ibisworld industry report 33993 toy, doll & game...

WWW.IBISWORLD.COM Toy, Doll & Game Manufacturing in the US May 2015 1

IBISWorld Industry Report 33993Toy, Doll & Game Manufacturing in the USMay 2015 Zeeshan Haider

Game time: Despite recovering demand, operators will face significant pricing pressures

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance4 Executive Summary

4 Key External Drivers

6 Current Performance

9 Industry Outlook

11 Industry Life Cycle

13 Products & Markets13 Supply Chains

13 Products & Services

15 Demand Determinants

15 Major Markets

16 International Trade

19 Business Locations

21 Competitive Landscape21 Market Share Concentration

21 Key Success Factors

21 Cost Structure Benchmarks

23 Basis of Competition

24 Barriers to Entry

25 Industry Globalization

26 Major Companies26 Hasbro Inc.

30 Operating Conditions30 Capital Intensity

31 Technology & Systems

31 Revenue Volatility

32 Regulation & Policy

33 Industry Assistance

34 Key Statistics34 Industry Data

34 Annual Change

34 KeyRatios

35 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]


This industry comprises companies that manufacture dolls, doll accessories, action figures, toys, games

(including electronic), hobby kits and children’s vehicles (except metal bicycles and tricycles).

The primary activities of this industry are

Manufacturing action figures

Manufacturing dolls, doll parts and doll clothing

Manufacturing stuffed toys

Manufacturing children’s automobiles

Manufacturing crafts and hobby kits

Manufacturing children’s and adult games

Manufacturing science kits

Manufacturing toy and hobby models

Manufacturing video game machines

33461 Recordable Media Manufacturing in the USOperators in this industry manufacture electronic video game cartridges and reproduce video game software.

33699a Motorcycle, Bike & Parts Manufacturing in the USOperators in this industry manufacture bicycles and metal tricycles.

33992a Athletic & Sporting Goods Manufacturing in the USOperators in this industry manufacture sports and athletic goods for children.

Industry Definition

Main Activities

Similar Industries

Additional Resources

About this Industry

For additional information on this industry

www.nam.org National Association of Manufacturers

www.toyassociation.org Toy Industry Association Inc.

www.census.gov US Census Bureau

The major products and services in this industry are

Baby carriages and children’s vehicles (excluding bicycles)

Dolls, action figures, toy animals and stuffed toys, including parts

Electronic toys and games (including home video games)

Models and crafts

Nonelectronic games and puzzles, including parts

Other nonelectronic, nonriding toys, including parts and pet toys


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Import penetration into the manufacturing sector

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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2015)

41.7%Electronic toys and

games (including home video games)

4.0%Dolls, action figures, toy animals and

stuffed toys, including parts

23.3%Other nonelectronic, nonriding toys,

including parts and pet toys

16.9%Nonelectronic games and

puzzles, including parts

10.1%Models and crafts

4.0%Baby carriages and children's vehicles (excluding bicycles)


Key Statistics Snapshot

Industry at a GlanceToy, Doll & Game Manufacturing in 2015

Industry Structure Life Cycle Stage Decline

Revenue Volatility High

Capital Intensity Low

Industry Assistance Low

Concentration Level Low

Regulation Level Heavy

Technology Change Medium

Barriers to Entry Medium

Industry Globalization High

Competition Level High

Revenue

$1.9bnProfit

$102.5mExports

$1.6bnBusinesses

573

Annual Growth 15-20

-1.7%Annual Growth 10-15

-4.8%

Key External DriversImport penetration into the manufacturing sectorTrade-weighted indexDemand from hobby and toy storesPer capita disposable incomeDemand from department stores

Market ShareHasbro Inc. 9.7%

p. 26

p. 4

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 34



Key External Drivers Import penetration into the manufacturing sectorGrowth in the volume of imported toys in the United States has created intense competition for domestic toy manufacturers over the past five years. Despite instances and perceptions of inferior quality, imported toys have become increasingly popular among consumers over domestic goods due to

their lower prices. Import penetration into the manufacturing sector is expected to increase in 2015, posing a potential threat to the industry.

Trade-weighted indexThe trade-weighted index (TWI) measures the strength of the US dollar relative to the currencies of countries that trade with the United States. A drop in

Executive Summary

Operators in the Toy, Doll and Game Manufacturing industry have experienced a challenging operating environment over the past five years. Industry operators manufacture discretionary items, and demand for these products represent a strong, positive correlation with per capita disposable income, consumer sentiment and available leisure time. Most of these demand drivers took a turn for the worse during the recession, as consumer sentiment fell considerably, due to high unemployment, a bleak economic outlook and a fall in per capita disposable income. Furthermore,

products produced by industry operators tend to overlap, causing manufacturers to compete fiercely on price, with consumers consistently seeking bargains.

Since price competition in this industry is high, domestic operators have been forced to reduce prices to compete with cheap imports, sourced from low-cost economies such as China and Vietnam. However, as a labor-intensive industry, imported products have a significant advantage when it comes to production costs. As a result, domestic industry operators have been forced to settle for lower

profit margins to compete with low-cost imports, the prospect of which has reduced the attractiveness of this industry. Furthermore, many companies in this industry have completely disbanded US-based production operations and shifted production facilities to East Asia and China, which has also reduced revenue.

Given the significant offshoring and price competition from imports, which are expected to account for 98.5% of domestic demand in 2015, revenue is expected to decrease at an annualized rate of 4.8% to $1.9 billion, during the five years to 2015, inlcuding an expected increase of 7.9% in 2015 alone.

The industry is expected to perform better over the next five years. This recovery will be spearheaded by a new and emerging trend of “reshoring,” whereby companies relocate their manufacturing operations back to the United States, where there are lower compliance and transportation costs and a greater ability to respond to changes in the market. Increasing labor costs in China are also incentivizing this trend. This phenomenon of reshoring, coupled with improving conditions in the domestic economy, will prevent industry revenue from declining as rapidly as it did in the past five years. Nonetheless, revenue is expected to decline at an annualized rate of 1.7% to $1.7 billion over the five years to 2020.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Despite higher demand, toy manufacturers will lower prices to stay competitive, hurting profit


Industry Performance

Key External Driverscontinued

the value of the US dollar leads to lower relative export prices and higher relative import prices, benefiting industry revenue. Conversely, when the TWI rises, there is greater import competition and industry exports are relatively less competitive in the global market. The TWI is expected to increase in 2015.

Demand from hobby and toy storesRegarded as specialists in the toy retail market, hobby and toy stores are key buyers of industry products. Hobby and toy stores purchase an extensive range of goods from industry manufacturers. Therefore, an increase in demand for toy, doll and game products from hobby and toy stores translates to demand and revenue growth for manufacturers. The Hobby and Toy Stores industry is expected to increase throughout 2015.

Per capita disposable incomeToys, dolls and games are discretionary items so changes in disposable income levels influence industry demand. A rise in household disposable income increases the propensity for customers to purchase more industry products, causing a growth in demand. Per capita disposable income is expected to increase during 2015, presenting a strong growth opportunity for the industry.

Demand from department storesDiscount department stores, such as Walmart and Target, have grown to become leading retailers of children’s toys. An increase in demand at the retail level also leads to growth in demand for toys at the manufacturing level. The Department Stores industry is expected to decrease in 2015.

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Trade-weighted index


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Import penetration into the manufacturing sector



Demand in the Toy, Doll and Game Manufacturing industry is primarily influenced by economic conditions such as consumer confidence and disposable income levels. While consumer sentiment is expected to climb in 2015, it experienced steep declines during the recession, falling 22.1%. In addition, per capita disposable income fell for the first time in nearly two decades over the same period. Since then, its recovery has been marginal and slow. These factors forced consumers to curb spending on discretionary items, including toys, dolls and games. Many consumers who did purchase industry-related products during this time opted to seek out sales and bargains online and at second-hand stores rather than pay full retail prices.

As retail spending slowed, demand for manufactured goods declined, with revenue falling a staggering 30.5% during the recession. Industry operators rely heavily on demand from retailers, especially with the onset of wholesale bypass, which effectively eliminates wholesalers from the supply chain and is a growing trend among manufacturers. By

owning their distribution and retail outlets, or by selling directly to third-party retailers, manufacturers can better manage production volumes and maximize profit margins. Unfortunately, operators’ increasing reliance on retail demand resulted in painful losses during the recession and immediately after, when retail spending plummeted.

