16, Global Toy News published an investigative story about a 30% decline in US
per capita spent on toys, which has caused some controversy in the toys
industry. It first originated from the Goldman Sachs report of October 15,
which stipulated that “traditional toys and games are likely in the early
stages of secular decline in developed markets”. To arrive at this
conclusion, Goldman Sachs used Euromonitor International data that indicated,
as stated in Goldman Sachs report, that the “nominal amount spend on traditional
toys and games in the US per capita is down 30% since 1998”, “with the
declines more substantial in real terms”.
Let’s look at the whole picture by putting
all of the figures in context.
US – Traditional Toys and Games Market Size (Retail Value, RSP) and Population
Source: Euromonitor International
The figures mentioned in Goldman Sachs’
report were incorrectly labelled as in “nominal terms” with an
additional emphasis that “the decline in real terms is even larger”. If
we look at the table above, the 30% decline is in per capita spend is in real
terms; while nominal terms decline is in fact much softer at -4.0%. This makes
sense, considering that the toy market has stayed more or less flat since 1998
in current dollar terms, while inflation and population increase eroded the per
capita spend in real terms. Over 1998-2011, the population increased by 13% in
Another angle is to look is at spend per
child rather than spend per capita, since the majority of toys are aimed at
children. The increase in the population of 0-14 year olds was lower than that
of the total population during 1998-2011, as the birth rate declined. The child
population increased only 3% since 1998. Thus, if we look at spend “per child”,
the nominal expenditure on toys per child has even edged up 5.0%.
toys peaked in developed markets?
More interesting is not only the US data,
but the conclusions Goldman Sachs arrived at, which suggest that per capita
spend on traditional toys has peaked in developed markets. This
likely stems from the assumption that there is more competition from video
games and alternative forms of play. But does the data from other developed
markets support this idea?
Traditional toys and games, 2006-2011
Retail Value, RSP, Current Prices, Local
Looking at the above figures, its pretty
clear that traditional toys in the US is more of an exception, rather than a
reflection of declining toy spend across developed markets. The US toy market
may have stagnated since 1998, but the same cannot be said for other developed
The UK market, for instance, has grown at
an average 1% in value terms since 2006, despite the stark 7% current value
decline in 2009 (more related with the Woolworths exit from the market than
economic slowdown). Toys in Sweden and France has grown at an average 3% in
current value terms annually throughout 2006-2011. At the same time, Japan has
also grown at a healthy 3% in current value terms, despite the seemingly
perpetual decline in its child population.
What makes the US
Richard Gottlieb from Global Toy News
suggested that the “Wal-Mart effect” may be responsible for declining toy
spend, which makes a lot of sense.
First, the US has the most consolidated
retail sector for traditional toys among developed economies. Wal-Mart, Target
and Toys R'Us combined account for 68% of US and Canada value sales for
Second, two of the three largest toy
sellers in the US are discounters, with plenty of bargaining power to exercise
over toy manufacturers. Lower prices may be good for consumers, but such price
pressure hurts the toy market. If we look at other countries, there is a
correlation between toy market performance and the consolidation of toy retail,
especially if there is a strong discounting culture. Germany, where Aldi and
Lidl are strong, for instance, performed worse compared to the UK or Sweden in
value terms growth over 1998-2011, both of latter countries have a more
fragmented toy retail environment.
The most successful toy company in the US
during recent years, without doubt, was LEGO. LEGO doubled their revenues in
value terms in the US over 2008-2011, despite the flat toy market. One thing
that sets LEGO apart is its network of single brand stores, allowing it more
freedom to experiment with pricing.
What can we bring
out of this discussion?
The Goldman Sachs report may have painted
the story in over saturated colours and then over stretched the conclusions
from the US market to imply that toy industry is on decline in developed
countries. But it brought the performance of the US toy market to wider
In the long term, the original report may
have done a favour to the industry by facilitating the discussion. Whether it
has to do with alternative play options, consolidated retail or lack of
innovation in the industry, it is fair to say the US toy market has lagged
behind other developed economies throughout the last decade, and continues to
Another question is whether trends that
have coincided with the decline of the US toy market will shift overseas, and
what impact they will have there. In terms of retail, the trends so far point
towards supermarkets/hypermarkets and internet retailers increasing the share
of total toy sales, suggesting higher competition on prices.