What’s driving a global toy industry boom?

The US toy industry is experiencing its biggest sales growth in a decade - and it's not all because of Star Wars. From Shopkins to Avengers, there were a number of strong properties that defined 2015, and the experts weigh in on where the biz is headed next.
February 16, 2016

The numbers are in. Last year was a record-setting one for the US toy industry. In fact, 2015 may go down as one of the best, if not the best, years the US toy industry has ever witnessed.

According to New York-based market research firm The NPD Group, whose POS data derived from all major toy retailers covers roughly 80% of toy industry sales, the final post-holiday tally reveals the US toy industry grew by 6.7% in 2015, well ahead of its usual 1% or 2% annual increase or decrease. Overall, NPD reports US toys sales amounted to US$19.4 billion in 2015, a signficant jump from US$18.08 billion the previous year.

So, just what was it about 2015 that led to a seemingly insatiable demand for toys? The obvious answer: Star Wars. The franchise’s most recent big-screen outing Star Wars Episode VII: The Force Awakens has been shattering box-office records since its December release, amassing US$1.87 billion in global ticket sales at press time. But projected merch and toy sales are in a whole other galaxy, with conservative estimates pegging the property’s worldwide retail sales at US$5 billion in its first year. (The US$4-billion price tag Disney paid for Lucasfilm in 2012 seems like a steal now.)

But after talking to a bevy of toy industry experts, more than just super-cool Star Wars merch was at play in 2015. From Shopkins and Minions, to Avengers and Jurassic Park, there were a number of incredibly strong properties, many of which were backed by a blockbuster movie. Also, factors like technological advancements, media convergence and the increased capacity for kids to engage with their favorite characters anytime, anywhere on mobile devices, had a profoundly positive effect on toys sales.

“Instead of making trade-offs between categories, technology and toys are merging together to create a kind of power category”

- Carol Spieckerman, newmarketbuilders

“The Star Wars movie is driving all significant categories,” says Lutz Muller, CEO of Vermont-based Kloster’s Trading. “Frozen was a major factor in 2014, and you are seeing the same thing happening now with Star Wars—very strong movie properties are the reason.”

Carol Spieckerman, president of retail consultancy firm newmarketbuilders in Arkansas, adds that while it was once common for retailers to make big bets on a single property, they have been hesitant to do so for several years. “The Star Wars release may have signaled a shift back to taking an all-in approach. This is great news for the rare property that can drive that kind of multi-category, multi-retailer impact and interest,” she says.

Not only is Star Wars a very strong multi-category property, the anticipation and build-up to the theatrical release was amplified by a carefully executed and impeccably choreographed Force Friday marketing campaign that launched September 4.

“Star Wars pulls in a non-traditional customer (adults, in many cases), collectors and nostalgic parents buying for themselves. That is creating traffic in a category that doesn’t naturally exist in a normal year,” says Stephanie Wissink, managing director and senior research analyst at Minneapolis-based Piper Jaffray.

Richard Gottlieb, president of New York’s toy industry consultancy Global Toy Experts, agrees. Jogging his memory, he recalls that when the first film came out in 1977, action figures were sold out everywhere. In response, its original toy licensee, Kenner Products, began selling empty boxes with certificates that were redeemable for a real product when it became available. Those empty-box kids are now in their 40s, likely with children of their own, which means you’re going to have both adults and children buying products.

“That is driving an enormous amount of action into the toy department,” Gottlieb says, along with the increased collectibility factor of the original cast—Hans Solo (Harrison Ford), Luke Skywalker (Mark Hamill) and Princess Leia (Carrie Fisher)—being reunited on-screen.

But it wasn’t just the irresistible pull of the Force that enticed more and more buyers into the toy aisle. A very strong slate of toyetic movies like Jurassic World, Minions and Avengers: Age of Ultron, coupled with other collectibles such as Shopkins, LEGO blind packs, Mattel’s mini-Minecraft toys and Funko Pop licensed characters that helped to propel sales, says Juli Lennett, toy industry analyst for NPD. “The classic play pattern of collecting just seems to be doing really well this year,” she says. “Some of the evergreen properties like Nerf and Play-Doh, which have been around for a really long time, also grew pretty substantially this year.”

Hulk

Toyetic movies helped smash US toys sales records

But there were also some surprises, like girl-skewing Shopkins. Sales of the collectible grocery-themed line by Australia’s Moose Toys have surpassed US$100 million in North America since its launch in 2014. The property is now licensed in a raft of categories globally, and Toronto’s Nelvana Enterprises is developing an animated Shopkins series for spring 2017.

One thing these brands all have in common is that they also have digital lives, which has become a key piece of the puzzle to drive demand for physical toy sales. The fact that kids can engage with content around the clock, binge-watching clips on YouTube or through mobile gaming, means they are becoming more invested in their favorite brands and characters than ever before, notes NPD’s Lennett.

“They want to have that physical experience with them in addition to the digital experience, and I think it’s really showing in toy sales,” she says. Piper Jaffray’s Wissink adds that anytime a brand ties in content, whether it’s Paw Patrol, Star Wars or Frozen, it tends to out-perform the competition.

