Industry Outlook

State of the Industry: Looking Ahead to 2019

This year saw the fall of the iconic retail giant, Toys “R” Us, and in June of this year the chain closed its remaining 740 U.S. stores sending shockwaves through the toy industry.


Fifteen percent of U.S. toy revenue came to a halt when the 70-year-old big-box retailer closed its doors due to bankruptcy. The far-reaching effects on the toy and game industry and the impact and shifts in the retail climate are just beginning to be understood, but one thing’s for sure: change is in the air.


Experts say that in its heyday Toys “R” Us captured in excess of 90 percent of toy specialty sales in the U.S. and accounted for approximately a quarter of the toy specialty markets in Europe.


The ripple effect of its closing means toy manufacturers now need to find new distribution outlets and diversify sales channels. Price points must be re-evaluated and aggressive promotions and state-of-the-art digital marketing, plus social media may take on more significance. Foreign markets will also play a much bigger role, as companies expand beyond U.S. borders.


Traditionally, mass market brick-and-mortar stores such as Walmart and Target stocked only small amounts of toys and games, many of them seasonally, believing that toys were a loss leader. Now they’re making grand plans to amass some of the billions of dollars in toy revenue made available by the demise of Toys “R” Us.


In August, Walmart announced its first-ever toy media event and vowed to hold more than 2,000 in-store toy events in the coming months. Target is gearing up for the holiday season with an extensive array of toys and baby product. Companies such as JCPenney, Kohl’s, and Best Buy are also expanding their toy aisles. And Party City announced the opening of 50 Toy City pop-up stores for holiday.


Another big winner is e-commerce, with companies such as Amazon reaping the rewards. Amazon is also printing a toy catalog, rivaling the Toys “R” Us Big Book, that will be mailed to its millions of customers—as well as distributed at Whole Foods locations—in anticipation of holiday shopping.


While some see this “state of the industry” as the death of the toy and game category as we know it, others see this disruption as an opportunity, lending itself to new and different partnerships and alliances, and expanded domestic and global business.


Meanwhile, back on the toy shelves, trends predicted at the 2018 International Toy Fair continue to grow with an ongoing demand for collectibles, creative and learning toys, technology-based products, and nostalgic items that appeal to millennial parents as well as their children. The toy industry is also capitalizing on slimy, shiny, and gross products which children and big kids alike still adore.


In this ever-changing environment, TFE went to the experts to learn their thoughts on these new horizons and to get insights into next steps and expansion in the post Toys “R” Us era. Here is a glimpse of industry chatter and what to look forward to in 2019.



TFE: With the closing of Toys “R” Us, what are some of the biggest challenges and opportunities for toymakers in terms of retail placement and production looking ahead? What retailers are you most excited about?

“We are thrilled with how our partners—big and small—are stepping up to fill the gaps left by Toys ‘R’ Us,” says Jay Foreman, CEO of Basic Fun! “Whether it’s adding more space in stores like Target, increasing inventory levels at stores within proximity to closed Toys ‘R’ Us locations like Walmart, or the moves being made by medium and smaller retailers to shop toy companies more actively and take positions in new emerging lines.We are finding doors opening and buyers more engaged than ever. On top of that are the growing promotional initiatives at Amazon and the seasoning of its buying team, which is now stepping up to replace Toys ‘R’ Us as the industry’s ‘showroom.’


“Given the turmoil surrounding the bankruptcy of Toys ‘R’ Us, the list of potential merger and acquisition opportunities has expanded greatly in the past six months,” Foreman adds. “We are in conversations with many that recognize that it’s getting tougher and tougher to navigate the challenging retail landscape.”


According to Randy Shoemaker, senior vice-president of global brand marketing at Funrise, “One of the biggest challenges facing the toy industry in terms of retail placement is the lack of shelf space to support all the new innovation the toy industry creates each year. Without Toys ‘R’ Us, launching a new brand or creating an exciting new product, innovation will be challenging for toymakers. But this also provides an opportunity for companies to think differently about how they launch these new brands with their retail partners, and to challenge them to raise the bar on creative solutions.”


Adds Shoemaker, “Even though there’s been some significant change in the retail environment over the past 12 months, there’s a lot to be excited about. In addition to growing our business with Walmart, Target and Amazon, Funrise has been expanding its reach with key retail partners. Toys ‘R’ Us Canada, Costco, and Walgreens have been amazing partners and they really understand what their customers want in toys. We’re excited to see how retailers like Party City have expanded their toy sections and become bigger players in toy retail.”