Fortunately, demand for toys, dolls and games has been rebounding as the economy has gradually recovered. In 2010, consumer sentiment and household disposable income rose, encouraging consumers to increase spending that they withheld at the height of the recession. Revenue for the Hobby and Toy Stores industry (IBISWorld report 45112) also increased in 2010 and has been on the rise ever since. Such increases in downstream demand are expected to bolster demand at the manufacturing level.

Current Performance

The Toy, Doll and Game Manufacturing industry has suffered over the five years to 2015, due to falling demand brought on by poor economic conditions and increasing competition from low-priced imports. Imports have gained considerable cost advantages over domestically produced goods during the past five years due to lower labor costs and significantly lower environmental regulation abroad. Imported toys have therefore become significantly inexpensive compared with domestically produced goods, and, as a result, domestic industry operators have cut down on their profit margins to remain competitive. However, this reduction in profitability also encouraged many industry operators to shift production from the United States to Asia and the Far East in

order to remain competitive. Many industry operators had to exit the industry altogether because they could no longer compete with low-cost imports, which caused industry establishments to decline at an annualized rate of 0.7% to 577 locations over the five years to 2015. These factors combined are expected to reduce revenue at an annualized rate of 4.8% to $1.9 billion in 2015; however, revenue is expected to rise by 7.9% in 2015 due to a substantial increase in exports stemming from strong demand growth from Mexico. According to data sourced from the United States International Trade Commission (USITC), industry-specific exports to Mexico have increased 1011.5% year to date, resulting in a 26.1% increase in exports over the same period.

Operators’ reliance on retail demand resulted losses during the recession

Diving demand



In addition to falling demand, competition from low-priced imports has presented a significant challenge to the industry. In 2010, imports accounted for 97.1% of domestic demand and are expected to be $18.5 billion or 98.5% of domestic demand, declining at an annualized rate of 4.9% over the five years to 2015. The growing share of Chinese imports has primarily driven this phenomenon. Due to the country’s relaxed labor and environmental laws, Chinese manufacturers enjoy lower production costs, allowing them to pass cost savings on to domestic retailers, and ultimately consumers. This trend has placed significant pricing pressures on toy manufacturers in the United States. Even though imports have declined slightly over the past five years, they continue to represent a significant proportion of domestic demand and present a major threat to the domestic industry. Furthermore, exports, which are expected to account for almost 85.0% of revenue or $1.6 billion in 2015, have also declined at an annualized rate of 1.0% due to a strengthening dollar. In order to maintain sales and remain buoyant in a contracting industry, US operators have been forced to reduce markups over the past five years, resulting in significant declines in profitability over most of the past five years. However, a recent decline in oil prices if expected to reduce the price of raw materials

and energy and transportation related over heads for domestic manufacturers, thereby improving margins. Overall, IBISWorld expects profit, measured as income before interest and taxes, to account for 5.5% of revenue in 2015, up from 3.8% in 2010.

As US factories struggle with low profitability, major players have either relocated their facilities to China or other overseas destinations, or have outsourced production to third-party manufacturers to take advantage of lower overhead and labor costs. Mattel and Hasbro are examples of major industry players following this trend. According to their respective annual reports, a significant portion of Mattel products are manufactured in company-owned facilities in China, while a majority of Hasbro production is outsourced to Chinese factories. Offshoring, coupled with falling demand, has caused many domestic operators to close facilities and reduce workforces. In the five years to 2015, employment has fallen at an annualized of 2.8% per year to 7,621 workers.

To remain buoyant in a contracting industry, operators were forced to reduce markups

Produced in China

Toy recalls and new regulations

An increase in outsourcing and offshoring has created both opportunities and disadvantages for domestic operators. Relocating allowed companies to achieve more cost savings, however relaxed product standards and regulations in overseas facilities led to a decline in product quality. This decrease began to negatively affect the industry’s bottom line as major problems emerged. Since 2008, the US government has recalled a plethora of Chinese-manufactured toys due to unsafe levels of

lead found in paint, while others were recalled for choking hazards presented by loose magnets. These recalls created considerable losses for industry operators, including Mattel, which had to recall its Barbie and Fisher-Price brands. Similarly, Hasbro reported losses from the recall of its Easy Bake Ovens. In addition to the immediate losses incurred as a result of having to pull products from shelves, these recalls also tarnished consumer confidence and trust in these respective brands.



Toy recalls and new regulationscontinued

As a result of these sweeping recalls, the Consumer Product Safety Commission implemented new legislation in 2008 to protect children from unsafe lead levels, choking hazards and other chemicals that may cause illness. This law, known as the Consumer Product Safety Improvement Act (CPSIA), bans manufacturers from producing or selling children’s products that do not meet the enhanced safety regulations. In addition, companies are required to test products for lead and other harmful chemicals.

Although CPSIA provided peace of mind to consumers, it has adversely affected the industry. Many manufacturers, lacking the resources to test every item for compliance, have simply disposed of inventories that

may not meet new regulations. This disposal cost has created a significant financial burden for operators across the industry. The Toy Industry Association (TIA) publicly estimates this cost to be roughly $2.0 billion.

However, the problems with imported toys and their subsequent costs have also prompted a major shift toward relocation to the United States. K’Nex Brands LP, a family-owned company based in Hatfield, PA, is one of the industry’s players moving production back to the United States. This trend will continue as manufacturing costs rise further in China and manufacturers seek alternative strategies to keep production costs low. Reshoring is expected to benefit the domestic industry in the future.

Changing tastes Children, aged nine and younger, are traditionally regarded as the key buying market for toy manufacturers. As a result, the ranges of toys produced have been systematically geared toward specific age groups within that prime market. However, manufacturers began to experience declining sales within this key market in the early 2000s. Operators subsequently acknowledged that demand was being affected by an “age compression” phenomenon, whereby children were outgrowing toys at a younger age and demanding more adult-like merchandise, such as personal computers and DVD players. While the economic downturn caused a temporary hiccup in demand for tech-centric toys, which are often more expensive than traditional toys, a growing proportion of children continues to favor electronic toys.

In response to changing market conditions, manufacturers began to focus

on electronic and interactive toys. In addition, operators have invested millions of dollars in attempts to spur more demand for traditional toys by bringing them into the 21st century. For example, Mattel debuted its “Barbie Digital Dress Doll” at the New York Toy Fair in February 2013. The doll features a dress with an LED touch screen on which children can create custom designs. Other plans for Barbie in 2013 included three full-length animated features, as well as a comprehensive digital experience, including online games and Barbie webisodes.

In response to a changing market, operators focused on electronic and interactive toys



Despite challenges faced by local manufacturers over the past five years, IBISWorld expects the industry will fare better during the five years to 2020. Nonetheless, revenue is projected to decline at an average annual rate of 1.7% to $1.7 billion over the next five years, with a 1.9% decline expected in 2016. As economic conditions improve, consumers will likely increase their discretionary spending, which will subsequently increase demand for toys, dolls and games.

However, the long-term outlook for the industry is not encouraging. US manufacturers will continue to face increasing competition from low-cost imports and vie for contracts with a shrinking number of retailers. Given the limited amount of shelf space in stores, retailers will place significant pricing pressures on domestic operators to lower their markups, or they will give up shelf

space to imported goods. Consequently, many industry operators will be unable to survive in this competitive environment. IBISWorld expects that the number of industry establishments will decline at an annualized rate of 0.6% to 560 over the five years to 2020.

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Industry Outlook

Downstream demand picks up

As the US economy recovers, consumer sentiment and per capita disposable income, two key drivers of industry demand, are expected to increase at annual rates of 2.5% and 2.4%, respectively, over the next five years. Renewed confidence in the economy and higher discretionary spending are forecast to drive retail purchases, as households begin to spend on products that they delayed buying during the recession. As a result, retailers will likely increase the volume of purchases from toy manufacturers, boosting industry demand.

Advances in product design and the introduction of new electronic and interactive toys will drive industry growth through 2020. In the past five years, growth in demand for these products was limited by uncertain economic conditions in the earlier part of the period. However, with improving economic conditions, consumers will have more discretionary funds at their disposal during the outlook period. With increased spending on electronic toys, consumer demand will again be satisfied.

