itself at a truly historic inflection point. Indeed, 2018 saw big winners and equally big losers among suppliers and retailers, as well as some seismic shifts in the way the global toy trade conducts business. With that in mind, there's a few topics worth boning up on if you want to appear every bit the erudite, far-from-home, toy industry ambassador…
The Post-Toys R Us Landscape
The collapse of Toys R Us in the US in 2018 sent massive shock waves across the global toy community. While some regions have seen a viable retail operation emerge from the wreckage – including Asia, Canada, Germany and Spain – the retailer has disappeared entirely from other markets, notably the UK. In the case of the US, its future there (if any) remains shrouded in both mystery and controversy, with some reports suggesting that Geoffrey's Toy Box, the late retailer's own-brand programme, could be expanded into a fully-fledged stand-alone High Street operation next year.
In the meantime, other retailers have made swift moves to take advantage of the demise of Toys R Us, with the results variable at best in many of the international markets. In the UK, the company's business – which many believed would be spread out across the trade – has “literally evaporated” according to one prominent retail buyer.
Perhaps surprisingly, this wry anecdotal observation is backed by statistical evidence from NPD, the London-headquartered product-centric research group. Including the legacy Toys R Us share, the UK toy market (as of October) was 11% down year-on-year. Tellingly, the year-on-year like-for-like performance (ie, with Toys R Us stripped out of the numbers) has the market 1% up, while the October like-for-like is down 1%. Essentially, there has been no significant move of the previously Toys R Us turnover to other retailers…not yet, at any rate.
By contrast, the US numbers look slightly more encouraging, with the market growing 2% overall as of the end of September. Logically, the US should be missing Toys R Us far more than the UK, which tends to suggest that the key driver, in terms of the markets' respective performances, is actually the health of their individual economies.
Evolving Trading Patterns
While it is always dangerous to generalise, few would dispute that the global toy market shows every sign of remaining volatile and unpredictable. Indeed, it's getting harder to rely on annual benchmarks, as previous trading patterns are seldom being replicated. On top of that many retail buyers are looking to make decisions earlier and earlier, while actual sales appear to be materialising later and later.
And then, of course, there is Black Friday…
Talking to a selection of UK suppliers after this year's (supposedly) frantic sales day, it seems that, while some retailers experienced a surge in demand, others, for a number of reasons, fared rather less well. It's fair to say that the challenges presented by Black Friday are well documented, with reduction in margin being the key issue.
A forensic examination of the numbers posted by one American toy company owner actually suggested that neither suppliers nor retailers make any profit at all from many of the highest-profile Black Friday sale items. While the 'zero margin' effect might not be quite as pronounced in the UK, where Black Friday is still evolving as a retail concept, there is no doubt that everyone in the chain already takes a considerable hit in terms of profit.
Arguably, the conundrum is one of expectation versus commercial reality. In essence, consumers are looking for the kind of 'wow' offers that are almost too good to be true and, given the level of promotional activity that takes place during the run-up to the event, retailers rarely have much wriggle room left.
Timing is also an issue, with many believing that Black Friday comes just a little late in the year to truly benefit the toy industry. Some have suggested that it would be far more welcome if it took place just after Halloween or Bonfire Night (5 November), otherwise, there is a risk that consumers are being encouraged to delay purchasing in the hope of making incredible savings (which may or may not materialise), which brings with it its own set of challenges. Indeed, there is already a firm belief that takings suffer in the weeks running up to Black Friday, with sales then concentrated in a very short window, which creates logistical challenges for suppliers and retailers.
US / China Tariffs
While recent developments in this ongoing saga have offered a modicum of encouragement, with the proposed US tariff increases on US$200 billion of Chinese goods being delayed by 90 days to allow time for further discussion, few see this as presaging any likely cancellation. Instead, it is being viewed more as a postponement, one that may still lead to an increase in tariffs should the two sides be unable to find common ground over the next three months. If the trade war does escalate further – and there is every expectation that it will – toys will inevitably be dragged into the equation, a development that will hurt both Chinese and US toy companies, as well as retailers and, ultimately, of course, consumers.
With the countdown to its EU exit ticking away, Brexit is providing the UK with its own very specific trading challenge. While the situation still seems far from cut and dried (and pretty much still changing on a daily basis), it looks likely that the country will quit the trading bloc in March 2019 – although quite how it will leave, and what this will mean for importers, exporters, the economy, the exchange rate, consumer confidence and a whole host of other critical variables, very much remains to be seen.
Suffice to say, clarity and certainty are two of the most essential tenets when it comes to business-planning strategy and, right now, the only certainty is uncertainty. A worrying few months lies ahead for British toy companies then, as they attempt to plan for a scenario no one can confidently predict or agree upon – even the politicians charged with implementing it.
Given the turbulence in the retail markets across the globe, the general consensus among the international toy community is that there will be yet more mergers, acquisitions and deals to come in the coming months. In the UK, Goliath Games has recently acquired Vivid, while Moose Toys has clinched a deal to take over Worlds Apart. At the same time, a number of the country’s most successful toy retailers, including The Entertainer, Smyths and Hamleys, are continuing to grow their overseas presence via acquisitions and franchising deals.
With all this in mind, next year’s Toy Fair Season certainly promises to be fascinating. And, however bad your jet lag, don’t embarrass yourself by enquiring where the Toys R Us stand may be found and, no matter how acute your hangover, don't be tempted to goad any UK stragglers by asking how their Brexit is going…
John Baulch is the Publisher of Toy World,
the UK's leading toys and games trade publication