A Profile of the United States Toy Industry, Second Edition

Christopher Byrne

• Publisher: Business Expert Press
• Year: 2017
• Print ISBN: 9781631576065
• eBook ISBN: 9781631576072
• Topic: Business
• Subtopic: Business General
• Index: Business

The toy industry is one of the most consistently misunderstood sectors of American business, comprising a wide range of businesses under one banner-entertainment, commodities, fashion and licensing-that each behave differently. Broad-based change is constant, with more than 40 percent of toy products new each year. The U.S. market comprises about 600 publicly and privately held companies, valued at about $22 billion per year at wholesale for traditional toys, which has remained relatively constant since the 1990s. It is also the only industry where success depends on the whims of a child. This book is a concise and in-depth introduction to the structure, practices, and market forces that impact the toy industry, including a short history, a description of the current market landscape, product trends, emerging opportunities and threats and expectations for the future, as well as aspects of retailing, consumer behavior, and financial markets. While the book's primary focus is the U.S. toy industry, one cannot ignore the global scope of the business, particularly related to manufacturing, growth potential and emerging markets. It is intended to provide a foundation for understanding the diverse and dynamic nature of the toy industry and many things that make it unique and to provide an introduction to this fast-paced, always changing and fiercely competitive business where success is often more an art than a science.

CHAPTER 1

A Brief History of the U.S. Toy Industry

1903 was a significant year in the beginning of the modern era. The first regular transatlantic radio broadcast was established. The first transcontinental auto trip was completed. (It took 3 months.) The Pepsi-Cola Company was formed, and the first Western movie premiered—“The Great Train Robbery.” The Ideal Toy Company created the first Teddy Bear, named for Teddy Roosevelt.

Of course, there were always toys, but they were often made by companies in the market where the toys were sold and were generally fairly simple. Dolls, games based on classics that were neither trademarked nor patented, balls, and so forth were staples. Blocks and wooden Noah’s Ark sets were also very common, though these were often created in the home. As we will see, childhood was not what it was to become. Compulsory public education began in the United States only in the early 1850s, and it took more than 60 years for that to become standard throughout the country. Children were often working with the family or on their own from a very young age. There simply wasn’t the leisure that allowed play as recreation.

As a result, toys and the U.S. toy business as we know them today are distinctly a 20th-century invention. There are really four distinct “eras” of modern toy history. While these are not discreet and certainly overlap, they can help illuminate the major societal and cultural developments that have shaped childhood, toys, and play.

The Industrial Evolution

This is really a subset of the so-called Industrial Revolution. As with everything else related to the toy industry, the adaptation of technology, such as it was at the time, lagged behind the culture at large. The commercial manufacture of toys evolved out of the larger trend toward mechanization in “grown-up” business. Beginning in the middle of the 19th century, iron, wooden, and composition toys were the standards of American manufacturers. Many dolls were still homemade, as were puzzles, and building toys. Miniature steam engines were powered by kerosene, and boys made their own toy soldiers with small sets that allowed them to melt and pour lead. Materials were largely tin, wood, metals, and an invention from 1897—Plasticine—which was one of the earliest synthetic materials. Elaborate dolls, rocking horses, model trains, and more sophisticated toys largely came from Europe, as they would until just before World War I.

The Growth of the American Toy Industry

In 1903, the first American Toy Fair took place in New York. It was, and for decades remained, the longest trade show of any industry for one simple reason. Enterprising American toymakers, who were not taken seriously by domestic toy merchants largely given the comparative simplicity of their wares compared to European toy makers, hoped to catch buyers before they sailed for Europe and after they returned. They would set up their stands on the docks and strove to prove that there was a market for their products and that we here in the United States could do just as well as the European manufacturers. American toy companies had to fight to get attention, but mass production and a growing population already was attracted to getting more for less and the notion that toys were something consumers actually purchased rather than made for their children was beginning to catch on.

The fledgling American Toy industry was primarily independent companies seeking to produce, largely, commodity toys. In 1916, the industry began to organize itself with the creation of the trade group The Toy Manufacturers of America. Over the next decades, this group would seek to organize the industry, provide support for growing companies and work with the government to ensure favorable trade conditions, the development of tariffs to protect U.S. companies, and protection against counterfeiters. One of the most significant early successes of the Association was to establish that the toy industry was “essential,” meaning that the importance of toys and play in the lives of children should accord the industry special status. This designation would prove to be especially valuable when trying to acquire production materials during wartime or protecting against foreign competition. The Association would play a vital role in the U.S. toy industry through the next century.