Increasing pressure from retailers

In the Toy, Doll and Game Manufacturing industry, wholesalers were traditionally viewed as the key market for manufacturers because they were able to efficiently distribute toys to a large number of US retailers. However, an increasing number of manufacturers

have internalized distribution functions and have begun supplying goods directly to retailers. Wholesale bypass greatly benefits industry operators because it allows them to charge higher prices for goods. In addition, manufacturers are able to gain greater control over



Increasing pressure from retailerscontinued

production volumes. However, the competitive nature of the industry has led a small number of retailers, such as Walmart, Toys “R” Us and Target, to gain control over a large portion of the retail market.

Unfortunately for operators, dependency on a few large toy retailers is expected to continue through 2020, exposing industry operators to greater

risks. Due to pricing pressures exerted on manufacturers to achieve maximum cost savings, remain competitive and win supply contracts, industry operators will be forced to lower prices and absorb losses. Consequently, IBISWorld expects that average profit margins will decline, in spite of higher sales of high-margin electronic toys. Profit is expected to account for 5.1% of revenue by 2020.

China to lose its advantage

Due to rising labor costs in China, which have reduced the appeal of offshore production, industry operators are increasingly moving production back to the United States. US-based production reduces freight and compliance costs for many manufacturers, as products from China are frequently recalled due to health hazards and noncompliance issues. In March 2013, The Wall Street Journal reported that industry operator, K’Nex, was aiming to relocate its production facilities back to the United States due to rising costs in China. Producing locally also provides manufacturers with greater control over their inventories and designs, and allows them to quickly respond to changes in domestic demand, which is critical to remaining profitable in the industry.

While China continues to enjoy major advantages as compared with the United States, US industry operators are planning to increase their capital expenditures and alter their product designs so as to make their production and packaging process as automated as possible. To achieve this, K’Nex has bought a “Baxter” robot from Rethink Robotics Inc., which performs simple packaging tasks to aid in the production of toys in its Hatfield, PA, facility. Similar investments in capital equipment will enable the industry to benefit from reduced labor costs and reliance on imports. IBISWorld expects that employment in this industry will fall at

an annualized rate of 1.1% to 7,213 workers over the five years to 2020.

In spite of the trend toward greater reshoring, IBISWorld expects import penetration in this industry will keep rising. A stronger dollar and potential free trade agreements with East Asia and Vietnam in particular, will encourage domestic retailers to import toys at an even lower cost. Consequently, IBISWorld expects imports to increase at an annualized rate of 1.6% to $20.1 billion in 2020 and they are anticipated to account for 99.1% of domestic demand for the same year.

Exports are also expected to decline further despite a temporary increase in 2015. As the US dollar appreciates, US exports become less competitive. The dollar is expected to appreciate 3.2% per year, over the next five years, which is expected to reduce exports at an annualized rate of 0.6% to $1.5 billion. Nonetheless, despite a rising dollar, the importance of exports is expected to increase over the next five years as operators seek demand on the international market for high-quality domestically manufactured toys. Exports as a share of revenue are expected to increase from 85.0% in 2015 to an estimated 89.9% in 2020.

Due to rising labor costs in China, operators are reshoring production


Industry PerformanceThe industry is expected to grow at a slower rate than the economy

The industry is facing a demographically shrinking market

Increased levels of offshoring and outsourcing are causing the number of establishments to fall

Many industry products are becoming obsolete as children demand more sophisticated and digital toys

Life Cycle Stage

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DeclineShrinking economicimportance

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Decline Industry

Revenue grows slower than economyFalling company numbers; large fi rms dominateLittle technology & process changeDeclining per capita consumption of goodStable & clearly segmented products & brands

Toy & Craft Supplies Wholesaling

Cardboard Box & Container ManufacturingMotorcycle, Bike & Parts Manufacturing

Hobby & Toy Stores

Toy, Doll & Game Manufacturing



Industry Life Cycle The Toy, Doll & Game Manufacturing industry is in the declining stage of its life cycle. Although decline in industry revenue is expected to decelerate during the five years to 2020, IBISWorld expects that industry value added (IVA), which measures an industry’s contribution to GDP, will decline at an annualized rate of 1.9% over the ten years to 2020. This indicates a slow rate of growth, as compared with an expected growth rate of 2.5% for GDP during the same period. Enterprises in this industry will continue to decline as the industry consolidates and operators exit the industry in response to a high level of import penetration. A rise in imports is expected to continue, aided by a strengthening US dollar. Together, these trends will reduce the number of establishments in this industry by 0.7% during the ten years to 2020.

This industry’s markets are also facing an imminent demographic and psychographic shift. In 2009, individuals under the age of 20 accounted for 27.3% of the total US population. According to the US Census Bureau, this number shrunk to 26.7% in 2012 (according to the latest available information) and is expected to decline further in the coming years. In addition, children have begun preferring digital and interactive toys to traditional ones

at a much younger age. They are outgrowing toys more quickly and are turning to tablets, gaming consoles and other forms of entertainment. Hence, this industry is facing an increasingly shrinking market, which will contribute to its decline in the long run.

New products and technologies are regularly being launched to keep the market interested and the industry relevant. Of special importance are licensing deals with film studios such as Disney, and many industry operators time new product launches to coincide with the releases of Disney movies based on these products. Capital investment is being made to render this industry more automated and productive. As a result of increased reshoring, many firms are looking to design products in more cost-effective ways, aiming to reduce labor and inputs costs. However, IBISWorld believes that widespread reshoring and vast technological improvements will not occur quickly enough to help this industry recover completely. As children’s interest in toys begins decreasing even more quickly, families have less leisure time and the industry’s main market shrinks demographically, this industry will eventually continue on its downward trajectory.

This industry is Declining


Products & Services Electronic toysElectronic toys make up the largest product segment within the Toy, Doll and Game industry, and are expected to generate an estimated 41.7% of total industry revenue in 2015. This product segment includes electronic pets, hand-held games, radio-controlled toy cars and internet plug-and-play games. Over the past five years, this product segment has grown in response to changing consumer demand. Kids between the ages of eight and 12 are increasingly demanding more sophisticated toys, such as cell phones, laptops and learning-oriented video games. While youth-oriented electronic toys continue to grow in popularity, this product segment was badly hit during the recession, as unemployment shot up and disposable income dipped for the first time in nearly two decades. Unfortunately,

the high price tags on many of these toys remain an obstacle for many cash-strapped parents; therefore, growth in revenue derived from the electronic segment of the Toy, Doll and Game industry is expected to remain tepid until a substantial economic recovery takes place. However, upon rebounding from the economic downturn, this product segment is expected to grow in line with consumer demand.

Board games, puzzles and other nonelectronic toysOther nonelectronic toys, such as board games, puzzles, collectible card games, building blocks and related parts and pet toys will account for about 40.2% of industry revenue in 2015. However, this product segment is forecast to lose ground in the long term, as children increasingly gravitate toward high-tech toys. While

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

42392 Toy & Craft Supplies Wholesaling in the US Toy and Craft Wholesalers are major customers for the Toy, Doll and Game Manufacturing industry and are regarded as the primary link between manufacturers and the retail market.

45112 Hobby & Toy Stores in the US Hobby and Toy Stores are able to purchase a range of merchandise directly from manufacturers whereby they bypass traditional wholesale channels.

45322 Gift Shops & Card Stores in the US Operators in Gift Shops and Card Stores purchase a range of merchandise for resale in novelty stores.

KEY SELLING INDUSTRIES

32221 Cardboard Box & Container Manufacturing in the US Operators in this industry supply packaging for toys, dolls and games.

32614 Polystyrene Foam Manufacturing in the US This industry supplies pads, shaped cushioning, polystyrene foam and products used for packaging dolls, toys and games.

32619 Plastic Products Miscellaneous Manufacturing in the US This industry supplies plastics used in the manufacture of toys, dolls and games.

32629 Rubber Product Manufacturing in the US This industry supplies rubber products, such as rubber tubing, used to manufacture toys, dolls and games.

33121 Metal Pipe & Tube Manufacturing in the US This industry supplies metal parts used to manufacture toys, dolls and games.

Supply Chain


Products & Markets

Products & Servicescontinued

electronic products are favored in the long run, revenue from this product segment has remained somewhat strong throughout the recession, as opposed to the electronic toys segment. As a share of industry revenue, this product segment actually grew during the recession. In response to rising unemployment and a drop in disposable income levels, consumers opted for relatively less expensive nonelectronic toys. Additionally, increasing purchases of toys for pets have also given a boost to this segment.

