A survey of online toy wholesalers and retailers reveals a good but not great year in 2006, and promising prospects for '07.
Sources told Web Wholesaler that the approximately $25 billion toy industry is at a crossroads for various reasons, not the least of which is increased competition among wholesalers and retailers, whether online or brick and mortar. In addition, demographic factors have crept into the mix, as the ages of young children from post Baby Boomers continue to rise.
"Traditional, basic toys, such as educational toys and building blocks, will survive," said Lu Su, vice president of sales and marketing for the New Jersey based company, Toy Wonders. "However, the toy industry is going through a metamorphosis. There is a lot of change going on in the industry."
Children are growing out of toys at an earlier age than in previous generations, and they are graduating to electronic items like iPods, computers and televisions in greater numbers, sources said. "There will always be children," one wholesaler put it. "But the age range for the traditional toy market has been reduced."
In addition, wholesalers and retailers are increasingly feeling the strain of rising raw materials costs in China and other parts of the world where toys are made. According to investment firm, Piper Jaffray, and BusinessWeek magazine, 90 percent of toys sold in the U.S. are imported from China and other countries. Even the Toy Building, for years the Fifth Avenue home of the Toy Industry Association in New York and the location of showrooms for toy makers and wholesalers, has moved to a Broadway address without the showrooms.
There were plenty of bright spots among web toy wholesalers in 2006, and not just the runaway success of TMX Elmo. Online toy sales increased significantly last year, and Forrester Research said web toy sales were close to 20 percent of all toy purchases in 2006, up almost 5 percentage points over 2005. This was due in part to Amazon doubling its offering of toys to combat online sales gains by Toys R Us.
"In 2006, we did pretty well," said Erica Liu, president of Elco Toys in New York. She declined to provide specific numbers, but said 2006 sales of their plush toys and other novelties, "Improved over the previous year." Elco's products on average wholesale in the $2 to $3 range.
The company has a store at Wholesalecentral.com (http://www.wholesalecentral.com/elcotoy/store.cfm) that Liu said generated healthy sales. In 2007, Elco plans to launch its own website to accompany the Wholesale Central store. "We want to get into more gift stores, in addition to selling to more businesses in the amusement industry," Liu said. "It is difficult to reach them, but having the two online locations will help."
At Toy Wonders, one of the company's hottest products was a talking pen that features sayings from the characters of the animated comedy show, "Family Guy." The pens were created by Florida based toy wholesaler, Kamhi World, and they wholesaled for about $2.75 each and retailed for $5.99. But according to Su, do not expect to see that again in 2007, despite the show still being popular on television, in video games and in DVD sales. "We feel that fad is over, but we are working on something with the Simpsons," Su said, adding that while the popularity of certain shows may wane over time, the idea of talking pens has not yet run its course.
Kamhi World president, Jay Kamhi, said the Simpsons pen will debut with the release of the Simpsons Movie in the summer, and added that he expects Shrek products will also be hot in 2007. "The movie, 'Shrek 3,' is coming out in May. 'Shrek 2' was the third highest grossing film ever made, right behind Titanic and Star Wars. Shrek 2 was the hottest licensed property in Wal-Mart's history," he said.
In addition to talking pens, Kamhi World also makes Spice Mice plush toys and a new product that it will release later this year. "We will be selling a talking T-shirt, using patented technology. We did talking key chains and that did well. We are expecting that talking T-shirts will be a new craze on the market," Kamhi said.
Such fickleness when it comes to what products to develop or carry is inherent in the toy industry, but some of the tried and true toys remain steady sellers. Another hot product for Toy Wonders (and for many toy wholesalers) was diecast cars. Such cars, which vary in size and wholesale for less than a dollar to as much as $30, have long been hits for toy wholesalers in the U.S. because Americans are so obsessed with cars.
In Toy Wonders' case, the new James Bond replica Aston-Martin from the movie "Casino Royale," was a hot seller. But according to Su, many in the industry were caught off guard by the car's popularity in 2006. The version Toy Wonders sold was a 1:18 scale replica that wholesaled for $25 and retailed for more than $50. Half of the company's product offerings are diecast cars, many by a company called Dub City.
