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Toyland is not as fun as it used to be, at least not for some retailers. Like other categories, the toy business is under siege, and experts expect an inevitable consolidation of retail players, and brands. "Due to financial and operating challenges at Toys "R" Us and K*B toy stores, retail is changing dramatically as Target and Wal-Mart establish their dominance in the sector," says David Luner, v.p., licensing Americas at Fremantle Media Enterprises in New York.
"The retail environment continues to undergo consolidation and mergers," says Kelly Gilmore, s.v.p., global toys and themed entertainment at Burbank, Calif.-based Warner Bros. Consumer Products. "In addition, Wal-Mart's growth continues, adding price pressure to other retailers. Both factors will likely result in more heated price wars and a retailer focus on obtaining exclusive product offerings."
As the category killers lose their foothold to mass retail, however -- not only on the shelves, but also in consumers' minds -- the trend might bode well for supermarkets. Grocery chains and other large retailers now have the chance to place more emphasis on the category and carve out successful businesses based on their unique competitive advantages.
"Factors like convenience, speed, and demographics will allow retailers who are not traditionally known as toy stores to capture a profitable segment of the market by capitalizing on hot trends, seasonal opportunities, and everyday toy purchases," explains Eric Levin, e.v.p. of Techno Source in New York.
Phil Jacobs, s.v.p. sales at Costa Mesa, Calif.-based Playmates Toys, has also witnessed this shift of toy sales away from the category specialists to other channels. "These [other channels] are retailers we've done business with for a number of years, and they will probably have a greater share of the business in five years than they have today," he predicts.
One item of debate is the evolving role of brands in the category. Freemantle's Luner sees larger mass retailers as big proponents of "brand statements" vs. "items." Some suppliers, meanwhile -- even those with well-known brands -- warn against discounting the smaller players.
While Warner Bros.' Gilmore says the major brands, such as Barbie and Hot Wheels, will remain in demand and will likely produce even more intriguing products, retailers are increasingly pursuing the category with an eye toward their own brands. "The days of the 800-pound-gorilla brands are waning, as many retailers are turning to private label options," she says. "These trends will likely fare well for the consumer as these retailers start offering a wider array of less expensive products."
The larger brands have their benefits, however, especially when the brand is tied to mass media entertainment. Hit Entertainment of Allen, Texas is an example of a company that leverages its brands across a myriad of consumer channels, such as toys, video, music, books, and even apparel.
Owning the rights to such household children's brands as Barney, Bob the Builder, and Thomas and Friends, the company often uses one medium to promote another. For example, a new Barney series will begin on Nickelodeon, followed months later with a road show tied into a video and toy release. Merchandisers, developed around the show's theme, display videos and toys together. In addition, partnerships with snack manufacturers extend the brand into other areas of the store until it's impossible to miss -- whether at home or in the aisles.
Retailers can expect these kinds of media tie-ins to increase, according to Jamie Cygielman, s.v.p., Hit Entertainment-Consumer Products U.S. and Latin America. Because of this, it's increasingly important for brands to provide direct input into broadcast and scheduling of content.
"We have partnered with Comcast, PBS, and Sesame Workshop to create a 24-hour digital preschool channel and companion video-on-demand service, set to launch in 2005," says Cygielman. "This will secure long-term broadcast for our Hit properties."
David Scroggy, v.p. of product development at Dark Horse Comics in Milwaukie, Ore., sees an increasing number of tie-ins between films and toys, and expects the windows at retail for filmed-entertainment-based toys to get tighter. Unfortunately, he also sees cost of the licenses growing. "We anticipate more failures than successes due to this, regardless of the box-office success of the film, and envision a real shake-out among toy licensees of these properties," he says.
Still, one can't write off the potential of those new ideas, such as the Mighty Beanz, which became so popular during the 2003 holiday season that retailers found themselves short on inventory. To ensure that the item would be available in his stores, Hy-Vee's v.p. of general merchandise, Jon Wendel, actually flew to China to source directly from the manufacturer.
"This illustrates the age-old reality that keeps our industry alive, and that is that the only predictable aspect of the toy industry is that it is unpredictable," says David Davenport, general manager, the Americas for Chicago-based Corgi USA. "Many times these blockbusters come from smaller companies that are opportunistic, aggressive, and lucky."
Indeed, Barney originally started as a costume created by a mother to entertain her child at home. Now the purple dinosaur is one of the most recognized children's brands in the country. Vigilant general merchandise buyers who catch the trends during their formative stages stand to blow out their numbers.
Technology-based educational products are another trend, even among the preschool audience. "Portable DVD players for adults have been adapted for children," says Davenport. "This is the same for portable music players, which have been hot and would also translate well into a version designed for preschoolers."
"Certainly technology-based and educational toys should continue this growth in the coming years," concurs Warner Bros.' Gilmore. "You will also likely see a larger presence of technology and electronics in lower-priced items as the cost efficiencies continue to improve."
This is not to say that the days of Barbie and Beanie Babies are numbered. Gilmore expects dolls, cars, plush, action figures, playsets, preschool toys, and other traditional play-pattern toys will always have a place on the shelf.
Sell, sell, sell
With such a large variety of toys available for every market, it's important that retailers find the right mix for their shopper demographics that differentiates their program from those of the next retailer.
Important to this is finding a supplier that is acutely aware of the distinctions between the consumer segments that different retailers target, says Techno Source's Levin. "When we do our product planning, we take each of our channels' specialized characteristics and needs into account from day one," he says. "Often this means custom price points, margin requirements, packaging expectations, and product size."
Dark Horse Comics' Scroggy even adjusts his business and staff to meet these needs. "We have confidence in our ability to understand a certain kind of consumer and to select properties and creative talent that are right for that market," he says. "The ones who are ahead of the curve will do the best, although traditionalists may think they're nuts when the concepts are presented."
Warner Bros. targets consumers in two primary ways. First, it partners with the best and most focused manufactures to bring top products, based on top properties, to the right audience. Second, "We support those partners through our marketing and retail efforts to ensure those products reach the right target in the right location," says Gilmore.
When the right toys are found, strong marketing and promotions must be employed to generate excitement and impulse around these items. Appealing to parents at the point of sale is no longer enough, however.
Debra Joester, president and c.e.o. of the Joester Loria Group in New York, says that product differentiation, targeted marketing -- including viral marketing and promotions with appropriate celebrities and spokespersons -- are effective ways to target consumers. "A lot can be done at the retail level with events, promotions, and exclusive products," she says. "Buzz marketing is increasingly important with children's growing awareness of what's hot at an earlier and earlier age. It's important to remember parents, as well, and parent-targeted marketing and communication are key, especially for preschool and infant products."
Price can't be overlooked, either, says Freemantle's Luner, especially when it comes to the largest chain accounts. "Target and Wal-Mart already get enormous foot traffic on a weekly basis," he says, "so the emphasis is shifting away from driving them to the store, in favor of capturing their attention in the store, with pricing efforts, merchandising, and promotions."
Probably the best thing about the toy market is that consumers will continue to have kids. "You have a new group of consumers each and every year that is eager to learn, explore, and experience the world," says Warner Bros.' Gilmore. "There will always be a market for a great toy."
Greg Masters is managing editor for Retail Merchandiser, a VNU Business Publication.