17 Dec 2015
Toy Rentals Bounce Back as Sharing Economy Grips Mainland Parents
After largely disappearing at the turn of the Millennium, toy rentals are again big business on the mainland, a move driven by increased investment in product ranges, higher standards of hygiene and the rise of the sharing economy.
While a toy can easily cost as much as Rmb1,000 in China these days, it could soon lie idle, with many children quickly losing interest, no matter how much they might have pestered prior to purchase. Given the initial outlay involved, it is small wonder that many parents across the mainland are now eying the toy rental market with renewed interest.
Toy rentals were hugely popular in China around the turn of the Millennium. The phenomenon began in Hong Kong, before spreading to a number of the larger mainland cities, notably Beijing and Shanghai. Typically, these rental operations were run on a franchise basis, with many of them quickly going out of business once the fad subsided.
Over recent years, the toy rental market has enjoyed something of a renaissance, with many now seeing considerable potential in the sector, despite a number of challenges that have emerged. Given the high replacement rate of children's toys, for instance, some rental operators may find it difficult to recover their costs. While some toys may look new when they are rented for the first time, the wear and tear rates are high, dramatically reducing the chance of subsequent rentals.
Despite this, the mainland market seems set to expand, with many experts believing that temporary ownership of the more popular toys will become increasingly widespread. This has led many operators to seek out a more sustainable business model.
Online and Offline Platforms
Under the current model, a deposit has to be paid before a child can take a desired toy home, with an additional rental fee also being incurred. When the child loses interest in the toy, it can be returned to the store and exchanged for other items. This can help parents save both money and storage space when it comes to toys.
Overall, the entry threshold for the toy rental market is relatively low. In the case of Beijing, for instance, the majority of the toy rental operators are small- and medium-sized businesses. Their start-up investments are said to be a comparatively modest Rmb30,000 to Rmb60,000.
Many such stores adopt a membership system, with members typically entitled to 10% or 30% discount on rental fees, subject to the category of membership. Under this system, a Ferris wheel toy – worth around Rmb180 – can be rented at 10% of the cost, following the payment of an Rmb200 membership subscription. The cost of each toy is then recoverable after around 10 rentals.
At present, toy rental stores have typically adopted one of two formats. Firstly, there are the community stores, normally located at rented premises in large-scale residential communities. Most of the customers of these stores are residents in and around the residential communities, ensuring high levels of repeat business. This model has the advantage of allowing customers to inspect the toys at first-hand, while also having the opportunity to witness the hygiene regime related to the cleaning of toys between rentals.
Such operations tend to occupy a small floor area, usually ranging from 30 to 120 square metres, a consequence of high rents in many upmarket residential areas. As a result, a shortage of storage space can limit the range on offer. Inevitably, this will quickly diminish the outlet's appeal to children, many of whom are constantly on the lookout for new toys.
The second common model is an online operation, a set-up that utilises the more popular e-commerce platforms, notably WeChat, Weibo and Taobao. In this case, the toys' description and image are accessible online, with a backroom service dedicated to handling customer enquiries.
This format benefits from particularly low start-up costs. Apart from actually buying the toys, rental operators only need to pay for website maintenance and toy storage rentals. Both of these costs are far lower than the rents payable for physical stores.
The online format, though, has one obvious disadvantage – customers are unable to view the physical toys in person, resulting in lower customer retention levels than in offline stores. Moreover, although any toy rented online can be quickly delivered by a courier, this is no match for the immediate gratification of instantly collecting in your own neighbourhood.
Currently, China has a child population of more than 300 million. As certain toys are generally considered indispensable to a child's development, this bodes well for the toy rental market. Despite this, the toy rental market is still non-existent in many parts of China. While several sizable toy rental stores, each representing an investment of more than Rmb500,000, operate in the first-tier cities, many of the more outlying areas have no such facility. At the same time, these tier one operators are now facing increased competition.
Given the current state of market, two issues have been identified as crucial to its future development. Firstly, there is the question of how to consistently appeal to notoriously fickle child consumers. While business is usually quite good when toy rental stores first open, many find it hard to sustain their business when children grow tired of their stock.
In order to address this problem, toy rental operators have to continuously invest in new stock. Toy replacement cycles have to be shortened, while a high level of investment must be sustained in order to maintain interest.
Secondly, many customers are concerned about the hygiene issues involved with sharing toys. As a result, some analysts believe that toy rental operators can only give customers true peace of mind by displaying their disinfection equipment at their stores, while also explaining the process, methods and disinfectants used.
Unfortunately, such a disinfection process inevitably incurs significant monthly costs, resulting in higher overheads with the inevitable knock-on costs to customers. Fortunately, it is believed that many parents will be reassured, rather than deterred, by such additional costs.
Sharing Mentality Takes Hold
Given the seemingly unstoppable growth of the "sharing economy" – a move driven by environmental concerns and facilitated by online resources – the toy rental sector seems certain to prosper. Many toy rental operators maintain that the shared use of toys will inevitably reduce resource wastage, a development very much in line with green, low-carbon consumption concerns.
Many toy rental customers are young parents with middle-to-high incomes, a group relatively open to new ideas. A significant number of them are highly receptive to the sharing economy, clearly understanding the benefits of renting a number of high-end toys compared to purchasing just one.
Lin Qing, Special Correspondent, Beijing