Models and craft kitsModels and craft kits, which are forecast to comprise an estimated 10.1% of revenue in 2015, are the third-largest product segment within this industry. Products within this segment include children’s art and painting supplies, coloring books, science kits and models cars, airplanes and rockets. While demand for these products declined during the recession, these products have remained relatively stable as a share of industry revenue due to their traditional and well-established market and relative cost-savings as compared to electronic toys. In the five years to 2020, the share of revenue generated by sales of models and craft kits will increase marginally as

economic conditions continue to improve and consumer spending increases.

Dolls and action figuresDolls and action figures will likely account for 4.0% of industry revenue in 2015. While the percentage of revenue generated by these products is small, this product segment has remained strong over the past five years because of its low price point and widely recognized brands, such as Barbie, American Girl and G.I. Joe, retaining their popularity. Additionally, these products have experienced a boost in sales through licensing and cross-promotions with motion pictures. For example, major company Hasbro Inc. has in place a licensing agreement with Marvel Entertainment to manufacture dolls, action figures and other toys based off of popular Marvel superheroes, such as Spiderman, Iron Man, X-Men, the Hulk, Thor and Captain America. Hasbro also owns the rights to produce Star Wars toys, as a result of Disney’s purchase of Marvel Entertainment in 2009 and Lucasfilm Ltd. in 2012. Similarly, Mattel Inc., another major player within the industry, has a licensing agreement with DC Entertainment Inc. to manufacture Superman, Batman and other toys based off of DC Comic superheroes. Major

Products and services segmentation (2015)

Total $1.9bn

41.7%Electronic toys and

games (including home video games)

4.0%Dolls, action figures, toy animals and

stuffed toys, including parts

23.3%Other nonelectronic, nonriding toys,

including parts and pet toys

16.9%Nonelectronic games and

puzzles, including parts

10.1%Models and crafts

4.0%Baby carriages and children's vehicles (excluding bicycles)



Products & Markets

Demand Determinants

Demand for toys, dolls and games is linked to trends in real household disposable income, changes in product design, advances in technology, consumer preferences and seasonal fluctuations. Of these, changes in disposable income have the greatest impact on demand for toy, doll and game products. As the level of real household disposable income increases, consumers enjoy greater purchasing power and are able to demand a broader range of industry products from retailers. The increase in demand at the retail level translates to demand growth for manufacturers.

Consumer preference plays a vital role in determining demand for toy, doll and game products. As sophisticated toys have gained popularity, electronic products have become a favorite with customers. While electronic toys continue to grow in popularity, the amount of time children

spend playing with these devices has come under scrutiny. Manufacturers have responded to parental concerns by incorporating educational elements into games. However, technologically advanced toys, such as flying helicopters and online games, often require special attention or supervision. Parents who spend less time supervising their children may opt for more traditional toys that their children can safely play with by themselves.

Demand for industry merchandise is largely seasonal. Over 40.0% of toy, doll and game retail sales occur in the fourth quarter, in the build up to the holiday season. Concurrently, manufacturers experience their highest product demand leading up to the winter season. Seasonality for toys is exemplified by product types: outdoor games in spring, travel games for summer vacations and board games for long winter nights.

Products & Servicescontinued

industry players experience spikes in dolls and action figures sales when comic book character storylines are successfully adapted to high-grossing motion pictures and video games. Over the next five years, the share of revenue generated by dolls and action figures sales is forecast to remain strong.

Baby carriages and children’s vehiclesBaby carriages and children’s vehicles are expected to account for 4.0% of revenue in

2015. These items are characterized as nonelectronic. There is significant import penetration in both these products and there is little roomleft for further offshoring. However, international manufacturers have caught up with the domestic ones in terms of quality and durability with a much more competitive price. Consequently, demand for domestically manufactured baby carriages and children’s vehicles has declined over the past five years, reducing its share of revenue.

Major Markets ExportsExports make up the largest segment, accounting for an estimated 85.0% of industry revenue in 2015. This segment’s proportion of revenue has increased over the past five years, from 70.0% in 2010. In the aftermath of the financial crisis, the US dollar initially weakened, making US products more competitive in the

international market. Furthermore, due to extremely significant import penetration in this industry, US manufacturers turned to international markets, such as Canada and Mexico. Given their proximity to the United States, these neighboring countries allow for cheaper transportation costs and more favorable trade conditions under the North American


Products & Markets

Free Trade Agreement. However, as the dollar began to strengthen from 2011 onward, exports began decreasing, with this trend expected to continue.

RetailersThis segment makes up an estimated 13.0% of industry revenue in 2015. Retailers include toy and hobby stores, electronic retailers and mass merchandiser stores, such as Walmart and Target. Over the five years to 2015, revenue in this segment has experienced some growth due to the rising prevalence of wholesale bypass. By purchasing directly from manufacturers, retailers have been able to better control costs, operating margins and product availability, thereby increasing their inventory sourcing from manufacturers. Manufacturers have also benefited from this trend. By being in direct contact with

the end-user market, they have been able to meet changes in order volumes more efficiently, especially during peak selling periods, such as the holiday season. Mass merchandisers are expected to generate 9.8% of revenue within this segment, while hobby and toy stores are expected to generate 3.2% of revenue in 2015.

WholesalersAccounting for an estimated 2.0% of industry revenue in 2015, wholesalers purchase toys, games and dolls from manufacturers for resale to various retailers. Revenue has decreased over the past five years due to the growing practice of wholesale bypass and falling consumer confidence in the economy. However, with a major influx of lower-cost, foreign-made toys being imported, wholesalers’ role in the distribution chain has moderately strengthened.

Major market segmentation (2015)

Total $1.9bn85.0%

Exports

9.8%Mass merchandizers

3.2%Hobby and toy stores

2.0%Wholesalers


Major Markets continued

International Trade ImportsThe influx of imported toy, doll and game products into the United States has significantly altered the domestic market during the past five years. Imported toys and games from Asia have increased competition within the industry. This has

created a volatile domestic market for US manufacturers, who have had to compete with lower-cost producers overseas. Chinese operators enjoy more relaxed labor and environmental regulations, allowing them to produce goods at a fraction of the cost of US production.


Products & Markets

Imports From...

Total $18.5bn

1.3%Vietnam 1.5%

Indonesia

3.8%Mexico4.7%

Other

88.7%China

Exports To...

Total $1.6bn

62.9%Mexico

18.4%Other

12.1%Canada

3.4%United

Kingdom

3.2%Paraguay

Year: 2015SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC

Level & Trend Exports in the industry are High and Steady

Imports in the industry are High and Decreasing

International Tradecontinued

Total imports in 2015 are expected to reach $18.5 billion.

Most industry imports come from China, accounting for 88.7% of total imports in 2015. However, this number has been static since 2010 and IBISWorld expects that it will decline as manufacturing costs in China rise and industry operators look elsewhere to gain a competitive advantage. Other important trading partners include Mexico (3.8%), Indonesia (1.5%) and Vietnam (1.3%).

Despite a high level of imports, this market segment has not been immune to the effects of the recession. In the five years to 2015, the value of imports fell at an average annual rate of 4.9%. This drop is the result of a booming 2007, during which imports rose 28.3%, alongside a slower but continuously strong 2008, before the market segment fell significantly in 2009. In the five years to 2020, imports are expected to grow an average of 1.6% per year, as economic conditions improve and domestic demand picks up.

ExportsExports of industry products are estimated to total $1.6 billion in 2015, marking a 1.0% average annual decline since 2010. In 2015, exports are expected to account for 85.0% of industry revenue. This seemingly steep decline reflects drop-offs from the extreme growth of the mid-2000s, when exports grew by double

$ bi

llion

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2107 09 11 13 15 17 19Year

Exports Imports Balance

Industry trade balance



Products & Markets

digits. This growth was primarily driven by a triple-digit increase in trade levels with Mexico during the period and was unfortunately short-lived, as exports fell drastically in 2008.

Canada, Paraguay, Mexico and United Kingdom are expected to remain major export destinations in 2015, accounting for 12.1%, 3.2%, 62.9% and 3.4% of total industry exports, respectively. Exports to

Canada and Mexico, in particular, remain strong, as these countries benefit from their proximity to the United States, and from favorable trade conditions under the North American Free Trade Agreement. Over the next five years, IBISWorld expects exports will continue to decline at an average annual rate of 0.6% through 2020, as the dollar gains in strength and industry operators become more domestically oriented.

