Frenemy with Benefits: How can Toys Makers Capitalise on the Rise of Toy Rental in Asia? – Part 1

In 2014 sales of traditional toys and games in Asia hit US$19 billion, marking 7% year-on-year growth and an 8% CAGR over 2009-2014. Being the runner-up in both market size and growth rate, Asia should have boosted its impressive performance in traditional toys and games. However, the rise of digital gaming, age compression and the prevalence of copycat products put mounting pressure on toymakers in the region. New growth avenues should be sought.

Disruption from sharing economy

In late 2005 toy rental services started to make headlines in Western countries. Four years later, when the global financial crisis hit hard in many parts of the world, the Netflix business for toys also stepped into Asia. During that time toy rental met the demand of parents in Asia, who needed to cut discretionary spending due to economic difficulties. Upon the economy recovery toy rental is surprisingly not out of vogue. Instead, it is prospering. In Indonesia the number of online rental companies exceeded 30 in 2014. In Vietnam and India, despite no official statistics, news regarding toy rental services is spreading widely. In Singapore three new toy rental companies entered the market in 2014, bringing the number to six. The success is largely attributed to improved delivery services, favourable return policies, attractive pricing and high standards of sanitation.

Friend, not Foe

While the rise of “Netflix for toys” might dampen the growth of traditional toys and games, potentially, toymakers could also benefit from it. It helps manufacturers of traditional toys and games reach out to low-income consumers and bargain hunters. In emerging countries in Asia copycat products are prevailing and cheap, in contrast to branded toys. Although parents are highly sceptical regarding the safety of low-price toys imported from China, many still choose these products because of budget constraints and children’s transitory preference for toys. This poses a great challenge to the market penetration of branded toys. Fortunately, toy rental companies are growing in the region. They need toys of good quality and high durability – features copycat products do not possess, with branded toys having a clear advantage.

Another benefit of joining the collaborative economy is to address the issue with seasonality in the toy industry. Typically, demand peaks during holiday seasons such as Christmas or Children’s Day. For the rest of the year sales tend to be flat or even stagnant. The ties with toy rental companies promise another revenue stream during non-peak periods and monetise idle or excessive inventories. In developing countries, where the middle-income segment is set to grow in future, manufacturers of branded toys can leverage this opportunity to raise brand awareness before the market is ready for new branded toys.

Hard-earned gains

Yet the frenemy relationship does not work all the time. The rental business model itself is irrelevant for some products. Manufacturers of plush toys, arts and crafts, etc., probably find that their consumers would rather buy new toys, which are not costly, hence leaving no room for toy rental. The same applies to games and puzzles. Apart from the pricing factor, renting games and puzzles is not popular because these toys can be substituted by cheap, convenient mobile games in the same genre.

Furthermore, the symbiosis between the traditional and rental business models is based on an assumption that the segment for rental services is segregated from that for new toys. In other words, rising demand in one segment is not likely to reduce demand in another. However, due to storage issues and patterns of usage, many affluent consumers trade off ownership of new toys for the low price of rental services. Consequently, rental services grow at the expense of product sales. This is typically manifest in outdoor and sports toys. Despite high incomes, parents prefer to rent playhouses or water slides for their children’s birthday parties.