Although toys are the marquee product at the American International Toy Fair, they are really just the focal point of a much larger panorama of marketing strategies, entertainment programs and emerging cultural trends that are on display at the annual event in New York City. Toy manufacturers are now closely associated with a variety of other industries, from production studios to marketing companies to ad agencies and retailers. As a result, Toy Fair has become a kind of bellwether of upcoming trends and a place where a wide cross-section of people come to shop not just for toys, but also for insights into what’s new and hot.

* * *

Licensed product has been a prime driver of the retail toy business over the past several years. But is it too much of a good thing?

As more and more entertainment companies try to earn ancillary income with licensed goods, the glut of product available may be undermining the strength of the overall licensing business. Due to disappointing sales of certain overhyped licenses that have burned retailers with excess inventory, buyers are growing more choosy about the lines they will support. And that means less is more.

‘It’s difficult because of the amount of choices that kids have immediately at their disposal,’ says Michael Tabakin, director of trend merchandising at Toys `R’ Us. ‘There are so many major releases happening so frequently that it is hard for a kid to build up an allegiance to a particular property when he is already being wowed by the next property.’

Licensed product sales ebb and flow based on what entertainment properties are in the marketplace. Establishing inventory positions on licensed products is complicated because there is no way to judge the demand until the movie is in theaters and toys are on the shelves.

Everybody would like to duplicate the success of The Lion King or Jurassic Park, or build the long-term equity of Star Wars, which put toy licensing on the map two decades ago, but the hope of achieving similar success has raised expectations often to unreasonable heights. Close-out tables are littered with licensed product that didn’t move.

‘Manufacturers and retailers view licensed product with a higher risk than before and may limit themselves to one or two licenses rather than four or five,’ says Lynn Rosenblum, president of the toy industry consulting firm Toy Power. ‘Licensors should scale back choices, make the expectations more reasonable and make the marketing programs more comprehensive so that a license makes strategic sense and is not just slapped on a product to create more hype.’

Concurrently, if a licensed toy isn’t creative, interactive or fun, kids won’t be interested in it. ‘There are a lot of situations where there’s a lack of innovation,’ says Tabakin. ‘You can tell within 15 minutes of looking at a licensed line whether there’s anything innovative for a kid to interact with.’

Non-licensed toys are still the bread and butter of the retail industry. On average, they account for over 75 percent of Toys `R’ Us’ annual sales. Products like bikes, baby dolls and seasonal items will always deliver strong sales and profit margins. The success of Tamagotchi and Beanie Babies proves that new non-licensed toy ideas can become breakout hits.

That said, retailers are clearly bullish about licensed product, especially since they can ride the promotional coattails of the movie studio and its promotional partners. ‘The impact of licensed product on the boys area is just incredible,’ says DeWayne Booker, senior vice president of marketing at Trendmasters, master toy licensee for the upcoming Lost in Space and Godzilla. ‘Without a major event, it’s very tough to create a new brand in boys because the sales of boys action toys are so heavily driven by motion picture and TV events.’

The cost of launching a new brand takes a huge commitment on behalf of a toy company. Ken Abrams, director of domestic licensing at Viacom Consumer Products, estimates that manufacturers need to put US$2 million to US$3 million behind a new item launch, and that they will only commit to it if they believe they can do between US$20 million and US$30 million in gross profit. ‘The only way to do that financially is to have the promotion of a movie or TV show behind it,’ he says.

A growing number of people believe that the overproliferation of licensed product is driving consumers in a different direction, as proven by the success of specialty stores like Zany Brainy and Noodle Kidoodle, which stock limited licensed product inventory. ‘Not carrying licensed product is consistent with our message,’ says Stanley Greenman, chairman and CEO of Noodle Kidoodle. ‘We carry educational, interactive, creative products that you can’t find in the mass market.’

Specialty stores have become havens for smaller manufacturers who are developing some of the more innovative ideas in the market, because they don’t have to rely on the marketing dollars and volume needed to promote items on a mass-market basis.

As the retail industry gets smarter about the licenses it supports, it will mean better business for everyone. In the end, it all comes down to consumer tastes. ‘Licensed product will continue to grow as long as the content produced is supported by kids. If kids love it, they are going to buy product,’ says Tabakin.