Charlie Emby, co-president of Just Play, agrees. “We’re very excited to see how retail has reacted to the changes in the environment. Partners such as Walmart, Target, and Amazon are doing a great job adjusting with the shift in consumer shopping behavior by evolving their digital presence as well as their total shopping experience. They’re successfully finding ways to ensure that toy shopping and the holiday time period in general deliver the magic that today’s families expect. In the U.S., Meijer has been reaching consumers by delivering a broad assortment of toys, and Kohl’s has made a strong toy presence by adding in features and promotional space throughout its stores.”


Anna Mowbray, COO of ZURU, also sees new opportunities with retailers. “We take inspiration and direction from a lot of retailers and not only those in the toy industry. This allows us to keep our finger on the pulse of the category, while also focusing on our customers who are at the heart of our business. We are paying particular attention to retailers who seem to be concentrating on two key trends,” she says. “Firstly, those who are fine tuning their value or private label offerings, as this is something that is perfectly in line with our X-Shot and Metal Machines brands.


“Secondly, we are looking to watch retailers who are focusing their efforts to improve the shopping experience, in store and online. We have seen one of our partners do this through rationalizing its SKUs, reducing clutter and enhancing the retail shopper experience, and redeveloping its online offers so that customers know exactly what they can expect and reduce any barriers to purchase. Another of our partners is enhancing what it stands for by delivering unique experiences in store, coupled with amazing prices, and as such we are seeing them expand into Europe … something we are keeping a very close eye on.”


Adds Belinda Gruebner, executive vice-president of global marketing at Moose Toys, “Of all the opportunities to emerge from the changing retail landscape, we are most excited about our small and mid-sized retailers leaning in heavier across our entire portfolio (not just the proven brands), and our larger retailers offering more incremental space and promotional opportunities than in previous years.”



TFE: What are the biggest opportunities for growth and expansion outside the U.S.? What international markets are you focusing on?


“Latin America is seeing incredible growth for us,” says Brehan Maul, general manager of North America and vice-president of marketing for Alpha Group. “We have on-the-ground teams based in Mexico and Brazil, and we are establishing great programs with best-in-class partners who are introducing our portfolio of properties to this region. The UK has really taken off with Super Wings becoming a top preschool property. Germany is also poised to have tremendous growth over the next few years as we continue to establish our presence in this region.”


For Just Play, “Toys ‘R’ Us Asia has been fantastic about executing promotions and their in-store theatre across its various markets,” says Emby. “Big W in Australia has been a partner that we’ve grown with each year and has outstanding brand statements. Smyths’ footprint is growing with its acquisition of Toys ‘R’ Us Germany, and its breadth of product mix and big store formats are working very well. The Entertainer has also been expanding across the region, as it continues to deliver a great value across product offerings.”


Funrise is experiencing significant growth outside the U.S. as well, according to Shoemaker. “In addition to our headquarters in the U.S., Funrise currently has offices in Canada, Mexico, UK, Spain, France and Australia, giving us the ability to sell direct throughout North America, LATAM, Europe, and APAC. And we have a strong leadership team working with our distribution partners throughout EMEA. In terms of specific retail accounts, we have developed a strong relationship with the team at Smyths and continue to grow our business with their support. With our new offices in Spain and France, we are opening up new retail accounts daily and are already working with amazing toy retailers such as JouéClub in France and Juguettos in Spain.”


ZURU is also seeing international expansion, according to Mowbray. “ZURU is constantly expanding, but we are especially excited with developments in Europe and China,” she says. “In 2018 we set up our own subsidiaries in France, Germany and China, not only for the market opportunity but also to ensure we are able to achieve the optimum retail price, supported with the right level of promotion. Our growth here is a critical step forward to becoming a major player in each of these key markets.”


Others are experiencing different realities in the international marketplace, according to Foreman of Basic Fun!. “With a few exceptions, we are not seeing the same dynamic engagement internationally to fill gaps and to get aggressive in toys as we see in the states,” he says. “With Brexit between the UK and EU; the U.S. currency strengthening against the Pound, Euro, and other foreign currencies; continued instability in Latin America; and slowing growth in China, we are not seeing as much organic growth or excitement internationally. However, since we only do about 20 percent of our volume outside North America, we’ve still got a lot of room for growth, and we are excited about our prospects of growing our business internationally.”



