The toy industry, which sells $20 billion worth of toys and games, has seen their business fall off by 2% last year. Competition from deep discounters like Wal Mart and Target has been fierce. Add to this the demise of stores like FAO Schwarz and Zany Brainy and the struggles at Toys R Us and K B Toys, and the picture of the toy industry looks bleak.
The shrinking of retail competition and shelf space for toys has also contributed to less innovation in toys. Adding to toy retailer problems is a phenomenon they call "kagoy," or kids are getting older, younger -this phenomenon refers to the fact that kids are losing interest in toys much earlier than they used to, as they are absorbed by video games, cable TV, and the Internet. Another problem is that when successful toys do come along, they are copied as store brands by lower-cost manufacturers. This makes it more and more difficult for small companies, who are usually the ones to innovate, to compete.
When Wal Mart and Target competed in a price war during the holiday season of 2003, Toys R Us lost out on business. Last summer, Toys R Us management announced that it was splitting its business, probably keeping the more profitable Babies R Us business and putting the toy business up for sale. The bids are expected to come in later this month, with the possibility that Toys R Us could be sold for its real estate value alone.
Some toy makers are looking to the adult toy market as a strategy to keep their ideas afloat. A small company called "Happy Worker" markets a Geek Man, Money Man, and Boss Man doll which are sold primarily in museum stores and bookstores. Lou Novak of Playmates Toys says that in a mature market like toys, manufacturers tend to take less risks. A lot of the new toys being produced today are repackaging of toys that were popular in the 1980s.
The real problem facing toy makers going forward is not just the number and the healthiness of retail outlets to sell toys and the precociousness of the consumer but the strategy. What are toy makers going to do to survive?