In the last 20 years, the cost of toys has declined a whopping 72% (Census Bureau Historical Income Tables*). I find that number to be astounding.
To provide perspective, the over all inflation rate for that 20 year period was +55%. That is a 127% differential between toy prices and general inflation. Other deflationary products cited were televisions (-95%), Software (-70%) and cell phones (-40%). And from where have the increases come? From life essentials like college tuition is +200% and Healthcare +120%. Other categories cited were cellphones (-40%) and software (70%).
I am not surprised by the decline in the prices for the technology based products cited above. After all, the first pocket calculator retailed in 1974 for $240 ($1429 adjusted for inflation) and the first digital watch retailed for $2100 ($13,600 adjusted for inflation). You can get them today as promotional give aways.
I am, however, surprised by the dive in toy prices. Toys are a very different commodity than consumer electronics. Technology prices for things like digital watches and televisions decline in price because costs of production dive as supply and demand dramatically go up. Toys however date back to the industrial revolution. Yes, moving production to China had an impact but the toy industry has been manufacturing in China for almost 50 years. The above cited deflation figure of -72% only covers the last 20 years.
So, why did toys decline so dramatically in price?
There are a number of factors but it is largely due to a concerted and sustained effort by retailers to pressure the toy industry to reduce costs. And it worked…maybe a little too well.
It makes me think back to a comment made by Thomas Kaeppeler, President of Ravensburger North America, in my interview with him. Thomas mused about being told 25 years ago that the retail sweet spot for a toy was $19.99 and that today it still is.
Perhaps we need to take a step back and reconsider the retail price proposition and if perhaps we have gone a little bit too far in the fight to hit the lowest retail price point. What does the value price proposition look like today and what did it look like 20 years ago. Has the consumer really changed that much?
*"Debunking the Retail Apocalypse", Lee Holman, Greg Buzek