UK Toyfair 2023 Review

2023 UK Toyfair Review

Having missed 2022’s comeback UK Toyfair due to contracting Covid 2 days before the show, I took extra pleasure in strolling along the aisles of the 2023 show. Glowing - almost euphoric - LinkedIn comments suggest that I was not alone among the UK & visiting international Toy & Games fraternity to experience a real high at this year’s show.

When you have been around a while at these shows, you do tend to have to remind yourself that you aren’t just there to catch up with friends and colleagues you have known for decades! I constantly had to remind myself to focus on current business when speaking to people I have known a long time and missed speaking with due to Covid-19!

Overwhelmingly the feedback on the UK Toy & Games market was that 2022 was a tough year & that 2023 is looking equally tough. There may have been some companies who had a great year, but I didn’t meet any of them…In fact one of my longest standing connections in the business suggested that ‘While everyone had a crap year in 2022, we had an even crapper year than everyone else.’ The reality is that while many people were delighted to be back doing what we do and reconnecting with people, the business environment for the UK Toy business is really tough.

Those of us who were around during the global financial crisis remember tough times - but the difference back then was that some people were out of work, but many people weren’t. Retail had a bad time, but mostly on other categories, which of course affected their overall trading strategies and how much pressure they put on suppliers, but Toys still performed ok comparatively speaking. This time round inflation is squeezing everyone…inflation is like a stealth tax whereby the UK government in this case can devalue the massive debts they racked up funding the economy and preventing widespread destitution through the Covid-19 pandemic. The challenge with this approach to getting out of trouble is that it significantly reduces disposable spending for consumers as wage rises generally lag behind price rises.

For the first time in my career of more than 25 years, inflation threatens to do that which we thought couldn’t be done – to tangibly reduce demand and overall spending for Toys & Games. The reality is that when a market stays static or reduces slightly in market size as the UK market has done, it is hardly a disaster, but if the market is down a bit in £value AND inflation is 10%+ in the economy, then in ‘real’ value as opposed to ‘actual’ value the market has decreased significantly.

Still though, parents still bought Toys & Games for Christmas 2022, they just seem to have bought a few less and perhaps spent less on the ‘big’ presents for their children. This is hardly as big an issue as many travel and entertainment businesses faced during lockdowns with the complete closure of their industries. Nevertheless though it does look like we are working our way through some of the toughest of times in living memory for our industry.

On a brighter note - the good news is that alongside the prevailing Sustainability theme, the other major theme and opportunity which was very prominent at UK Toyfair 2023 was companies working out how they can adapt their approach and product offerings to embrace the massively under exploited ‘Kiddult’ market. I expect that pivot to be a major feature of the Toy business for at least the next 5 years. And so every cloud has a silver lining, and regardless of how tough business is for a lot of people and companies right now, it certainly was great to reconnect at the 2023 UK show. Many thanks and congratulations to the organisers at the British Toy & Hobby Association…and now the show rolls onto Nuremberg…

Our company is a globally facing Consultancy helping Toy & games companies. Our services include Export Sales Consultancy, Consumer Playtesting research, Mentoring, Board advisory and more – more details here: www.KidsBrandInsight.com/services

INFLATION IS HERE TO STAY – IMPLICATIONS FOR THE TOY & GAMES INDUSTRY

INFLATION IS HERE TO STAY – IMPLICATIONS FOR THE TOY & GAMES INDUSTRY

Welcome to Episode 1 of this Newsletter (originally published on Linked In). We have been publishing an email newsletter for ten years at this point, with subscribers from across the toy & game business receiving regular updates on market trends, practical tips on various topics and any other musings we throw out there into the ether! Looking forward to sharing knowledge and toy & game related content with more people via this publication.

PLEASE NOTE: Links to our latest published podcasts and articles are listed at the end of this newsletter.

