RETAIL SCENE - Construction toy recalls

Recalls have rocked the US construction toy category again, with the unfortunate Mega Brands suffering more than most. Lutz Muller examines the prospects for the sector and the players within it?
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Mega Brands had another major recall recently, its third in so many years. All three recalls involved magnetic construction toys, hence the entire construction category.

It begs the following questions: what does the most recent recall do to the magnetic toy area, and is the entire construction toy area, including non-magnetics, affected by this?

How is the category and the major players within it doing?
And what is the outlook for the rest of the year?

To answer the first question, I spoke to buyers at mass retailers. They all basically believe the magnetic toy market has been severely, if not fatally, hit by the most recent recall and it will not recover this year. At best they see for this year, half of last year’s sales volumes. This severely affects Mega Brands since it basically owns the market, after Geomag SA went into the Swiss equivalent of Chapter 11 a few months ago – although it is shortly to re-emerge, it says.

As to the second question, the effect of the last Mega recall won’t affect the non-magnetic toy area; in fact, it could benefit it by driving would-be magnetic toy consumers to the non-magnetic construction area.

However, this may not include Mega as some buyers think the entire Mega product range will take a major hit, with the beneficiaries likely to be Lego and K’Nex.

The category overall suffers from the same malaise as the rest of the toy market. As I predicted, economic problems affecting most consumers, but mainly the lower to middle income strata, which represents the majority of the consumer group, has resulted in a universal belt-tightening.

First quarter numbers from my retailer panel suggest the entire market went south by some five per cent, affecting speciality more than mass. The construction category by itself is pretty much in line with the rest of the market.

So what does the rest of the year look like? If we assume the toy market, and with it the construction category, will at best be flat this year, sales will be a zero-sum game – a brand will grow only at the expense of another brand. We will have to see whether the most recent decline in Mega’s market share sets the pattern for the firm for the rest of the year.

My betting is it will for two reasons. The first is the Mega name is slowly becoming synonymous with recalls, at least as far as the shop floor people in my retailer panel are concerned and they are more influential in consumer choices than what one assumes.

The second reason is buyers are becoming very cautious in giving Mega shelf space. As one buyer said to me: “Now I do not know when the next recall is going to happen and I do not want to have empty shelves this Christmas just because Mega has had another problem.”

This, incidentally, may be the reason why, at the beginning of April, Mega’s Iron Man products weren’t on the shelves, while Hasbro’s action figures had been very visible in key retailers for a number of weeks.

I would predict both Lego and K’Nex will increase their market share at the expense of Mega.

Lego will be aided by two factors: its ongoing momentum and having three good toy licences this year – Speed Racer, Star Wars and Indiana Jones.

As for K’Nex, it has the cachet of being a US firm, which produces totally in the US. This is likely to resonate with an increasing percentage of consumers – one group who continue to worry about toy safety and another group who are opting to buy American products over anybody else’s.

Lutz Muller is a Swiss who has lived on five continents. In the US, he was the CEO for four manufacturing companies, including two in the toy industry. Since 2002, he has provided competitive intelligence on the toy and video games market to manufacturers and financial institutions coast-to-coast.



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