In fact, the rise of technology, which many said spelled the end of traditional toys, has actually led to their resurgence. Tech innovations have simply made them more engaging for today’s digital natives.

“Instead of making trade-offs between categories, technology and toys are merging together to create a kind of power-category,” says Spieckerman. “As smartphone technology becomes more advanced, it will drive sales in toys that can be controlled by smartphones, for example,” she contends. “The linkage is quite powerful and not at work in other categories, such as apparel, which is one reason why it continues to struggle.”

Lennett says those types of meaningful technological connections were a key contributor to increased toy sales in 2015. “Manufacturers have really done a tremendous job incorporating technology into toys,” she says. “I think they struggled a little bit years ago with just trying to stuff technology into toys, but now it’s more natural.”

From Sphero’s scene-stealing app-enabled BB-8 droid, to Hasbro’s FurReal Friends StarLily My Magical Unicorn (which responds to voice and touch with more than 100 motion combinations), there were a lot of toys that incorporated technology in interesting ways this year. “And as a result, price-points of toys are a little higher, which is going to increase the basket size in the industry itself,” Lennett adds.

Pulling it all together, Spieckerman says the toy industry has benefitted from the success of blockbuster films and key technological innovations like speech recognition, which make toys more engaging and interactive. “The combination is enough to move the needle,” she says.

But that’s not all. Retailers and marketers, for their part, have also stepped up their game. For example, Disney and Toys”R”Us have both harnessed the unboxing movement by hosting in-store unboxing events. TRU has also created its own videos featuring toys unboxing other toys, says Spieckerman. “Retailers and licensing companies are evolving promotions into relevant and engaging programming,” she says. “I expect to see more clicks-to-bricks innovation as retailers latch on to digitally based viral movements and translate them into store-based retailtainment opportunities.”

Despite the relentless onslaught of technology and the advances it has brought to traditional toys, its ubiquity in all aspects of our lives is also leading many to seek out digital detoxification and the comfort of traditional board games.
Wissink says that five or six years ago the big idea floating around was that mobile would replace the traditional gaming category. But mobile is now extending the value of some of those properties into a separate experience and reinforcing the value of communal and social play.

“People are spending so much time on their mobile devices that they’re actually craving the exact opposite thing at the other end of the continuum—putting mobile devices down and actually playing a game together. So we’ve seen the games category perform quite well recently,” she says.

To Wissink’s point, Muller says that alongside traditional games, another area that’s been growing in spite of the tech-takeover is the hobby channel. According to Muller’s retail panel numbers, hobby sales have increased by 51.5% from 2013 to 2015, and they now sit at more than US$1 billion.”This is a very interesting category in the sense that it’s not in the regular toy store. It’s in a sort of small one- or two-door games store that caters to the community of trading card games,” he says.

Moreover, Muller adds that with the US economy starting to bounce back to pre-recession levels, the category that has benefitted the most is preschool. When the economy tightened and disposable income shrank, more parents were opting for cheaper preschool toys, he contends. “A two-year-old child will play with whatever toy you give him or her. It doesn’t make a difference whether the toy costs US$5, US$10 or US$50,” he says. “I see preschool growing fairly significantly over the next few years.”

Whether you’re talking technology or traditional toys, book or video games, or preschoolers to tweens, there’s one company with an unmatched ability to lead many platforms.Surprise. It’s Disney. “You name it, and they’re there,” Gottlieb says. “They really know how to market across platforms. They’re just really huge in this space.”

Gottlieb says he thinks Hasbro gets it, too. “They understand the market as it is right now, and that’s why they went after the Star Wars franchise,” he says. Notably, Hasbro holds the licensing rights for Star Wars toys until 2020.

As for the other big players, Gottlieb says LEGO is simply a very smart company, while former market-leader Mattel is in an interesting proposition. Declining birthrates had adversely effected sales of preschool brand Fisher-Price; however, they are trending upwards now.

According to the US Centers for Disease Control and Prevention, there were 62.9 births for every childbearing-aged woman in the US in 2014, an increase from 62.5 in 2013 and the first bump since 2007. Fertility rates (the number of kids a woman is likely to have in her lifetime) also nudged upwards from 1.858 to 1.862 children in the same period.

“That should be helpful for Mattel, because it’s a great brand and nobody is even close to Fisher-Price,” Gottlieb says. “And Barbie—they know they have to do something, and I think they’re figuring it out.”

The companies that have performed the best in the current climate are the ones that have dealt with changing demographics, which includes the growing number of non-Caucasian kids, notes Muller. The US Census Bureau predicts that by 2020, more than 50% of American children are expected to be part of a minority race or ethnic group.

“Companies like Disney, which have dealt with the realities of demographic shifts and how children want to play, don’t need that bright line between what’s digital and physical,” Gottlieb says.

However, as some manufacturers have discovered, the kids industry is not all rainbows and unicorns. If you’re a change agent, you cannot remain stagnant. You need to be continually evolving your product.