International Tradecontinued


Products & Markets

Business Locations 2015

MO2.8

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

VT1.3

MA3.5

RI0.4

NJ2.6

DE0.4

NH0.7

CT1.6

MD1.3

DC0.0

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ1.7

CA15.8

NV1.5

OR4.4

WA3.0

MT1.1

NE0.6

MN2.6

IA1.1

OH4.2 VA

0.6

FL4.6

KS0.7

CO4.2

UT2.0

ID0.7

TX3.1

OK0.0

NC1.5

AK0.0

WY0.3

TN0.9

KY0.7

GA1.7

IL5.0

ME1.1

ND0.4

WI1.7 MI

4.4 PA5.0

WV0.3

SD0.2

NM0.4

AR0.6

MS0.2

AL0.4

SC0.4

LA0.0

HI0.2

IN2.2

NY5.9 5

67

8

321

4

9


Mid- Atlantic

Establishments (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

Great Lakes


Products & Markets

Business Locations Proximity to downstream markets enables manufacturers to increase delivery speed while reducing transportation costs. However, due to the large number of downstream markets and the relatively small number of companies in this industry, the dispersion of establishments does not follow a clear trend. Analysis suggests that the majority of industry manufacturers in the United States are located in the West and the Mid-Atlantic region, which, on a combined basis, comprise an estimated 40.0% of total establishments.

The West accounts for an estimated 25.0% of total establishments. This is in line with downstream demand, as the region accounts for the second-highest number of toy stores at about 18.0%. California, in particular, is the densest state, accounting for about 15.8% of total manufacturers. The Mid-Atlantic region accounts for an estimated 15.0% of the number of establishments nationally.

The region has access to some of the largest US seaports, making it an attractive location for manufacturing industries to import raw materials and ship exports overseas.

%

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EstablishmentsPopulation

Distribution of establishments vs. population



Cost Structure Benchmarks

ProfitProfit is measured as income before interest and taxes. Declining downstream demand and falling revenue over the past five years has impaired Toy, Doll and Game Manufacturing industry profit margins (earnings before interest and taxes). Falling revenue has caused industry operators to experience a higher cost per unit, since expenses, such as rent and salaried wages,

remain fixed. In addition, imported products continue to pose a threat to profit margins. In order to compete with lower-cost imports, US manufacturers have been forced to discount prices and absorb losses. Increases in raw material costs have also eaten into profit: the price of plastic materials and resin has increased at an average annual rate of 1.2% over the past five years.

Key Success Factors Establishment of brand namesRecognizable brand names and positive images help operators remain competitive and win supply contracts and shelf space.

Having a diverse range of clientsDiversifying of client rosters offsets the risk and potential financial impacts of losing important customers. Of particular importance is the ability to target a large consumer base segmented by age and interests so as to diversify risk.

Having links with suppliersMaintaining strong links with suppliers helps in negotiating competitive prices for inputs, payment, trade credit and delivery terms.

Ability to quickly adopt new technologyPatented technology can be essential to competing with imports. In addition, the adoption of new technology will play a key role in making domestic manufacturers more competitive as production reshores to the United States.

Must comply with required product standardsOperators should ensure that manufactured products meet design and legislative specifications in order to avoid tarnishing their reputations and incurring significant losses by having to recall their products because of safety concerns.

Market Share Concentration

Toy manufacturing is a lucrative business in the United States. While industry concentration remains low, it has increased over the past five years and is expected to continue its upward trajectory. As a result of a 0.7% per year contraction in enterprises, the exit of operators from this industry has been fuelled by a rise in imports. The influx of more-affordable toys into the domestic market created an intensely competitive environment for existing players. Faced with eroding margins and loss of buyers, some operators were simply forced out of the market. Other manufacturers resorted to

moving their production facilities to overseas locations such as China, in attempts to manufacture goods at a lower cost than was possible domestically.

Over the next five years, industry concentration will increase further as the number of enterprises decrease at an annualized rate of 0.7%. As more US operators reshore manufacturing operations, and existing unprofitable players exit the market, large manufacturers will benefit from purchasing and technical economies of scale and will account for a greater proportion of industry revenue.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarkscontinued

However, the recent decline in the price of crude oil has brought down costs for toy manufacturers. Since plastic and other raw materials used in manufacturing toys are derivatives of hydrocarbons, many of which are obtained from crude oil and since the manufacturing process is energy intensive, declining oil prices have improved profit margins over the past couple of years. Additionally, increasing demand for electronic toys, which have higher margins has also increased profitability. Overall, IBISWorld expects profit to account for 5.5% of revenue in 2015.

PurchasesPurchases of raw materials are the largest expense for this industry, accounting for an estimated 42.0% of total revenue in 2015. This is typical of manufacturing industries, as operators buy large amounts of raw materials to produce their final outputs. Input materials used

for toy, doll and game manufacturing include plastic, wood, rubber, metal and textiles. The prices of these materials can be volatile, and many have gone up in price over the past five years.

WagesWages are the second-largest expense item, representing an estimated 18.3% of industry revenue in 2015. Labor is used to assist in the production, packing and distribution of goods, and for conducting sales, research and development, management and other activities. Over the past five years, many manufacturers have reduced labor to cut costs and improve margins. Furthermore, many domestic companies have relocated their production facilities to lower-cost production countries, such as China. This exodus of manufacturing operations has further reduced the number of US workers in the industry.

Sector vs. Industry Costs

n Profi tn Wagesn Purchasesn Depreciationn Marketingn Rent & Utilitiesn Other

Average Costs of all Industries in sector (2015)

Industry Costs (2015)

0

20

40

60

Perc

enta

ge o

f rev

enue

80

100


7.0 5.5

26.5

2.73.51.5

42.0

18.3

19.3

2.8 1.02.5

56.7

10.7



Basis of Competition Until the introduction of electronic and interactive toys, industry manufacturers largely operated in a saturated product market, differentiating themselves from competitors through price, product range and availability and play value. Operators existed in a well-defined product market, which catered to nearly every age category and consumer preference. Price was viewed as the primary point of differentiation, subject to seasonal fluctuations depending on product capacity and industry demand.

InternalIn the traditional toy market, product ranges offered by various manufacturers were almost as important as price, as this enabled enterprises to differentiate themselves in a highly saturated market. The importance of product availability was also a key factor in remaining competitive, as it was seen as crucial to maintaining relationships with wholesalers. The ability to produce sufficient merchandise, especially for

peak buying times such as the winter holiday season, was critical in an extremely competitive environment. A key strategy for manufacturers was their ability to forsee demand trends for certain products in order to avoid over or undersupply issues. Manufactures also tended to highlight a product’s “play value,” an assessment of a product’s value based on its contribution to a child’s development. The competitive environment faced by manufacturers essentially created a low level of product differentiation between competitors which commonly led to new designs being hastily copied by existing players. Many product segments such as dolls and soft toys are characterized by widespread imitation of popular designs.

While factors such as availability and play value continue to be important in today’s toy manufacturing environment, the development and introduction of technology which facilitated the introduction of electronic and interactive toys to the market, created an entirely

Cost Structure Benchmarkscontinued

Wages as a share of revenue have increased from 16.6% in 2010 to 18.3% in 2015, because revenue has fallen much more rapidly in comparison.

DepreciationDepreciation is expected to account for 1.5% of revenue in 2015. Over the past five years, the deprecation expense for the industry has increased due to a shifting reliance from labor to capital in order to improve efficiency and reduce costs for larger operators. As trends in additive manufacturing start influencing this industry more, deprecation expense is expected to increase over the next five years. However, overall depreciation expense has fallen from 1.8% of revenue in 2010 because of declining revenue and a small return on investment.

Rent and utilitiesRent and utility costs are expected to account for 2.7% of total revenue in 2015. These costs, which largely cover expenditures on the use of leased machinery, buildings and storage facilities, have decreased over the past five years as operators have closed underperforming plants to cut costs.

OtherCosts associated with marketing and advertising are expected to account for 3.5% of industry revenue in 2015. Other expenses incurred by this industry include insurance, freight, employees’ fringe benefits expenses and administrative costs. Collectively, these expenditures are estimated to account for 27.0% of total revenue in 2015.