TFE: E-commerce companies such as Amazon seem to be the big winners with the closing of Toys “R” Us. How is it impacting the toy industry and what are some of the pitfalls that still need to be tackled?


“In terms of retail, Amazon has been our biggest challenge,” says Tony Norman, co-founder, president, and CEO of HEXBUG. “Anyone sitting at home can start a business and sell items on Amazon. None of the overhead needed in the past is required to set up shop. Amazon does the fulfillment as well, so these pop-up Amazon stores require very little margin to make a profit. As a result, the MSRP in the market is eroded; retailers and other online stores are forced to match, often causing a price death spiral in just a few hours. Combine this with the price-matching by others and there is no easy mechanism to bring the price back up. Nobody wants to be more expensive, so it sits at the bottom indefinitely.


“At HEXBUG we are taking a very strict stance that we do not allow any U.S. resellers to sell on Amazon. We are also limiting distribution of all new products to retail partners that do not break MAPP pricing. With that said, Amazon is also one of the biggest opportunities as the consumer becomes more and more comfortable buying online—as long as you control your own Amazon store and pricing.”



TFE: Technology-based toys continue to be a hot topic. In terms of technology and innovation, what opportunities are you seeing for toys?


“AR and VR are incredible technologies,” says John Ardell, executive vice-president and chief marketing officer at Skyrocket. “AR and VR allow users to enter an alternative world. Consumers have gravitated to the technology slower than was initially predicted. But I believe that as these technologies become more prevalent in society, they will become a more important part of toy development. We have several ideas that are in development using these technologies.


“We are also really excited about our launch of Pomsies. Pomsies combines our strong tech background with great product design. When we begin our development process, we always set out to make a fun and engaging experience for kids and then figure out the best tech to achieve this. Pomsies was inspired from the pompom trend in fashion. We took that kernel of an idea and created a cute and unique virtual pet with tons of reactions, color-changing eyes, and hidden sensors all for under $15.”


Ardell also talked about the popularity of R/C toys and drones. “Unlike most toys, R/C vehicles have the ability to not only appeal to the core toy audience but also to older boys as well as adults,” he says. “The R/C category will continue to thrive as long as companies are offering great innovation at a good value. Drones are continuing to add new features while at the same time lowering prices. The opening price point for drones has come down to $20 and the top end of the toy market has come down to about $100. For that price, consumers can get a drone that is connected to GPS satellites (allowing to stabilize flight and the ability to return back home) as well as streaming HD video. For the first time, the toy aisle is offering drones that practically fly themselves.”


HEXBUG’s Norman says he, too, has something up his tech sleeve. “Here at HEXBUG we have a secret weapon called VEX Robotics,” he says. “VEX spends millions a year on research and development to keep on the bleeding edge of the educational robotics space. This knowledge is shared with the development team at HEXBUG where the task is to cost reduce the technology into a retail product that consumers can afford. This year you will see some amazing tech in our Balancing Boxing Robots and other VEX products under the HEXBUG brand.”



TFE: Iconic brands and collectibles that appeal not only to children but also to their millennial parents continue to grow in popularity. How do you infuse freshness into these toy properties and what categories will you be focusing on in the future?


Alpha’s Maul shares insights from one of Nickelodeon’s most lovable characters, SpongeBob SquarePants, for which the company was named as master toy partner earlier this year. “SpongeBob is an iconic 20-year-old property that has multi-generational appeal. We wanted to embrace that and deliver products that are not just for kids but are also for tweens, teens and millennials who have grown up with this lovable character.


“Traditionally, the toys offered have focused on playing out the animation. It was important for us to break that cycle, take SpongeBob out of Bikini Bottom and bring him into the consumers’ lives. This direction came from our extensive research of how fans were engaging with the brand. Some watch, some share memes, and others express their love for SpongeBob through art, clothing, and other pop-culture touch points. They want to experience SpongeBob in their world and that is what we are looking to accomplish with the toy line.”


Part of that world is also goo and slime, according to Maul. “We have embraced slime for some of our kid-friendly SKUs, captured the viral nature of the best SpongeBob memes and pop-culture moments for our collectible figures, and embraced the silliness of the IP with some of our feature and plush assortments. This very differentiated approach will hit shelves in March 2019 in celebration of SpongeBob’s 20th anniversary.”


