Why Toy Companies Should Be Worried
Earlier last week, just before Christmas, a story broke regarding the toy industry. Major toy manufacturers, namely Hasbro and Mattel, are reportedly worried that they are becoming obsolete.
In an interview with the Financial Times, Sean McGowan, managing director of equity research at Needham & Company, said, “The top two guys, Mattel and Hasbro, they are terrified. They should be terrified, but the official party line is they’re not terrified.”
The scapegoat for toy companies? Technology. The large toy manufacturers are convinced that tablets and smartphones are the culprit for toy sales being down across the board. After all, Mattel’s top selling product in 2012 was a cellphone case.
It’s obvious that children and more technologically advanced than ever before. Many children are now being given tablets and smartphones at increasingly young ages. Parents not wanting to resell that first-generation iPad for a fraction of the cost, would rather give it to their child to play with.
I recently saw the effect of a Kindle Fire on my own two-year-old nephew. While he plays with it only under close supervision, and only for short periods of time, his favorite game by far is the Angry Birds spinoff “Bad Piggies”. It’s rare to go more than a few hours without him asking if he can play his “piggy airplane” game.
So, according to Hasbro and Mattel, he’s been seduced by the allure of tablet computing, making him no longer want traditional toys. Not quite. My nephew spent the majority of his time playing with his toy trains and cars. In fact, the train set he got for Christmas seemed to hold his attention longer than the Kindle did.
Does my toddler nephew eschew traditional toys in favor of the Kindle and the Wii? Not at all. In fact, he had a lot of fun playing with an empty box at one point. Young children will play with anything.
If children still enjoy traditional toys, then, why are toy manufacturers losing sales at such a rapid rate?
Toys are way too expensive.
Looking at the bestselling toys on the Toys ‘R Us Action Figures – Cartoon & Comics page, the first result is an Optimus Prime helmet for $19.98, followed by a Power Rangers Deluxe Megazord for $34.99, a Thor Avengers action figure for $22.99, and Avengers Hulk Hands for $22.99.
The top-selling Kindle game apps are Minecraft – Pocket Edition for $6.99 (a really high price for a Kindle game), Cut the Rope for $0.99, Plants vs. Zombies for $0.99, and Angry Birds Star Wars Premium HD for $2.99.
The top four Kindle game apps, together, are a fraction of the cost of any of the top four Toys ‘R Us action figures.
When it comes down to the basic numbers, it makes more sense to download $2.99 Angry Birds to a hand-me-down iPad than it does to spend $22.99 on an action figure.
Playsets have always been expensive, and every child remembers being denied a Sewer Lair or Barbie’s Dream House because it was too expensive. With prices of these items reaching up to and over $150 in some instances, it’s actually more cost effective to buy a tablet and load it up with cheap and free games.
Part of the problem is that toy companies are raising prices for collectors. The $22.99 Avengers figures, the $17.99 The Dark Knight Rises figures – those are hardly intended for children. As a collector, you’re inclined to pay a bit of a premium when you know the piece is for display and isn’t going to end up in someone’s mouth or nose.
However, prices are getting to a point where childless people with mountains of disposable income (yeah, right) don’t have the means to buy toys to collect. Increasingly, the need to put gas in our cars to get to work means that we’re holding off on buying new toys, hoping that we can snag them on ebay in six months for a discount.
The toy industry is at a disadvantage here. They have to pay for licensing, production, shipping, and marketing. Digital games don’t have to produce a physical product, cutting out a lot of cost right there. It’s difficult for traditional toys to compete on price. There is a legitimate concern here. However, the price disparity is getting too large to ignore, and consumers see premium priced toys in this economy as a luxury that can be easily substituted by video games.
If the toy manufacturers truly are worried, and they want their toys in the hands of children, they need to bring down their prices. People want to buy toys. Everyone loves a physical product; adults will always want to display collectibles and children will always want a tangible toy. Tablets and computers aren’t the bad guys here, but the ones that are catering to the entertainment needs of the people. The toy companies need to understand that. Quickly.
Really good article. I've seen all of this up close. The next few years will be interesting.
From a developmental point of view, real toys are better for kids. It allows the kids to play with them in imaginative ways, which supports brain growth. With most video games or tablet games, there is only one way to play. With an action figure or play set, the ability for the toy to be many different things exist…
I can agree with you there. But what about programs that let kids create? There are lots of good drawing apps and a few simplified programming apps. Just curious.
programs that let kids create are good, but they are still limited. Think when a stick can be used as a weapon, a cane, a sword, a gun, an elevator, a BBQ stick, etc. The app games are limited in the ability of creation. The more creation the better.
I gave my 3.5 yr old son both this year. He got several Cpt America toys, legos, costumes and the such as well as a V-Tech Innotab. I like to give him a balance of both and I don't see having a tablet at that age as a bad thing (Except for the toy companies, that is). I primarily got it so he could play learning games when toys aren't accessible, i.e. car trips, public places, sporting events. I would rather he create worlds in the backyard though, with sticks, tree bark, and rocks the way I did as a kid… and maybe as an adult from time to time.
But I do agree entirely with the prices. I can't justify buying him a figure for more than $8. And it has to be a great figure to pay $8 for it. I remember when the new TMNT line came out and Wal Mart had them for $7.70 each. I got the 4 turtles but before I could complete the line the price jumped to $8.88. Only a dollar increase, but an increase that turned me off regardless. Star Wars and GI Joe figures have to be on clearance for me to get them anymore. Growing up and getting Joes and Jedi for $4 spoiled me, I guess. I can't pay more than $5 anymore. Lego purchases are rare these days. I usually look to ebay for bulk purchase on that.
I'll definitely say that the new Turtles figures are a great value considering how good they are and how much they come with. Getting any action figure for less than ten dollars is practically unheard of these days.
I agree 1000%!
The costs and availability need to be improved.
If they want to make better money, sell online also at a better pricepoint.
And sell ALL their items not just exclusives at inflated prices!!
I think there will always be a market for "low tech toys". Kids still play with cars, toy trucks, and action figures. While the market may have shrunk for these you can't discount their impact on kids. It's with these toys that kids get to really use their imaginations while most games and tech toys dictate the story to you.
Great piece Mary Staggs!