Level & Trend Competition in this industry is High and the trend is Steady



Barriers to Entry Prospective operators planning to enter the Toy, Doll and Game Manufacturing industry will face a number of challenges. The most significant barrier to entry is the amount of time, research and capital required to establish a brand, along with the complexities involved in developing unique product designs, and protecting intellectual property rights and trademarks. The high-cost and long-term nature of brand reputation is, hence, the largest barrier to entry. Already established brands such as Hasbro and Mattel have respective product offerings and new entrants will be compelled to invest money and time to persuade consumers to shift away from recognizable brands. Once a new product has been developed, manufacturers must invest in trademarks to protect themselves from copyright issues. The development and protection of intellectual property rights ranks high with manufacturers, as this enables them to exclusively produce a brand or use a patented product design.

The market share controlled by existing industry players can act as a natural deterrent to new operators. Today, the retail landscape for toys is dominated by a few large stores including Walmart, Target and Toys “R” Us, and a large portion of these retailers’ shelf space is occupied by products manufactured by incumbent players. As a result, new entrants will find it difficult to compete against the industry’s largest players in gaining new supply contracts, thereby ensuring sales.

Basis of Competitioncontinued

new basis of competition for players. The concept of merging technology and toys was considered revolutionary, aided to a large extent by ever-shrinking microchips and their ability to create robotic toys that follow instructions or interact with children. However, the addition of technology to the competitive landscape has created setbacks. Manufacturers have come to acknowledge that once introduced, technological products require constant upgrading via the addition of new features, if they are to remain relevant to today’s consumer.

ExternalToys have traditionally competed with other leisure activities for children’s attention. Before video games and electronic toys, children spent the majority of their time playing outside,

partaking in activities such as hiking, climbing trees, riding bikes and watching birds. It was widely perceived that outdoor play boosted the creativity and social well-being of children. The gradual migration of children to indoor activities over the past three decades has often been labeled a cause of obesity epidemic in the United States during this period. However, a strong rise in highly structured activity organized sports or cultural classes (art and music) can also be attributed to this decline. As a result, increasing consumer awareness of the importance of exercise and healthy lifestyle choices has heightened the level of competition among sporting good manufacturers. Sporting manufacturers have marketed the health benefits associated with sports participation in a bid to boost sales.

Level & Trend Barriers to Entry in this industry are Medium and Steady

Barriers to Entry checklist

Competition HighConcentration LowLife Cycle Stage DeclineCapital Intensity LowTechnology Change MediumRegulation & Policy HeavyIndustry Assistance Low




Industry Globalization

The Toy, Doll and Game Manufacturing industry has experienced increasing levels of globalization over the past five years. The key driver has been the rapid increase in imported goods into the US market. The influx of imports has largely come from developing Asian countries such as China. Imported goods are often considerably less costly to produce than domestically manufactured items, but are also synonymous with lower quality. However,

due to the price competitive nature of this industry, imports have been well received, often viewed as offering better value for money. Their impact on the domestic market has been extensive, with US manufacturers forced to compete on price as opposed to product range and quality. The overall effect of imports on the local economy is possibly best surmised by its share of the domestic demand, which is expected to be 98.5% in 2015.

Barriers to Entrycontinued

New players also face the issue of finding skilled labor. It can be particularly difficult to secure skilled production workers such as CAD-trained designers and tertiary qualified management. Also, the development of new products can

demand alternative labor during the production process. Manufacturers must assess their labor requirements on a regular basis. Experienced workers are approaching retirement and can be costlier for a company over the long term.


Trade Globalization Going Global: Toy, Doll & Game Manufacturing 2004-2015

Expo

rts/

Reve

nue

Expo

rts/

Reve

nue

200

150

100

50

0

200

150

100

50

0

Imports/Domestic Demand Imports/Domestic Demand0 040 4080 80120 120160 160

International trade is a major determinant of an industry’s level of globalization.Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocal


2004

2015

Level & Trend Globalization in this industry is High and the trend is Increasing


Player Performance Hasbro Inc. is the second-largest US toy manufacturer by revenue, with a large portfolio of brands including traditional trading cards and board games, puzzles, action figures, plush toys and dolls, children’s electronics and learning aides. It is the largest toy manufacturer that still manufactures in the United States. Hasbro’s products are broken down into four categories: games and puzzles (including Monopoly and Scrabble), boys’ toys (G.I. Joe and Transformers), girls’ toys (My Little Pony and Baby Alive) and preschool toys (Playskool). The company employs about 2,700 people in the United States and is headquartered in Pawtucket, RI.

Hasbro manufactures its products through company-owned plants in the United States and via third-party facilities. However, the major player has substantially increased the level of outsourcing to Asian countries over the

years, predominantly to China. This practice has allowed the company to take advantage of low labor and overhead costs, resulting in significant cost savings. These products are then distributed to domestic operators, such as wholesalers, specialty toy stores, discount retailers, mail-order and catalog houses, department stores and mass merchandisers across the United States. The company records its manufacturing revenue in the Global Operations segment, which comprises revenue generated from manufacturing activities, worldwide, including the company’s manufacturing plant in Massachusetts. Since most of the sales from this segment as intersegmental, the Global Operations segment has a very small profit margin, which is not reflective of the average profitability of this industry.

As with other operators in the industry, Hasbro has suffered from the

Major CompaniesHasbro Inc. | Other Companies

90.3%Other

Hasbro Inc. 9.7% SOURCE: WWW.IBISWORLD.COM

Major players(Market share)

Hasbro Inc. Market share: 9.7% Industry Brand Names Playskool Transformers My Little Pony

Hasbro Inc. (US industry-specifi c operations) - fi nancial performance*

YearRevenue

($ million) (% change)Operating Income

($ million) (% change)

2010 199.6 N/C 2.4 N/C

2011 228.2 14.3 2.5 4.2

2012 171.9 -24.7 -1.8 N/C

2013 194.0 12.9 0.8 N/C

2014 175.0 -9.8 1.7 112.5

2015 180.7 3.3 2.7 58.8

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD


Major Companies

Other Companies Although a considerable portion of the Toy, Doll and Game Manufacturing industry is dominated by global players Hasbro and Mattel, the remainder of the industry is characterized by a large number of small- and medium-sized companies. Larger players have been increasingly offshoring or outsourcing production overseas to take advantage of inexpensive labor and overhead costs. As a result, smaller manufacturing facilities dominate the domestic production of toys and dolls.

Alivan’s Estimated market share: 0.1%Founded in 2003 and headquartered in Panama City, FL, Alivan’s is one of the largest producers of handcrafted magic wands in the world. The company, which employs about 8 people, offers a multitude of different wands, wizard staffs and other magic-themed toys, including merchandise based on the popular Harry Potter movie series. As a private company, Alivan’s does not disclose financial information to the

Player Performancecontinued

“age compression phenomenon,” a trend whereby children began trading in traditional toys for more sophisticated gadgets, such as video games and electronics, at younger ages. In response to this trend, in 2005, Hasbro launched several new brands (e.g. Tiger Electronics) to target the 8- to 12-year-old demographic, in hopes of maintaining its market share through selling electronic-based games. However, the company experienced little success, as it faced high competition from video game manufacturers. Furthermore, poor spending conditions due to a weak economy deterred consumers from paying premium prices for electronic toys. Consequently, Hasbro announced in early 2009 that it would abandon its electronic division. Instead, the company refocused its strategy to emphasize its core products, which have ties to motion pictures and television shows. To achieve this, the company entered a joint venture with Discovery Communications to create a new children’s channel during the same year. This channel, called “The Hub,” was launched in October 2010.

Financial performanceHasbro’s industry-specific revenue is expected to decline at an average annual

rate of 2.0% to $180.7 million in the five years to 2015. Improvements in disposable income and consumer confidence helped boost sales by 14.3% in 2011, despite a 6.1% decline in revenue during 2010 due to a decline in boys’ toys sales. During the recession, Hasbro demonstrated solid growth as toys with movie and television tie-ins exhibited strong sales. For instance, theatrical releases of both Transformers and G.I. Joe in 2009 increased demand for related action figures and other similar products, leading to a 1.7% revenue growth in the same year. Hasbro’s income also remained strong in 2009; industry specific operating income increased by 47.3% as a result of a rise in total sales, positive product mix and decreased marketing and sales expenses. In 2015, Hasbro’s US industry-specific revenue is expected to slightly rise. This will most likely occur because of strong first quarter sales, as compares to the previous year. Additionally, Hasbro’s long-standing investment in technology and productivity will continue to pay off and will boost its operating income by 54.9% for 2015. A fall in the price of crude oil is also expected to improve profit margins for the company.