In the early days, many toys were miniatures of adult items—punch bowls, furniture sets, ironing boards and other household goods mimicking adult activities—what we call role-play toys today. And mechanical toys caught the imaginations of kids who were surrounded by an ever more mechanized world. As the automobile became more widely used, pedal cars that looked like real cars became the rage. One of the major toymakers of the time was A.C. Gilbert, whose Erector sets were first manufactured in 1913. Gilbert had been inspired by the power wire towers he saw along the train lines as he traveled from New York to New Haven and was convinced that boys would want to build with miniature girders. In fact, the first Erector set book opened with the line, “Hey, boys!”—an indication of the gender divide that would define toys—and the culture at large—until the 1960s.

The child’s world as a smaller reflection of the adult world had been the norm for play. After all, a child’s life was all about becoming an adult. But that was all about to change.

Post-World War II

The toys and the toy business most people know today really evolved after World War II. The post-war years were transformational in two ways. The first was technical. Advanced plastics developed for the war effort were turned to peacetime use, and in many cases that meant toys. Metal fabrication plants that had been cranking out munitions began to crank out swing sets, wagons, spring horses, and much more. Suddenly, toys were bigger, brighter, and much less expensive. As suburban moms shopped for their groceries at the supermarkets, they also had supermarkets for toys—such as Lionel Leisure, Kiddie City, and Toys “R” Us, which was initially conceived as a “toy supermarket,” a necessity given the nascent Baby Boom. Parents flocked to these stores because in the postwar prosperity they were able to give their children much more than they, as Depression-era kids, had been able to have.

Of course, the second major development of this period was television. As TV became standard in nearly every home, common cultural entertainment experience became the norm. Kids all watched the same things, and they wanted the same toys. These were the years that manufacturers like Ideal, Mattel, Remco, Gabriel, Marx, Hasbro, and many more became big players. Suddenly every child had to be Roy Rogers or Dale Evans. Howdy Doody became an icon, and the Mickey Mouse Club became the shared experience of a generation. If Captain Kangaroo had a toy on his show, you could bet that it would become a hit; such toys still made today as LEGO and Colorforms reached their first national audiences on that show. In 1958, Captain Kangaroo debuted the 64 Box of Crayola Crayons, and it became a phenomenon and a fad. Suddenly for millions of kids, their regular crayons wouldn’t do.

The postwar years saw another major cultural shift. The emphasis on play began to move from practicing for adulthood to indulging in childhood. For a time, it seemed like stability was here to stay, and kids were free to just be kids. Toymakers and marketers began to realize how much money was to be made from parents who wanted to give their children the, perhaps romanticized, time of freedom and fun they felt they had missed in the Depression and the war years. At the same time, popular entertainment, the stable home, predictable life and an emerging youth culture that was distinct from—and often seen as a threat to—previous generations was emerging. Kids were beginning to control much more money and influencing purchase decisions for themselves and their families, a trend that would only be expanded upon in the coming decades. While these images were in no way representative of the entire culture and there was plenty of strife during these years, one way that kids could feel a part of it was through having the hot toy.

These years really were the beginning of the concept of the hot toy. Key items from toy manufacturers were heavily advertised on TV, and kids wanted and asked for them. The Baby Boom generation began what would become a common part of cultural history moving forward—the ability to locate oneself in time by virtue of the toys one played with.

The Boom of Technology: Starting in the late 1980s, chip-driven technology became a driving force in toy development.

Sure, there had been some level of technology in toys before, but it was largely mechanical. Chatty Cathy, a doll that in 1959 amazed kids with the ability to say 11 different things with the pull of a string, gave way to electronic dolls that could now say hundreds. As with what happened in the industrialization of the country, during this period as technologies evolved and some became comparatively simplistic and outdated for use in grown-up products, these chips found a new life in toys as inventors and developers found that what was no longer relevant in a computer could create a comparatively sophisticated, not to mention awe-inspiring toy. Just one example was the Furby, a fad when it was launched in 1998, which was powered by one of the chips that had powered the Apple II computer 11 years earlier.