According to Wissink, companies like LeapFrog, VTech and nabi are having a hard time reconciling how to offer value while still being able to compete with the likes of Apple and larger tech companies.

“If Apple can offer something for a relatively comparable price, or if adults are upgrading to newer versions and are handing down old tablets to children, the relative value in the minds of the consumer to buy another tablet for their child is not valid,” Wissink says. “I think it’s been a pressure point, and some of these companies haven’t necessarily taken it upon themselves to evolve and to think about the content side of their business as much as the hardware side.”

In 2015, a number of factors discussed—including the emergence of a number of strong, toyetic entertainment properties—coalesced to make for a banner year. But analysts caution to take the performance more as an anomaly, with a grain of salt on the side.

“Over the past 10 years, with the exception of 2004, which was up 4%, it’s been up or down in between 1% and 3%,” Lennett says. “I’d say that’s probably where it’s going to land going forward.”

Wissink agrees. “Once we lap Star Wars and get into the out years, we’re probably going to see some moderation in that growth rate. I don’t think it’s expected to stay at the current pace,” she adds.

For Spieckerman, growth will be determined by the convergence of several factors, rather than any single element. For example, powerful movie releases like Star Wars will undoubtedly drive big product sales, but it’s not realistic to expect a string of blockbusters throughout the year. (Just don’t tell Marvel and DC, which have bet the farm on a combined eight superhero flicks this year.) “Technological innovation can pick up some of the slack, but it won’t drive sustainable growth alone,” she says.

Add Minions and stir. With strong licensees in tow, evergreen toys like Play-Doh experienced serious sales growth in 2015.

Evergreen toys like Play-Doh experienced serious sales growth in 2015

When asked for his thoughts on whether or not this year’s growth rate is sustainable, Gottlieb quickly said “no,” and then let out a big laugh. “This is a major, major event. Like once in a decade. 2016 won’t be horrible, but in comparison to 2015, it’s going to be really, really tough,” he explained.

And as for the US$4-billion toys-to-life category, which according to The NPD Group grew by 48% between 2013 to 2015, Gottlieb says it will need to evolve if it has any hope of going the distance. “I don’t think they can just continue to do what they’re doing. I think the physical part of the toy is going to need to do more when they’re not on the platform,” he adds.

For his part, Muller foresees much stiffer competition in the hybrid toy arena going forward. “I expect that somebody, and I hope it’s Mattel, is going to come out with a fashion doll toy-to-life entry, because I can’t think of anything more attractive than a Barbie sort of house with Barbie and Ken in it doing all sorts of stuff together. That could be a game-changer in the fashion doll space,” he says.

On the topic of dolls, Wissink believes there are some really interesting things happening right now around the STEM (science, technology, engineering, math) movement. She points to MGA Entertainment’s tween girl Project Mc2 brand, which includes a doll-driven toy line and is supported by a Netflix series. “This whole idea that girls can be things like scientists, engineers and mathematicians connects with consumer rationale. Moms want to reinforce development as their children are learning and playing,” she says.

Gottlieb singles out Mattel’s just-launched Hello Barbie, the wifi-connected fashionista that can play games and converse with kids in real-time. “I think it’s a harbinger of the future,” he says, describing the empathic robot that remembers what kids say and engages them emotionally. Going forward, he expects to see more artificial intelligence, augmented reality, drones and new ways of engaging play that bridge that physical-digital divide.

And of course, front-and-center of the tech-toy takeover will be the Star Wars franchise, which has a new movie slated for release every year until 2020. Through droids, spaceships and lightsabers, the interstellar property is a natural fit in the tech-toy aisle. Products like Air Hog’s Millennium Falcon drone (Spin Master) and Sphero’s BB-8 droid have so far been huge hits with fans of all ages.

Additionally, there’s the franchise’s best kept secret, female protagonist and hero Rey. The scrappy scavenger from the planet Jakku emerges as a leader against the Resistance and discovers her innate powers, and she has done wonders for Star Wars’ popularity with girls.

In fact, Lennett says one of the biggest trends to keep an eye on over the next few years is the growth in female-led superhero properties such as DC Super Hero Girls, Miraculous–Tales of Ladybug & Cat Noir, The Powerpuff Girls and Mysticons, all of which will have products at US retail by 2017. (See Kidscreen’s October issue for in-depth coverage.)

“I think it’s going to be an interesting trend to watch and see how girls react to these action figure-type properties developed for them,” she says.

If the recent #WheresRey social media backlash over the Star Wars heroine’s omission from a figurine pack at Target and the latest edition of Star Wars Monopoly—as well as her lack of cross-category representation when compared to male characters like Finn and Kylo Ren—are any indication, the demand for female superhero merch will be a force to be reckoned with.

About The Author
Patrick Callan is a senior writer at Kidscreen. He reports on the licensing and consumer products side of the global children's entertainment industry via daily news coverage and in-depth features. Contact Patrick at pcallan@brunico.com.

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