Winners and losers

Jon Salisbury has seen a few recessions come and go in his time as a toy journalist but, who have been the winners and losers this time around??
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When the dust finally settles on the nightmare that was the global economic slump of the late Noughties, what will we be left with? Will we have learned to be less reckless in our financial decision making, humbled by the trauma of recession, or will we simply pick up where we left off and repeat the same old mistakes as we reboard the gravy train rollercoaster?

There is no lack of journalistic comment on this subject. The media has been consumed by the recession in terms of job losses, falling house prices, business failures and the stock market crash, but what about the brave new future that awaits the toy industry as a fresh decade beckons?

As we all know, the winners write history and the losers read it. So, as I am the author of this piece, it follows that I must have come up trumps as governments bailed out the banks and you are all losers with a capital L – unless you put this magazine down before you read this. More seriously, who has emerged from the Credit Crunch smelling of roses and who has egg on their faces?

According to Nick Austin at Vivid, Lego and Crayola are among the brands that have flourished in the crisis and he thinks that Marko Ilincic should be recognised for finally putting Lego UK back on the map.

Illncic says that modest single digit growth was anticipated, but the reality was about 24 per cent and Lego significantly increased its marketing spend. “Having been through this sort of economic cycle a few times, as a long-established company we knew that’s what we had to do.”

Patting his own team on the back is Flair’s Peter Brown, who says that NPD showed the firm was up 50 per cent in September, rising to seventh place in the market, up from 17th place last year.

“All retailers have benefited from the demise of Woolworths, except those which were not located in the vicinity of a Woolworths store,” comments Toymaster’s Roger Dyson about both sides of the Woeful World of Woolies coin.

“The only retailers I know who are currently having a really tough time are the ROI retailers where there was no Woolworths, an overpriced currency and the toughest trading conditions for decades,” he adds.

Woolworths created a significant number of winners and losers, says Flair’s Brown. “The most obvious losers were the 20,000 or more employees who suddenly lost their jobs – but following hard on their heels were the hundreds of suppliers that not only lost a major supplier, but that also incurred a crippling bad debt. The industry has never before faced a loss of this magnitude and the impact has been far reaching.”

But the demise of Woolworths has provided many recession-hit retailers with an unexpected uplift in sales, particularly those who shared a common High Street with Woolworths and it is not only the specialists that have seen an uplift in sales, with most retailers reporting some growth.

On the other side, it was the big suppliers to Woolworths that have lost out the most. In some categories Woolworths was nearly 25 per cent of the market, so for larger companies this business was irreplaceable, to their great cost. For smaller companies for which Woolworths was not so important, the upturn with other retailers was a sudden and unexpected bonus.

One specialist toy retailer to benefit in the current climate seems to have been The Entertainer and the retailer is planning significant growth over the next four years, hoping to launch up to 50 new stores that will see a new 175,000 square foot warehouse open in February 2010 – almost three times the size of the current warehouse.

In the US, meanwhile, the clear winner on the supply side seems to have been Hasbro and the firm’s move into the cable TV business finally delivered on its boast of being an entertainment company and not just a toy outfit. “It allows – actually forces – us to think beyond the next movie,” says Wall Street analyst Sean McGowan of Needham and Co.

As we all know, lightning can strike more than once in this business and Russell Hornsby, CEO of Cepia, was a clear winner as he was able to recreate the halcyon days of Trendmasters with the success of Zhu Zhu Pets, marketed over here as Go Go Pets by Character Options, shipping almost five million pieces in 2009 and claiming to have developed the little critters and their cages with the economy in mind by keeping their prices below an affordable $20.

Whether that is true or not, they have hit a nerve with kids and parents, who can now own a pet without having to pay for all that food or litter. Says Sean McGowan of Zhu Zhu Pets: “So damn cute, so damn affordable, so damn clever, so damn out of stock.”

With sales of over $300 million, evidence of their scarcity came on eBay’s auction boards. Sellers were offering the pets for prices as high as $40, with the Zhu Zhu mazes and tubes in the $200 to $300 range. It was the Tickle Me Elmo of 2009, said one retailer.

Not faring too well in recessionary US has been Jakks Pacific. The company wrote off a $407.1 million goodwill impairment charge and has seen sales and earnings plunge. And Corgi’s merger with Zindart, Master Replica and Cards Inc. seemed like a good idea at the time, but now more like a trio of cancer patients holding hands. Then there’s MGA, whose ongoing fracas with Mattel ended in humiliation for the Bratz… ahem … creator.

Affordability has played a big part in the recession and consumers have not been shy in buying brands that offer value for money, lobbing all pretence at political correctness out of the window. Nowhere has this been more apparent than at McDonalds. Despite being at the centre of much of the childhood obesity debate, the fast food retailer has seen sales increase.

In every recession, there is always a handful of industries, companies, and products that do well. Whether they help people to find new careers, cut costs at home, or just escape from all the bad news, they can find a way to weather the economic storm or even benefit from it. There is often a silver lining for people who choose to look past the misery of economic downturn and find that there is potential for innovation in adversity.

Another retailer that has benefited from the homemade, artsy crafty trend has been HobbyCraft. According to chief executive Chris Crombie: “HobbyCraft has proved its enduring appeal to a broad cross-section of the population and continues to expand rapidly. Bargains, or at least perceived bargains, are what retailers have been talking about.”

It’s hard to produce a homemade version of a big brand, so retailers have been promoting ranges that appeal to frugal shoppers. After the success of its ‘10 for $10’ toy promotion last year, Wal-Mart expanded its line-up of $10 toys for the holiday season to more than 100 items, working with its suppliers to offer top brands, classic toys and newly released items for $10, including Barbie and Transformers.

With consumers indicating that they were going to spend carefully last holiday season, toy makers, manufacturers and retailers were doing everything they could to bring prices down, says Adrienne Citrin, a spokeswoman for the Toy Industry Association. “Introducing a high-ticket item in this economy when retail spending is down is going to be harder to sell,” she explains.

Retailers were going into the last holiday season with a different mindset than they had a year ago, added Sean McGowan. “No surprise that everyone’s gearing up for a very tough battle.”

With the green shoots of recovery beginning to appear, will we have taken heed of the disastrous path that we all took before so that we don’t repeat the same mistakes? Hey, this is the toy business. I doubt people will do anything very differently. Enthusiasm and limitless passion for the subject matter is what makes us all tick – thank goodness. Life would be dull if it wasn’t for all the fun that makes for the serious business of selling toys.



A week isn't long enough

THAT TIME of year again when I take a few days off, remind my family what it's like to have me around and go away somewhere I can relax.

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