Says Moose Toys’ Gruebner, “Our focus is on bringing new ways to play through innovation in product so that we can continue evolving for our consumers. More than four years after creating the collectible craze, Shopkins is now a home for beloved and iconic characters such as Kooky Cookie and Jessicake who you can find in doll house play, fashion dolls, collectibles, die-cast cars, board games, and now micro-playsets.


“Pikmi Pop’s recent successes were a triumph given how saturated the collectible market has become,” Gruebner adds. “It’s a feat to be able to stand out, create a unique offering, carve out a space on the shelves, and capture the hearts of girls who have more choices than ever before.”


Innovative marketing initiatives and partnerships also help keep the brand fresh, according to Gruebner. “The partnership with Nickelodeon’s Velocity team was a perfect example of this. With Nickelodeon’s best-in-class knowledge of our key consumers and Velocity’s supremely talented creative team, we were able to bring the biggest on-air brand partnership to date with Pikmi Pops, and a series of ‘break-frame’ advertainment pieces to Shopkins Mini Packs that complemented our traditional toy commercials. Both initiatives were key elements that helped to elevate the entire marketing campaign.”



TFE: How do you find the right balance between original IP and licensed properties in your portfolio?


“At Funrise, we look to equally balance our portfolio of brands between original IPs and licensed properties, says Shoemaker. “With licensed properties, there is the benefit of tapping into exciting demand as consumers already have a strong affinity to these properties, as well as the opportunity to capitalize on entertainment initiatives like feature films, TV series, and events.


“Launching original IP is exciting but challenging. It requires a different mindset as you are truly building a brand from the ground up, and you have to think through all of the different components from the storyline, to the look and feel of the brand, and to the toys. For Funrise, we are actively pursuing both strong licenses as well as creating our own original IPs for our toy portfolio.”


Skip Kodak, senior vice-president of Americas Market Group for LEGO, says, “We always take a strategic approach to portfolio management, placing rigor around balancing original themes and licensed properties, with our primary focus being on offering builders of all ages something that caters to any passion point and building ability. We are careful to partner with the best global properties, and as such, we typically see great success with key licensed properties, such as Star Wars, Marvel, DC Super Heroes, and Jurassic World. In recent years, these external properties are complemented by our owned properties, such as LEGO City, LEGO Friends, and LEGO Ninjago, to drive sales.


“This year, we’ve had success in sustaining relevance for the brand in marrying the LEGO building to some key properties, such as Jurassic World and Harry Potter,” he adds. “We also leaned harder into vehicles and collectibles, and we are experiencing a resurgence of open-ended LEGO building with strong performance of our LEGO Classic collection in the 60th anniversary year of the LEGO brick.”


Adds Just Play’s Emby, “We continue to focus and build our existing licensed lines. As one of the key pillars, we have actually strengthened the innovation of our licensed products, with new items, themes, and line extensions, as well as launched new properties with our licensing partners. Hairdorables and other new IPs are a strategic expansion of our business, rather than a shift in focus. There are and will be market opportunities that are a natural fit for seeking out new licenses, but there are also times when gaps in the market manifest that might require a customized solution.


“With Hairdorables, our objective was to introduce a doll line relevant to children today with strong aspirational characters that fans could embrace for their unique personalities, interests and style. We’ve always prided ourselves on delivering unmatched value to consumers, and wanted to make sure that Hairdorables had hair fashions, accessories, and personalities that would not disappoint doll fans of all ages. We also included the surprise element as we wanted every piece of the product to be of value, even the packaging.”



TFE: With the Toy Association offering up the new report “Decoding STEM/STEAM,” better defining STEM/STEAM products is a big topic for discussion. Do you think we’ll see more of a shake out soon in terms of consumers better recognizing true STEM/STEAM products at retail?