Major Companies

Other Companiescontinued

public. However, in 2015, according to Hoover’s, the company is expected to generate $0.8 million in revenue, giving it an industry market share of 0.1%.

Mattel Inc. Estimated market share: N/AMattel Inc. is the world’s largest manufacturer and marketer of toy products. The company offers a diverse range of products for children of all ages, including toys for infants and preschoolers, girls’ toys, boys’ toys, youth electronics, hand-held games and educational toys. Mattel’s domestic segment is divided into three categories: Mattel girls and boys brands, which include toys such as Barbie dolls and Hot Wheels; Fisher-Price brands, which include Little People, BabyGear, Power Wheels and Dora the Explorer; and American Girl brands, which include the My American Girl and Bitty Baby collections. Mattel has also entered into licensing agreements to produce and market toys based on Disney characters, Disney films, Nickelodeon characters, Warner Bros. characters such as Batman and Superman, and Sesame Street characters. However, in 2010, the Sesame Street license was granted to Hasbro. This license includes a deal with Sesame Workshop for rights to produce Sesame Street toys through 2020.

Mattel manufactures toy products via company-owned facilities and third-party manufacturers. Over the past five years, the company has focused most of its core-product production in company-owned plants in order to achieve greater flexibility in the production and delivery of its products. Mattel has moved most of its manufacturing facilities from the United States to China, Indonesia, Thailand, Malaysia and Mexico as part of its continuing effort to reduce overall manufacturing costs. This move has enabled the company to take advantage of cheap labor and low overhead costs.

The company closed its last major US production facility in 2002, and has since focused only on design, marketing and distribution for its US-based operations.

K’Nex Brands LP Estimated market share: 1.6%K’Nex was founded in 1992 and sent its first shipment for sale to Toys “R” Us. The company is headquartered in Hatfield, PA, and employs about 400 people. K’Nex and its affiliated manufacturer, The Rodon Group, have an estimated combined revenue of $100 million, according to The Wall Street Journal. In 2012, the company took over the production of Tinkertoys under license from Hasbro. Like other industry players, K’Nex had moved most of its manufacturing operations to China and the Far East. However, over the past few years, K’Nex has brought a significant amount of its production operations back to its headquarters in Hatfield. The company believes that it can gain long-term advantages such as lower compliance costs, shorter response times and a greater ability to monitor production quality and design. According to estimates from Hoover’s the company generated $28.9 million in 2014 and IBISWorld expects K’Nex will generate $30.0 million in revenue from its US industry-specific operations in 2015, putting its estimated market share at 1.6%.

Little Tikes Estimated market share: N/ALittle Tikes was established in Aurora, OH, in 1969 and is currently headquartered in Hudson, OH. The company employs about 800 people at its only manufacturing facility in the US, in Hudson. Little Tikes is another industry player that exemplifies the recent preference for reshoring toys, dolls and games manufacturing back to the US. Over the past few years, the company has


Major Companies

Other Companiescontinued

brought back many of its manufacturing operations back to the US, citing significant logistical problems and high freight costs as two of their primary concerns. Company officials contend that labor cost is not the only concern when making a decision regarding where to produce. Equally important are logistical, quality and response time concerns alongside energy costs. The United States has an advantage in those areas, claimed the company in a Cleveland Business article in July 2013. Little Tikes has seen growth in recent years after moving more of its manufacturing back to the US and is making considerable

capital investments to ensure that it remains competitive, despite increasing labor costs in the United States. The company recently invested $3.0 million in new injection modeling technology, which became operational in 2014. Since Little Tikes is a privately held company and is a subsidiary of MGA Entertainment, it does not publicly report its revenue. However, IBISWorld expects revenue to be significant, given that, according to some sources, Little Tykes contributed $250.0 million in revenue to Newell Rubbermaid before being acquired by MGA Entertainment in 2006.


Capital Intensity The level of capital intensity in this industry is low to moderate. On average, this industry spends $0.08 on capital for every dollar spent on labor, which reflects the importance of manual labor to the product assembly process and the need for qualified personnel for the design components of production.

The level of capital requirements for manufacturers can be extensive, covering items such as plant and equipment used in the production process. The level of research and development activity undertaken by a company also affects investment in plants and machinery. The development of new products has generally been associated with substantial changes to existing machinery and production processes,

and an overall rise in capital investments. Manufacturers also tend to spend more on capital investments

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

r Int

ensi

veCapital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Recordable Media Manufacturing

Toy & Craft Supplies Wholesaling

Cardboard Box & Container ManufacturingMotorcycle, Bike & Parts Manufacturing

Hobby & Toy Stores


Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Toy, Doll & Game

Manufacturing

ManufacturingEconomy

Level The level of capital intensity is Low


Operating Conditions

Technology & Systems In terms of manufacturing technology, the types and extent of technology vary across product segments. However, there are some common technologies employed by larger manufacturers to streamline production and reduce costs. For instance, most large manufacturing operations utilize computer-controlled machinery and other automated handling and assembly technology to perform repetitive tasks. Although these forms of machinery are relatively expensive to set up and install, the associated productivity gains are substantial. An increase in output volume reduces the cost per unit, as fixed costs are spread across more units.

Types of materials used as inputs to the manufacturing process are also changing, with lighter and more durable materials being utilized for product

modifications. In addition, per children’s product safety laws, Consumer Product Safety Improvement Act of 2008 (see Regulation and Policy), manufacturers have transitioned to using lead-free paint and non-toxic raw materials.

Over the five years to 2015, changes in technology have been accelerated by the age compression phenomenon in the industry. In response to this trend, manufacturers have launched more sophisticated toys with advanced electronic components. For example, microchips that provide lifelike features to toys and complex operating systems have been installed for learning platforms. With youth electronic toys sales projected to increase, such advancements in technology are expected to continue in the industry over the next five years.

Capital Intensitycontinued

to remain competitive within the market by investing in new technology. This trend was exemplified by the launch of electronic and interactive toys into the market.

Growth in the level of capital investment for this industry has had a resulting negative impact on the demand for semi-skilled labor. While skilled production staff has always been required for the assembly of products, a rise in automation technology has effectively made such staff redundant. The demise of labor across this industry has also been

driven by the trend of keeping the number of employees to a minimum and using temporary employees during peak times (the third and fourth quarters of each fiscal year). While the level of capital intensity has decreased over the past five years due to a dramatic decline in revenue, IBISWorld expects that the industry will continue to become more capital intensive over the next few years as industry operators reshore manufacturing to the United States and attempt to substitute capital for labor to compete with low-priced imports.

Level The level of Technology Change is Medium

Revenue Volatility Revenue for the Toy, Doll and Game Manufacturing industry is influenced by variations in the level of personal disposable income and consumer confidence. Spending on industry products increases when consumers are more confident about their financial position. The decline of these drivers,

triggered by the economic recession, significantly hindered demand over the five years to 2015.

Demand has also been adversely affected by growing competition from low priced imports. Imports from Asia, especially China, have placed increasing pressure on the industry by offering

Level The level of Volatility is High



Regulation & Policy Consumer Product Safety Improvement ActConsumer Product Safety Improvement Act of 2008 (CPSIA) is the most recent industry-relevant regulation to be introduced. This act aims to protect children from unsafe levels of lead and phthalates by banning the sale of all children’s products that do not meet the new federal regulations. CPSIA also requires manufacturers to test all products and parts intended for children under 12 years of age, including all toys, dolls and games that are sold. If stores are found selling items do that meet the new federal regulations, violators are subject to criminal and civil charges under the act, with fines up to $100,000 for each violation and prison sentences up to five years.

Because most industry products are geared toward children under 12 years of age, operators in this industry experienced considerable testing costs. In addition, many stores have also incurred large disposal costs for goods that do not meet the new regulation and governmental standards, which have hurt profit margins in the past five years.

Other regulationsAlong with many other manufacturing industries, the Toy, Doll and Game Manufacturing industry is subject to federal, state and local environmental laws, and health and safety laws and regulations that impose workplace standards and limitations on the discharge of pollutants into the


Volatility vs Growth

Reve

nue

vola

tility

* (%

)1000

100

10

1

0.1

Five year annualized revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.


Level & Trend The level of Regulation is Heavy and the trend is Steady

retailers a broad range of toy products at highly competitive prices. As a result, domestic operators have been forced to reduce their price points in order to remain competitive, causing overall revenue to decrease in the process. Conversely, advances in product technology and design have fueled rise in demand for interactive toys. Age compression in society prompted a shift in consumer preferences, which

initially caused concern within the industry due to a gap in product availability; however, the introduction of new goods soon filled the void.

