28 May 2014
European toy market rallies, but discount purchases still dominate
In his first regular column, John Baulch, Publisher of Toy World, sees signs of optimism in the European toy sector, a move partly driven by a host of movie tie-in opportunities, although 43% of all UK sales in the sector are on promotion.
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| Spiderman: set to have an amazing effect on action figure sales. |
Looking at the toy market, the NPD Group [a global market research company] is currently predicting growth across all the major European territories in 2014, which is welcome news indeed. There are a number of factors behind this prediction – first and foremost, economic conditions in the key territories are improving. In addition, there is a strong line-up of films – including Transformers 4, The Amazing Spider Man 2 and the Teenage Mutant Ninja Turtles film – which is expected to lead to stronger sales in the action figure category.
There is also a belief that the construction toy sector will return to growth after a soft 2013, driven by the release of the Lego Movie earlier this year. Finally, the football World Cup is expected to provide a major boost to sales of pocket money items, such as stickers and trading cards. This category experienced significant decline last year and its performance has a major bearing on sales figures outside of the main festive season.
The other piece of good news is that the toy trade continues to demonstrate remarkable resilience during tough times. Historically, the toy market has often been described as 'recession proof', although the events of the past few years have led people to re-evaluate the term – these days, 'recession resistant' is probably a more accurate description.
The NPD data for 2013, for instance, showed that many parents cut back on their toy spending last year. Overall, fewer toys were purchased and a greater number of purchases were made on promotion. The old adage that parents don't like to let their children suffer during difficult economic times still holds true.
As a sector, toys is perceived to be one of the last to be affected by recession and one of the first to start to pick up when economic conditions improve. Other consumer sectors have been hit hard by the economic conditions and, while it was undoubtedly affected, the toy market did not suffer to the same extent.
So there is some hope – and a genuine belief – that the coming year will show improvements in the European toy market. The tough times have however, undoubtedly, left a lasting impression on consumer buying trends. A significant growth in value retail channels – outlets that offer very low pricing, such as £1 or Euro1 stores – has been evident across the globe, with this trend clearly looking set to continue.
As previously mentioned, consumers are also becoming increasingly savvy, often waiting for retailers to instigate aggressive price promotions before buying. In 2013, the toys bought on promotion in the UK accounted for a massive 43% of the total market. This figure represented a huge jump over previous years – over £100 million more product was bought on promotion in 2013 than in 2012, while it was over £250 million more than in 2008.
While there is clearly a trend towards a greater proportion of toys being bought on promotion in the UK, the figures for other European territories are not as marked, but still significant. Overall, the European average is around 33%, while in France it's as low as 26%.
With consumers waiting for the best deals to be offered, they are inevitably leaving it later in the year to buy (especially when it comes to Christmas presents). This means that considerable pressure is now being placed on toy suppliers and the supply chain as a whole.
In addition, retailers have become extremely sensitive – even averse – to any increase in cost prices, fearing it will result in fewer sales. Thankfully, a reduction in freight costs and favourable currency exchange rates have worked in favour of European buyers, helping to mitigate the increases in manufacturers' costs caused by rising wages and raw material prices.
The balance is a delicate one to maintain and the European toy community is conscious that challenges lay ahead, especially with the Chinese economy going through its own period of change. Can Chinese manufacturers continue to offer European buyers the competitive prices they are looking for? How much impact will rising labour costs and the rebalancing of the Chinese economy have on their ability to keep costs down? Where else can European companies look if Chinese manufacturers are no longer able to meet their needs?
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| Baulch: "increasingly savvy". |
I'm hearing suggestions that Chinese factory owners are beginning to invest in facilities in other Asian territories, notably Vietnam and Cambodia. I also understand that some are starting to look to Africa. In the latter case, the continent's infrastructure will surely need major investment before the region becomes a viable source of mass production, while political instability and social unrest present significant challenges for companies looking to set up there. Despite this, Africa has several key advantages, specifically an abundance of land and a huge potential workforce.
I have been visiting the Hong Kong Toys and Games Fair every January for the past decade and these questions are always uppermost in the minds of the visiting Europeans I encounter. On the positive side, the bonds between the European toy market and the Far East are strong, and there is a willingness on both sides to maintain the close trading partnerships which have existed for decades. There is no doubt that close co-operation, together with an open and honest dialogue about the challenges both sides are facing, will be crucial in allowing all concerned to achieve their objectives over the coming years.
Both Europe and the Far East are going through a period of major change. I firmly believe, however, that the two territories are stronger when they work together to address these challenges.
John Baulch is the Publisher of Toy World,
the leading trade title for the UK and European toy trade
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