Masters of the Toy Universe : Retail: The big guys have taken over the industry playground.
There are no babes left in Toyland.
The toy industry these days has little room for the weak or unsophisticated. From manufacturing to selling, the big guys rule the playground, and the smaller players can stay only if they are clever and agile enough to keep out of the way.
In the last decade, the toy business in the United States has been a slow-motion Transformer as dozens of companies have merged or gone belly-up, giving the industry a whole new physique.
Leading toy makers have gobbled up smaller ones. On the sales end, discount store chains and Toys R Us--master of the toy-selling universe--have shoved many other retailers aside. Big toy makers are delivering more of their products directly to the big toy sellers, cutting out large wholesalers and distributors along the way.
There is no imminent danger of a monopoly, however, either at the manufacturing or the retailing level. No single player is putting hotels on the board yet. (None controls more than 22% of its market segment.) Still, as the industry clumps into teams according to size, toy shoppers are finding their options more limited.
Once, consumers could find a variety of toys year-round in nearly every kind of store--from corner dime stores to mall-inhabiting chains to downtown department stores. Now, however, the close relationships between manufacturers and retailers determine which toys are sold where and when.
To buy the most popular toys--the ones kids begin begging for right after watching the Saturday morning cartoons--shoppers generally have to go to one of the Big Five--Toys R Us, Wal-Mart, Kmart, Target and Kay-Bee. Last year, those retailers sold nearly half of all toys bought in the United States--a market that industry experts put at between $11 and $17 billion a year, excluding video games.
Only large stores selling high volumes of merchandise can afford to match the discounters’ low prices, shutting retailing’s tykes out of the market for the best-selling products.
Large wholesalers used to fill in the gap for smaller stores by buying in volume from the toy makers and distributing the products to many independents. Now, wholesalers are small and deal in either low-priced, imported toys or higher-priced toys made by companies too small to do their own distributing.
Luke Knowls, product sales manager for Small World Toys in Los Angeles, said the toys stored in his company’s Culver City warehouse are destined for upscale specialty shops that “don’t deal in Saturday morning violence” toys. It’s a competitive field for distributors: Such shops take in only about 5% of U.S. toy sales.
For stores, too, “it’s an uphill battle,” said Christopher Waas, president of the American Specialty Toy Retailers Assn. and owner of three small Alphabet Soup stores in the Midwest. “We don’t compete with the mass merchandisers. We are certainly competing for the same dollars, but head-to-head product competition, no. If we carried mass-market products, we’d get walloped.”
In fact, most department stores, significant avenues for toy sales a decade ago, have already been walloped by the newer breed of retailers--superstores and discounters. Now department stores stock only token levels of toys, mostly during the holiday season.
However, smaller stores have learned to steer clear of G.I. Joe, the Teenage Mutant Ninja Turtles and slinky Barbie, who is still the most formidable toy character in the world.
Instead, they stock higher-priced educational toys. Often, manufacturers of these toys, such as Brio and Playmobile, sell exclusively through smaller stores.
Now caught in the middle--and being squeezed like Play-Doh--are the medium-size toy retailing chains. Within the last year, Child World and Lionel Corp.’s Kiddie City have gone out of business, having closed more than 300 stores along the East Coast. Two other chains are operating under Bankruptcy Court protection.
Kay-Bee, a chain familiar to Southland shoppers, has bought two other chains in the last three years, giving it 1,250 stores and putting it in fifth place among the biggest toy sellers. But Kay-Bee has had to become a street fighter; it will close 250 unprofitable stores while adding 100 new ones in better markets in the near future.
The changes in the toy retailing business have ricocheted into the toy making industry. With the introduction of sophisticated technology that links a large store’s sales data to the manufacturer, stores now take delivery--and pay for the products--only when their shelves are getting bare. This has pushed even more of the toy makers’ revenues into the last quarter of the year.
Yet, makers of toys haven’t been tinkering around while retailers played the consolidation game. They too have been beefing up, gaining sounder financial footing and restoring some of the balance of power between them and the X-Men of the toy retailing world.
Hasbro made itself head potato in the toy making field in 1984 when it bought Milton Bradley and some of the world’s most popular board games. Since then, more than 20 toy making and importing companies--and dozens of popular toy and game brand names--have been put into just three companies: Hasbro, Mattel and Tyco Toys.
Mattel changed the dimensions of the top toy makers last month when it announced its $1-billion marriage with Fisher-Price. Analysts expect Mattel and Hasbro to be neck-and-neck in the race to become numero uno . Each is expected to climb to $3 billion in sales in another year or so.
Many analysts expect the consolidations in Toyland to continue. Now, though, the industry’s attention is focused on the holidays and the annual question of whether there will be one blockbuster product.
Could it be the remote-control doll in a walker, or Thomas the Tank? Maybe it’ll be the doll of Brazilian superstar Xuxa, or the new electronic animals that sit in front of the TV and interact with it. Analysts aren’t counting on any one mega-hit. Some parents, though, have been heard to wish for something--anything--as long as it’s not purple and named Barney.
Top Toy Retailers
Five retailers dominate the toy-selling industry, accounting for nearly half of all toy sales in the United States last year. Top 10 toy sellers based on estimated dollar share of U.S. toy market: Toys ‘R’ Us: 20.6%
Wal-Mart: 10.4%
Kmart: 6.9%
Target: 5.6%
Kay-Bee: 4.6%
Service Merchandise: 2.1%
Sears: 2.0%
Lionel/Kiddie City*: 1.4%
Child World*: 1.4%
J.C. Penney: 1.4%
* Companies in liquidation
Source: NPD Group/Toy Market Index
Climbing the Beanstalk in Toyland
Along the way to becoming toy giants, Mattel, Hasbro and Tyco Toys have bought other companies or products. The companies and some of the best-known products acquired are named below.
Mattel 1986: Arco Industries: Pound Puppies, Go Bot 1989: Corolle (51%): collectible dolls 1989: Corgi Toys: miniature and scale-model die-cast cars 1991: Aviva Sport: Sport-Toys and Real Feel labels 1992: International Games: Uno and Skip-Bo card games 1993: Fisher-Price: Little People, Puffalumps
Hasbro 1983: Knickerbocker Toy Co.: Raggedy Ann, Raggedy Andy 1983: Glencoe Infant Items: Tommee Tippee products 1984: Milton Bradley (incl. Selchow & Righter, Playskool): Scrabble, Battleship, Life, Tinker Toys, Lincoln Logs 1986: Child Guidance and Ideal Games (partial): Pop ‘n Pals 1988: Coleco Industries: selected outdoor products 1989: Coleco (remainder): Cabbage Patch Kids 1981: Alchemy II (partial): Teddy Ruxpin 1991: Tonka-Kenner-Parker Bros.: trucks, Monopoly, Clue, Play-Doh, Nerf 1992: Nomura Toy Co.: assorted toys 1992: Palmyra: toy distributor in Southeast Asia
Tyco Toys 1989: View-Master Ideal Group: Betsy Wetsy, View-Master, Magna Doodle 1990: Playtime: direct-import company 1992: Illco: Sesame Street preschoolers’ toys 1992: Universal Matchbox Group: Matchbox die-cast cars