Over the five years to 2015, the industry experienced high revenue volatility. Volatile exchange rate conditions coupled with economic uncertainty led to large fluctuations in revenue over the past five-year period.

Revenue Volatility continued



Industry Assistance The Toy Industry Association, Inc. (TIA) was founded in 1916, and is the national trade association for US producers and importers of toys, games and children’s entertainment products. Together with the US government, TIA has developed toy safety standards. TIA also works with consumer organizations, such as the International Consumer Product Health and Safety Organization (ICPHSO) and, most recently, the National SAFE KIDS Campaign, to communicate the

importance of safe play throughout the United States.

The National Association of Manufacturer’s mission is to enhance the competitiveness of manufacturers and to increase understanding among policymakers, the media and the general public about the importance of manufacturing to US economic strength. With the implementation of the Uruguay Round agreement effective January 1, 1995, all US duties on dolls and traditional toys were completely eliminated.

Regulation & Policycontinued

environment. These laws also establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of certain materials, substances and wastes. Such laws include US Clean Air Act and the Clean Water Act. The US Clean Air Act requires compliance with air quality standards and empowers the Environmental Protection Agency (EPA) to establish and enforce the limits on the emission of pollutants. The EPA also establishes

allowances for sulfur and nitrogen oxides, along with strict requirements applicable to ozone emissions and other toxic materials. The Clean Water Act regulates the discharge of pollutants into the surface water. This act establishes a system of minimum national efficiency standards for water quality, on an industry-to-industry basis. Industry operators are also subject to occupational health and safety, wage, overtime and other employment laws.

Level & Trend The level of Industry Assistance is Low and the trend is Steady


Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises EmploymentExports

($m)Imports

($m)Wages ($m)

Domestic Demand

Price of plastic materials and resin

(Index)2006 4,621.5 996.6 787 776 16,075 1,568.4 20,087.1 712.8 23,140.2 198.42007 3,320.3 639.2 777 770 12,349 2,286.7 25,102.5 517.6 26,136.1 195.92008 3,413.6 517.8 712 705 11,044 1,757.8 25,810.8 463.0 27,466.6 215.02009 2,373.3 580.7 667 660 9,814 1,775.8 22,915.7 419.6 23,513.2 190.82010 2,377.0 527.0 598 593 8,800 1,663.6 23,759.5 394.9 24,472.9 210.12011 2,417.0 595.2 594 589 7,828 1,561.4 20,627.8 408.2 21,483.4 229.92012 1,740.1 443.5 563 560 7,481 1,410.9 19,060.3 349.5 19,389.5 235.22013 1,716.3 393.9 545 543 6,538 1,255.3 18,241.0 287.5 18,702.0 245.32014 1,726.8 434.5 563 559 7,292 1,256.4 18,552.6 322.3 19,023.0 257.82015 1,863.5 470.7 577 573 7,621 1,584.0 18,529.3 340.3 18,808.8 223.02016 1,828.3 469.2 574 566 7,724 1,553.8 18,892.0 341.2 19,166.5 211.72017 1,786.9 451.2 563 559 7,246 1,561.8 19,332.3 326.1 19,557.4 221.52018 1,751.7 448.4 562 558 7,277 1,536.0 19,800.6 327.6 20,016.3 228.92019 1,728.6 436.8 560 555 7,184 1,516.0 20,028.0 319.3 20,240.6 233.32020 1,711.7 435.0 560 554 7,213 1,538.3 20,061.9 320.3 20,235.3 236.1Sector Rank 288/405 285/405 134/405 123/405 244/405 121/373 36/373 267/405 108/373 N/AEconomy Rank 1075/1364 1116/1364 941/1364 879/1364 1054/1364 139/428 38/428 1067/1364 126/428 N/A

IVA/Revenue (%)

Imports/Demand

(%)

Exports/Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2006 21.56 86.81 33.94 287.50 15.42 20.43 44,342.15 0.012007 19.25 96.05 68.87 268.87 15.59 15.89 41,914.33 0.002008 15.17 93.97 51.49 309.09 13.56 15.51 41,923.22 0.002009 24.47 97.46 74.82 241.83 17.68 14.71 42,755.25 0.002010 22.17 97.08 69.99 270.11 16.61 14.72 44,875.00 0.002011 24.63 96.02 64.60 308.76 16.89 13.18 52,146.14 0.002012 25.49 98.30 81.08 232.60 20.09 13.29 46,718.35 0.002013 22.95 97.54 73.14 262.51 16.75 12.00 43,973.69 0.002014 25.16 97.53 72.76 236.81 18.66 12.95 44,199.12 0.002015 25.26 98.51 85.00 244.52 18.26 13.21 44,652.93 0.002016 25.66 98.57 84.99 236.70 18.66 13.46 44,174.00 0.002017 25.25 98.85 87.40 246.61 18.25 12.87 45,004.14 0.002018 25.60 98.92 87.69 240.72 18.70 12.95 45,018.55 0.002019 25.27 98.95 87.70 240.62 18.47 12.83 44,445.99 0.002020 25.41 99.14 89.87 237.31 18.71 12.88 44,405.93 0.00Sector Rank 187/405 5/373 5/373 331/405 109/405 355/405 305/405 285/405Economy Rank 883/1364 6/428 6/428 702/1364 699/1364 684/1364 799/1364 1116/1364

Figures are in inflation-adjusted 2015 dollars. Rank refers to 2015 data.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)

Price of plastic ma-terials and resin

(%)2007 -28.2 -35.9 -1.3 -0.8 -23.2 45.8 25.0 -27.4 12.9 -1.32008 2.8 -19.0 -8.4 -8.4 -10.6 -23.1 2.8 -10.5 5.1 9.82009 -30.5 12.1 -6.3 -6.4 -11.1 1.0 -11.2 -9.4 -14.4 -11.32010 0.2 -9.2 -10.3 -10.2 -10.3 -6.3 3.7 -5.9 4.1 10.12011 1.7 12.9 -0.7 -0.7 -11.0 -6.1 -13.2 3.4 -12.2 9.42012 -28.0 -25.5 -5.2 -4.9 -4.4 -9.6 -7.6 -14.4 -9.7 2.32013 -1.4 -11.2 -3.2 -3.0 -12.6 -11.0 -4.3 -17.7 -3.5 4.32014 0.6 10.3 3.3 2.9 11.5 0.1 1.7 12.1 1.7 5.12015 7.9 8.3 2.5 2.5 4.5 26.1 -0.1 5.6 -1.1 -13.52016 -1.9 -0.3 -0.5 -1.2 1.4 -1.9 2.0 0.3 1.9 -5.12017 -2.3 -3.8 -1.9 -1.2 -6.2 0.5 2.3 -4.4 2.0 4.62018 -2.0 -0.6 -0.2 -0.2 0.4 -1.7 2.4 0.5 2.3 3.32019 -1.3 -2.6 -0.4 -0.5 -1.3 -1.3 1.1 -2.5 1.1 1.92020 -1.0 -0.4 0.0 -0.2 0.4 1.5 0.2 0.3 0.0 1.2Sector Rank 30/405 39/405 87/405 82/405 48/405 8/373 294/373 42/405 328/373 N/AEconomy Rank 129/1364 155/1364 411/1364 371/1364 218/1364 9/428 336/428 200/1364 370/428 N/A

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

Industry Jargon

IBISWorld Glossary

AGE COMPRESSION A phenomenon whereby children are outgrowing toys at a younger age and demanding more adult-like products.

OFFSHORE The relocation of a company’s business process, such as manufacturing or accounting, from one country to another, whether the work is outsourced or stays within the company.

OUTSOURCE The act of procuring goods or services under contract with an outside supplier.

PHTHALATE A substance is added to many plastics (to increase flexibility, transparency, durability and longevity) that is being phased out of many products in the United States over health concerns..

TWEEN The stage between middle childhood and adolescence in human development, generally ranging from 8 to 12 years of age.

WEBISODE An episode, such as a TV show, which may or may not have been telecast but can be viewed at a website.

WHOLESALE BYPASS A popular trend within retail and manufacturing industries where producers supply goods directly to stores, eliminating the middleman.


Jargon & Glossary

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

IBISWorld Glossary continued

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