As indicated by the typical company data, the demand for non – video toys products of major manufacturers and retailers has been declining in the past three years probably as a result of shifting of consumers to online purchasing. Asia market presents much stronger growth than North America during the same period. reflecting factors including economy, demography, and local retail industry.  

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. There is not proof indicating that the general demand for toys is shrinking. However, the whole industry, as many other traditional industries, has been experiencing huge changes caused by changes in consumers’ behaviors.

2. It seems that traditional toys manufacturers and traditional retailers have experienced declining demand for their products in North America market.

3. However, demand for value-added toys, including those using high technology and popular story related brands, seems to be stable.

4. It seems that the demand for electronic learning products has been strong and increasing fast in Asia Pacific in the past three years.

5. Consolidation activities in this sector increased in North America in the past several years.

Causes behind the trend

1. Generally, the demand for toys has been growing driven by demographic and macro-economy factors.

2. This is particularly true in developing countries such as Asia where we have seen strong growth in household income in the recent years.

3. Unfavourable retail climate in US and struggling toys retailers may work against performance of toys manufacturers in US market.

4. Increasing popularity of online sales driven lower shipping charges, which provide more options for consumers looking for traditional toys from different manufacturers, dilute market shares of not only physical stores but also of current major manufacturers.

Industry Future

1. Companies may find that competition for high end product and brand may be the only way to maintain their market share. Physical retailers will be continuingly struggling in declining traffic. However, the whole industry will also benefit from increasing economy and population in emerging market.

General Financial Performance of Companies In the Sector

It seems that the demand for traditional toys provided by companies in this sector has been declining (excluding effect of toys “R” us) in matured markets. However, demand for value-added toys, including those using high technology and popular story related brands, seems to be stable. Emerging market may present one of options for these toys’ companies to maintain their growth.

While it may not significant for Toys “R” us’ liquidation to impact companies’ sales, it already causes direct impact on many companies’ profit margin in 2017 and 2018. The typical gross margin is about 37% and with a SG&A as percentage of sales of 39% the operating margin is about -3% in 2018. The typical enterprise price/sales ratio is 1.6.

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