INFLATION IS HERE TO STAY – IMPLICATIONS FOR THE TOY & GAMES INDUSTRY These are crazy times for the world, and more specifically for the toy & games community. Economically major economies were already in a mess due to the pandemic. Most ‘western’ governments got through that and the heavy funding required by printing unprecedented amounts of money, which inevitably leads to high inflation. On top of that we also have significant restrictions of supply of key elements of our business including container ship capacity versus demand and even that most basic of basics – paper. This is exacerbating a high inflation situation which looks unlikely to be abated until central banks really bang up the base interest rates. The issue with that though of course is that coming out of the pandemic, governments owe massive amounts of money, so inflation is actually helping them in the sense that by effectively devaluing what they owe, they are reducing the ultimate burden to be paid. It’s a bit of a lose-lose situation now economically speaking, because western governments are major debtors themselves.

By way of illustrative example, before the pandemic the UK governments 5th biggest area of expenditure was interest payments – note that is not paying off any capital even – which means the UK was already spending more on paying interest than they spent on Policing & law and order So, the reality is that governments have limited ability to tolerate the high interest rate rises which would be required to get control of inflation. The best they seem likely to manage is a few fractional increases spread over time as a token effort. What this means for the toy & games business is that we are very likely to see ongoing and even increasing inflation in most western markets throughout 2022, into 2023 and maybe even beyond. So, get ready for an ongoing cycle of awkward and contentious conversations with retailers about price increases and shifting price points upwards. We should also be building inflation into future profitability calculations. I have argued for a long time that toy price points were artificially low anyway – purely as part of an academic study (ahem!) I tracked the price of one of my favourite consumable products – Beer - and compared it with toys over the last 20 years, and while Beer in my native UK had gone up in pricing more than 300%, toy price points had hardly changed. So, I don’t see the increase in price points as a massive risk to sales volumes – it’s proven after all that families will not cut back on buying for their children at Christmas even when times are quite tough. What we should see as a larger concern however is the rise in other living costs for consumers – heating bills, cars, pretty much everything they can buy will cost more – some households will have to adapt their lifestyles accordingly, and that might act as a brake on toy & games business growth to a greater effect than rising products in our product categories, as consumers still buy for their kids at Christmas, but maybe buy a few less toys or buy the same but at lower costs. This certainly seems like a good time for toy companies to have lower price point toys in the range as well as higher priced products.

The terrible war in Ukraine is not going to help the inflationary pressures either, primarily due to the accompanying rise in oil prices. Oil prices are forecast to remain over $100 per barrel on average for the rest of 2022. To put this in context, oil prices during the months of peak toy production in 2021 were at around $60-75. Plastic raw materials are one of the primary inputs into toy production costs, so this is not going to help at all. The reason for oil’s rise currently is due to the heavy sanctions and restrictions placed on Russia after its invasion of Ukraine & subsequent carnage. Russia is one of the major oil producers globally with 12% supply, and the oil business is heavily reactive to reduced output and exports from anywhere in the supply chain. It’s hard to predict when the oil price will shrink back again, but analysts are increasingly thinking it won’t be in 2022. So again, another major inflationary factor – raw plastic materials costs looks likely to be high throughout 2022.

This all seems very gloomy so far, and I would prefer to find the light in the dark where possible…so, if you’re looking for the silver lining in all these clouds there are two that I can think of: 1. All things pass – demand outstripping supply eventually reverses, leading to reduced prices. While this does not look likely in 2022 and maybe even 2023, it will come eventually. And perhaps we will have higher price points with a reducing cost base (might be wishful thinking, but it is a possibility!). 2. The toy business needs to shift away from oil based/non-bio-degradable plastics over the next few years due to environmental concerns and consumer backlash over ‘Green’ issues. As a result, we may see cost differentials between oil based and bioplastics diminish, while we also see increased price points which may allow for a natural shift to bioplastics, even if the process of that shift being accelerated is uncomfortable. That’s all for this edition of the newsletter, but we’d also like to share links to our other recently published content. All of the following content, which includes access to literally hundreds of articles & podcast episodes is provided for FREE to help support companies and people in the Toy & Games business:

PLAYING AT BUSINESS PODCAST This is our flagship toy & game business podcast, we have interviews with people from across the toy business, I also share my knowledge based on 20+ colourful years in the toy & game business including Consulting for hundreds of toy & games companies. We currently have 66 Episodes of this podcast live. Recent topics covered include: · Ep 66 – The 10 Biggest Changes In The Toy Business · Ep 65 – The Business Of Licensed Toys · Ep 64 – How To Approach The European Toy Market · Ep 63 – Key Elements Of Successful Collectable Toys · Etcetera! Click this link to go to the Podcast page to listen: https://playingatbusiness.libsyn.com/ Also available on leading Podcast platforms including Apple, Stitcher, Podchaser, Alexa & many others.