During this period, American’s booming fascination with technology inspired the creation of lot of chip-driven toys. As kids began to be surrounded by technology, they came to expect it in their toys. Electronics drove a new generation learning toys, interactive, motorized stuffed animals, toys and games. The now-classic Simon was the first game to be powered by a chip. Yet, as always happens in the toy industry, while some succeeded, others were downright disasters, over engineered, over priced and not fun. This era also ushered in the rise of the so-called Watch Me toy, toys that didn’t really require the participation of children to go through its paces. Though several became major hits, such as Tickle Me Elmo or Poo-Chi, the follow-up to Furby, many others did not.

The reason for the successes and the reasons for the failures are inextricably linked. In the case of Tickle Me Elmo and Poo-Chi, the toys became fads and owning them far outweighed the play value of the toy themselves. On the flip side, there were many inferior toys that for all the “wow factor” that developers tried to program into them, they failed to ignite kids’ imaginations. The exact reason for these failures can’t be known, but many toys that didn’t succeed in this period weren’t original, had no advertising support, or flat out didn’t work. (That hasn’t changed too much in the intervening years, to tell the truth.)

This goes back to one of the axiomatic, and elusive, elements of what makes a good toy. Technology, any technology, is never enough, the toys have to engage children. So despite the rush into the electronic world, while the construction of toys has changed, the essential role of play in child development remains unchanged. The props may change, but the function is the same. Play gives children an opportunity to explore their worlds, have new experiences (either real or imaginary), and express themselves. Those three central functions of play are not going to change, and they are essential to any successful toy.

The Toy Industry Today

Today, the toy industry is more diverse than ever before. There are more products clamoring for the “toy dollar,” as it’s called in reference to the money that families or kids spend on toys and related items as a portion of their overall discretionary spending, but the size of the pie remains the same. How it’s sliced changes virtually every year. Fragmentation of the media market place, the rise of cable TV, YouTube and on-demand programming, the emerging dominance of online and more have created more entertainment destinations for kids and created distinct new challenges. From the 1950s to the late 1970s, marketers could virtually guarantee awareness and consumer demand because of the limited number of TV channels. They could be reasonably sure that a significant portion of their target audience was in front of specific shows on Saturday morning, and it was therefore incredibly easy and efficient to advertise to this group. With only three networks available and virtually no other children’s programming run at other times, this was an unprecedented period for TV advertising in terms of being able to target an audience. At the same time, manufacturers could make all kinds of claims about products with none of the oversight that was to come later.

If one looks at the history of toys that were the most successful of any given year during that period, they are the ones that were most likely to have been heavily TV advertised. Today, in addition, the explosion in the number of TV shows and entire channels devoted to entertaining children—many of which have associated toy products—has made toy shelves more crowded and competitive than any time in modern history. Add to this the rise of the DVR, online programming, and home video, and it has become more complex than ever to reach a target audience with a predictable level of reach and frequency—essential components of successful marketing.

Sociological changes are also influencing the industry. Today’s children, in many cases, lead highly structured lives. Between schoolwork and organized activities, our ongoing interviews with parents over the past eight years indicate that children have less time for self-directed leisure activities, unstructured play without adult supervision, and are spending a great deal of time in transit between these activities. We’ll leave it to the educators and psychologists to talk about the implications of these changes, but the implication for manufacturers and marketers is that it is harder to get attention and keep attention.

At the same time, a highly competitive retail environment is placing new pressures on manufacturers, with products having an ever-shorter window in which to establish sales performance before being yanked from the shelf. These challenges are partially offset by the growth of online retailing, which as of 2012 represented about 10 percent of the U.S. Toy Market and is continuing to grow at about that much annually. In 2015, that number jumped to 15 percent, and it shows no sign of slowing. Amazon dominates in online toy sales, but Wal-Mart has been a close second. Its acquisition of Jet.com in 2016 reinforces that the future growth of toy sales is increasingly online.

Given all the challenges, one might easily wonder why anyone would want to get into this industry. Yes, there are tremendous risks and the chances of a huge success are relatively small. What keeps people in the game is that this is an industry where a successful product can make people very rich and impact the culture in ways that few other products can. Moreover, compared to other industries, the barriers to entry are comparatively low. It is a business that thrives on the new, and it is one of the few businesses where anywhere from 33 to 40 percent of the product is completely new every year. That’s a lot of risk, but at the same time it’s a lot of opportunity.

