Ryan Faist is the Content Marketing Manager for Channel Key, a full-service Amazon and Walmart Marketplace consulting agency. A nationally published and award-winning journalist, Mr. Faist writes about the latest developments in ecommerce, marketplace strategies, changes in consumer shopping trends, retail industry disruptions, and the overall shift toward online shopping. For daily Amazon news and ecommerce updates, follow Channel Key on LinkedIn.
Toy manufacturers have a good reason to be optimistic. The industry is growing. According to The NPD Group, U.S. toy sales increased by 16% in 2020 to reach $25.1 billion. The pandemic fueled much of this growth, and the momentum doesn’t appear to be slowing. Total U.S. toy sales grew by 27% from January to April 2021, a $1.5 billion increase from the same period last year.
Even more revealing is how customers are shopping for toys. The NPD Group reports online sales grew 75% year-over-year from 2019 to 2020. This is great news for toy brands that have embraced ecommerce, but it also underscores the growing competition on marketplaces like Amazon. The retail giant is leading digital sales in the U.S. Toys and Baby market, generating $5.6 billion in 2020. Walmart comes in second at $4.1 billion, followed by Target, Costco, and Sam’s Club.
Understanding New Challenges for Toy Brands
Ecommerce offers a long list of benefits for brands, but it also presents new challenges. Online shopping provides customers with more selection and options than ever before. They can search thirty websites in the same amount of time it takes to visit one brick and mortar store. This means product discoverability is paramount, and there is enormous competition.
Another consequence of the shift toward ecommerce is the decline of impulse buys driven by child requests. The days of family trips to the mall are just about gone. Toy brands can no longer count on aisle displays and other in-store marketing tactics to generate last-minute purchases. Today, browsing takes place online. Toy brands need to adapt by finding new ways to engage shoppers and drive purchase intent.
Online shopping has also changed the customer journey. It’s become a more dynamic process. Customers often research a product on multiple websites, social media outlets, and marketplaces before making a purchase. In other words, the funnel is more fragmented. Brands need to cultivate relationships with customers at every online touchpoint and in a way that will drive them back to their online storefront.
Amazon’s Role in the Future of Ecommerce
There’s no denying that ecommerce is changing the way customers shop, and Amazon is leading the pack. What began as an online bookstore in the 90s has become an “everything store” that delivers over four billion packages each year. More than 200 million customers subscribe to Amazon’s Prime Membership program, including over 80% of American households. Approximately 2.45 billion people visited Amazon.com in June 2021, making it the most trafficked ecommerce site in the U.S.
One of the reasons for Amazon’s popularity is not only the convenience it provides to shoppers, but also the tools available to businesses. The platform offers a vast suite of marketing and advertising levers to help brands reach customers – and it keeps expanding. Analysts forecast Amazon will generate $26.1 billion in ad revenue this year, driven primarily by small and medium-sized businesses.
As more brands join Amazon, the marketplace will become more saturated. One can imagine a scenario in which large companies invest heavily into the platform, causing a rise in advertising costs for smaller companies. As Amazon Advertising grows, it will become more challenging – and expensive – for brands to stand out from their competition.
Now for the good news. Amazon Advertising has a long way to go before the market reaches maturity. Brands that are currently on Amazon have a unique advantage over competitors who will inevitably join at some point in the future. For the latter’s sake, sooner is better than later. The longer brands wait to establish themselves on the most powerful ecommerce marketplace in the U.S., the more difficult it will be to break in and compete.