Toy Sales and the “Wal-Mart Effect”

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In analyzing the reasons for the decline in toy sales since 1998 (See:   “Consumer Spending On Toys and Games is Down Since 1998; should we be worried”) I questioned whether part of the sales decrease was due to what I called the “Wal-Mart Effect.”  The “Wal-Mart Effect” being the powerful downward pressure Wal-Mart exerted on toy retail prices, particularly in the 90’s and first half of the 2000’s.  In other words, did toy retail sales figures go down, not because fewer people made purchases but because what they purchased got cheaper?

Giedrius Daujotas,  the toy analyst – Toys and Game for Euromonitor International, broached this and a number of other issues in his  article “Has Toy Spending Peaked in the US?”  Giedrius raises the question of whether declines in toy sales have impacted all developed countries or just the US.  His research shows that “…it is pretty clear that a decline in traditional toys in the US is more of an


exception, rather than a reflection of declining toy spend across developed markets. The US toy market may have stagnated since 1998, but the same cannot be said for other developed countries.”

Giedrius proposes that there is indeed a “Wal-Mart Effect.”  Here is how he says accounts for it:

First, the US has the most consolidated retail sector for traditional toys among developed economies. Wal-Mart, Target and Toys R'Us combined account for 68% of US and Canada value sales for Hasbro. 

Second, two of the three largest toy sellers in the US are discounters, with plenty of bargaining power to exercise over toy manufacturers. Lower prices may be good for consumers, but such price pressure hurts the toy market.

Giedrius concludes by stating : “Whether it has to do with alternative play options, consolidated retail or lack of innovation in the industry, it is fair to say the US toy market has lagged behind other developed economies throughout the last decade, and continues to do so. “ Giedrius rightly ponders whether this phenomenon will continue to be an American one or will spread to other countries.

The American toy industry has over the last decade struggled with everything from tough and costly new safety laws to a dizzying new number of play options.  How it does in the next decade will depend upon how it responds to opportunities with off-shore markets; adults who want to play; the macro economy and God knows what else.  You have to be tough to be in the toy business.  It’s a good thing that the toy business has a lot of tough people.

 

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