TOY INDUSTRY JOURNAL Our toy industry blog. Recent articles published include: · The Global Economy At Risk Due To China’s Covid Lockdown & War In Ukraine · Lego Full Year 2021 Results Analysis · Does The Impending Growth Of The Metaverse Threaten The Future Prosperity Of The Toy Business? · China’s Birth Rate Drops To A 61 Year Low – Implications For The Toy Business To read all these articles and many more for FREE, just visit this website: https://www.toyindustryjournal.com/

SPIELWARENMESSE.DE This year marks a decade since I began writing articles for the Blog of the world’s largest (and my own personal favourite) toy trade show, held annually in Nuremberg, Germany in late Jan/early Feb. You can access 17 articles published by Spielwarenmesse, written by myself about various elements of the Toy & Game business here: https://www.spielwarenmesse.de/en/author/steve-reece

THE TOY BOOK Read our latest article published by the USA’s most prominent Toy trade publication here: Why Toy Production Is Ebbing Away From China: https://toybook.com/why-toy-production-is-ebbing-away-from-china/

TOY SOURCING: THE NEXT 10 YEARS Here's our Video presentation outlining why toy production is ebbing away from Chna & what the future of toy manufacturing looks like: https://www.youtube.com/watch?v=IR3kBOd12ss

Transitioning Out of China’s Zero Covid Policy: Implications For The Toy Business

Transitioning Out of China’s Zero Covid Policy: Implications For The Toy Business

Big moves in China recently with the government finally softening their stance on Zero covid. As the rest of the world has been out of hard lockdown protocols for some time, the obvious question is why did China take so long to reach the same position that most of the rest of the world reached a year or more ago?

One of the major challenges for China has reportedly been the inefficacy of the non-mRNA vaccines deployed in China – an article in The Guardian newspaper in the UK suggested that the effect of China’s deployed vaccines did not last with hardly any evidence of any active effect 6 months after vaccination. To add to this, the article further suggests that only 40% of those aged over 80 years of age have been vaccinated, and the overall booster rate estimated at c. 68% versus Japan’s rate of 90%. [1] In addition to all this, due to the Zero Covid policy, estimates suggest that a mere 1.5m of China’s c. 1.4 billion people have had Covid so far – compared with an estimated 90% of the UK population by way of comparison.

But surely China will get through this – other countries have done after all – so what’s the problem from a Toy business perspective?

The major challenge here relates to 2023 peak season Toy production. China still produces the majority of the world’s Toys, albeit with an ebbing away of market share over time. We can reasonably expect that China will go through a significantly serious Covid wave which could last through to the annual mass movement of population that happens at Chinese New Year and due to the lack of Covid immunity could wreak havoc on China’s population and economy. Our business has long been used to seeing factory labour forces disappear off back to their distant homes and away from the major manufacturing zones around the Southeastern coast of China. This time though, many will take Covid back home with them. Others still may be reluctant to return to manufacturing working with thousands of other factory workers in confined conditions until Covid waves clear and the situation calms down. Replacing labour after CNY has often been a problem, but when the country is currently an estimated 20 million factory workers short of what demand requires, we can see how any further significant drop off in labour availability could have implications on peak season Toy production.

Moreover, we can surely expect that even when the first wave clears more waves will come, and they could be hitting at just the point in late Spring/early Summer when production is most ramped up for Toy manufacturing.

In conclusion then, it looks like we could see another disrupted year for Toy supply chains in China.

We run a Strategic Toy Sourcing Consultancy – www.ToyTeamAsia.com through which we have helped dozens of clients to review their vendor base and to reallocated production to other geographies. Please get in touch for details of how we can help you manage the ongoing shifts in Toy manufacturing.

[1]https://www.theguardian.com/commentisfree/2022/nov/28/china-abandon-zero-covid-protests-mass-vaccination