"Everybody under-ordered that one because the last four Bond cars only sold OK or, in many cases, poorly," Su said, adding that Toy Wonders sold out of it quickly, in part due to the movie's popularity and pre-release buzz.
Radio Controlled Cars
In keeping with the theme of toy cars being big in 2006, radio controlled models were also hot items. At Miami's Emirimage Corp., it was another solid year, as the company's specialty is R/C cars and other vehicles. "Not a bad year overall," said Sergio Velezquez, sales manager.
The 20 year old company's hottest seller was the Ramper, an all terrain vehicle that wholesales for $9.95 and sells for between $29 and $39. Besides going backwards and forwards, the Ramper can climb stairs, perform wheelies and spin on a dime. Emirimage owns the patent for the 7 inch long vehicle, as it does for all of its R/C products. "Our product does well throughout the year, not just for the holidays," Velezquez said. "And because we own the patent, the overall quality of the vehicle is higher, which I think helps with our sales."
R/C cars and other vehicles are hot, Velezquez said, partly because they bridge the gap between toys and electronics. In addition, the products appeal to younger and older children, and oftentimes their dads, too.
The company plans to expand its line in 2007 by adding an infrared controlled helicopter. Infrared technology is more precise than radio waves and has no interference from things around the vehicle, like cell phones or radios. Velezquez said the helicopter will be small enough to rest in the palm of a hand and will wholesale for about $17.95. The retail price is expected to be between $40 and $50. "I think this will be a big seller for us," he said.
Web Grows Up
As mentioned earlier, online toy sales were up in 2006, especially for wholesalers, sources said. Broadband access grew significantly during the year, leading some companies to revamp their websites. Toy Wonders was one of them, increasing the site's bandwidth, improving its search capabilities and making the site, located at Toywonders.com, more user friendly.
"With the realization that more people had broadband access, more companies have begun turning to the web for more of their advertising and promotions," Su said. The traditional means for advertising and exposure, such as trade shows, is dwindling, he believes, because every company worth doing business with has a website and it is so easy for people to log onto a site and place orders, as opposed to having to meet face to face or even talk on the phone.
"Our best customers are mom and pop companies, in addition to the chain stores and wholesale distributors, and all of them are turning to the web more and more." Toy Wonders' website popularity convinced Su to drastically cut back on the number of print catalogs it orders.
Dennis Schluckbier, president of Michigan based Hayes Specialties, said his company also improved its website, located at Ehayes.com, to meet the demands of increased traffic. "We are trying to make our website easier for customers to navigate, but also easier for us to update. Our business is so fluid that very few items stay up there for very long, so we improved our ability to change data quicker," Schluckbier said.
Like Toy Wonders, diecast cars were big sellers for Hayes Specialties, but the company's hottest products were themed hats of animals and cartoon characters, and animals made of sponges and other materials that grow to several times their size when people add water. Both items generally wholesaled for $3 or less. "Also, any toy that lights up or blinks was popular for us in 2006," Schluckbier added.
He said his company felt the pinch of keeping wholesale prices down in 2006, in light of the cost of raw materials going up. But Schluckbier was quick to add that, "As long as the playing field is even," (everyone in the industry experienced rising raw material costs) his company would be OK in 2007. "Overall, I would characterize 2006 as a decent year, a little better than anticipated," Schluckbier said, adding that 2007 will likely, "offer more of the same."
Velazquez agreed. Referring to the rising costs of raw materials, he said, "You cannot stop that. Retailers are not too affected by it yet, but the day will come."
13584 49th Street North
Clearwater, FL 33762
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234 Moonachie Road
Moonachie, NJ 07074
Elco Toy Co.
PO BOX 320152
Brooklyn, NY 11232
Hayes Specialties Corp.
1761 East Genesee
Saginaw, MI 48601-2407
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