Perhaps it’s the “lottery mentality” (strike it rich suddenly) that seems to infect U.S. culture, but people point to the successes of recent hits like Shopkins, small collectibles, Pokémon, Beanie Babies, and others and say, “Why shouldn’t I do that?”

Many of the successes defy logic, and one often hears, “Crazier things have worked,” as a response to a concept that seems, at best, not strategically positioned for the market.

The challenge in trying to analyze the toy industry is that many decisions are made in ways that defy any kind of analysis. That is, by “gut instinct,” “intuition,” and a “feeling.” In what other serious industry can the president of a company build a product line based on a dream he had? Faced with that kind of idea—and the necessary capital to make it a reality—the traditional metrics one would use to determine a product’s viability in a commodity business, or even a product business targeted to adults that is not as volatile, are irrelevant.

In fact, the toy industry doesn’t run on traditional analytics or metrics. Can you imagine a major consumer product company creating a product on the basis of one person’s dream? Didn’t think so. At the same time, one of the reasons that this kind of activity is even possible in the toy industry is that the barriers to entry—specifically cost—are fairly low. It costs less to make a prototype and begin trying to get distribution than a major consumer product company would spend on research. There is a level of flexibility and an ability to shoot from the hip that is unique to the toy industry.

Larger companies, and in particular, publicly traded companies, tend to have much more systematic methods of testing markets and concepts. A success can come “out of nowhere,” and a “sure-thing” can flop. For all the desire to turn the toy industry into a science, it really is more of an art. Bringing out a toy has more in common with making a movie than in introducing a new detergent. It is not a rational business because the toy consumer is not usually a rational purchaser. As mentioned in the introduction, billions of dollars are controlled by the changeable whims of eight-year-olds. And for the parent holding the purse strings, the motivation is seldom to invest in something of enduring value but to make a child happy in the short term, and that changes regularly as children grow.

All of this argues against any kind of formulaic or even standardized approach to trying to understand the business. At the end of the day it is, and always will be, a business driven by individual products. It has often been described as a Ferris Wheel, and anyone who has been around the business long enough has been at every point on that wheel from raking in the cash to teetering on the brink of bankruptcy. It is not a business for the faint-hearted or the risk-averse. To that end, the ride more people go on is a roller coaster.

Let’s take a more detailed look at the elements of this business, and what it may be helpful to know to try to understand the constantly shifting toy landscape.

CHAPTER 2

The Toy Industry by Size and Category

The categories of the toy industry are identified by the type of product, purchaser, and very often the end user. There are many variations within each category, and not every product fits neatly into a category. Thus, one may well ask is something a preschool toy or a learning toy? Is it both? Very often those determinations are made by the manufacturers, but the retailers may also define the categories individually. As we see so often in this business, standardization is almost impossible. Today’s learning toy may have more in common with an iPad than a traditional wood alphabet block, though both may be sold in the same aisle. This chapter looks at some of the categories—as well as the exceptions—and it’s a great jumping off place for trying to get a grasp on the scope of the business overall.

Interestingly, when you walk through toy stores (and there are few better ways to get a sense of the contemporary toy business than to do that), even after reading this you may be a bit confused as to why Product A is in some category. Welcome to the toy industry. Where a toy ends up merchandised in the store is often the result of competition between buyers who specialize in certain areas. These conflicts can get more and more pitched, particularly as newer toys don’t always fit easily into one category or another. And yet, a significant part of the planning of any product is determining where it will go in a store—or as they say, what aisle it will go in (preschool, action figure, games, etc.).

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Table of contents

• Cover
• Title
• Copyright
• Acknowledgments
• Introduction
• Chapter 1. A Brief History of the U.S. Toy Industry
• Chapter 2. The Toy Industry by Size and Category
• Chapter 3. Product Still Rules
• Chapter 4. Buying and Selling
• Chapter 5. Creating Desire: Licensing, Advertising, and Marketing
• Chapter 6. The Money Game: The Financial Realities of the Toy Industry
• Chapter 7. So You Still Want to Play?
• Epilogue: Play It Forward: Forecasting the Future
• Bibliography
• Index
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