“I have had the privilege of testifying before the U.S. Congress as an expert in STEM education,” says Norman of HEXBUG. “It is very easy for me to spot the ‘label slappers’ in the toy market, but I’m not sure the consumer is quite there yet. Here at HEXBUG, we are fortunate to have our affiliate company VEX Robotics, a global leader in STEM education, collocated with us. VEX Robotics kits are used by more than a million students in 40 countries daily. More than 16,000 education institutions use our curriculum, and just over 11,000 teachers have been trained. This collaboration with VEX has allowed HEXBUG to bring the knowledge of true STEM products to the retail market.
“While the consumer may still not be able to decipher between products that are truly STEM education and those that have jumped on the bandwagon to make their product more attractive, I think that retailers have the responsibility to consumers of filtering these ‘faux’ STEM products to keep them from getting on the shelf,” Norman adds.


Fun Through Learning

TFE: In terms of product assortment, how are you working to find a balance between an educational product vs. a “learning through fun” product?

Andy Keimach, resident of VTech Electronics North America says, “We approach each brand differently to find that right mix of VTech and LeapFrog products that complement each other while remaining true to the characteristics that make each brand unique. We are leaning into discovery, imagination and developmental milestones through playful innovation with VTech. Leapfrog’s strength has always been its rich, educational content, so we’re continuing to develop products that create a foundation for success by exposing children to important early skills through curriculum-based learning. For both brands, it’s about learning through fun.”


TFE: In the early learning/preschool space, what qualities are resonating most with today’s parents, and how is that playing into your 2019 product development and offerings?

“Today’s families are busy. Parents are focused on exposing their children to creative, diverse and growthful experiences,” says Keimach. “They seek out ways to support a wider range of development in areas like problem solving and social-emotional growth. As an example, our role-play toys give kids the opportunity to pretend and act out scenarios they see in the world around them.

“Screen time is another subject important to today’s parents,” he says. They’re looking for that balance between positive, beneficial screen time and non-screen play for their kids, so we offer both learning-forward tech toys and non-screen toys that focus on discovery and exploration.


“We’ll also continue looking at adapting adult tech for kids that help them mimic their parents in a fun, positive, and expansive way. Our 2019 lines will be filled with play features and learning that support our mission to inspire, delight and spark curiosity.”



TFE: What products, innovations, and emerging trends can we expect to see in 2019 and beyond?

“For spring 2019, we are extremely excited to partner with Paramount on its new animated feature film, Wonder Park,” says Funrise’s Shoemaker. “The story of the film will undoubtedly excite and engage kids all around the world with its magical mix of charismatic and aspirational characters, toys that come to life, and a truly original idea that has never been done before in an animated film. Launching in the first quarter of 2019, the Wonder Park toys will roll out at major retailers around the world with a huge line of collectibles, plush, feature plush, figures, and playsets that bring the characters and amusement park rides of Wonder Park to life. In addition, we’re launching some incredibly innovative new products for Gazillion Bubbles in spring 2019 that will breathe new life into the bubbles category.


“We also have our first original, content-driven IP with Rainbow Butterfly Unicorn Kitty,” he adds. “It’s an animated show that features a spirited, colorful kitty named Felicity who is part rainbow, part butterfly, part unicorn, and 100-percent kitty. Felicity gains magical and majestic powers and lives with her friends in a mythical world. The show is filled with adventure and heart, and is a celebration of individuality and self-confidence. Rainbow Butterfly Unicorn Kitty will debut in early 2019 along with a fall 2019 launch of the toys.”


Foreman of Basic Fun! says, “We will continue to focus on a few of our key categories for organic growth with launches of Cutetitos, Zooballoons, and Little Lucky Lunch Boxes in the collectibles area, which build upon our successes with Mash’Ems, CakePop Cuties, and Poopeez. In our retro area, we are expanding our classic My Little Pony range, as well as adding Pound Puppies for 2019.” [Editor’s note: see page 47 for more info on Cutetitos.]

“The HEXBUG game plan is ‘expand to new aisles,’” says Norman. “We are pushing the boundaries in terms of age, gender, and technology. We have always had a sweet spot in the construction and tech toy aisles. We created a new line of toddler toys, using the patented Nano vibration technology, called CuddleBots and Nano Junior. We made a move into novelty with the launch of Lil’ Nature Babies appealing to boys and girls. And, we will be jumping into the collectibles space with new products coming in fall 2019.”


Says VTech’s Keimach, “We want VTech and LeapFrog to be the go-to brands whenever a consumer is considering a toy purchase. We want to focus on what our customers love about each brand. For VTech, that means fun, on-trend products that also include important learning elements. For LeapFrog, it is curriculum-based products that help kids have fun while learning and building important school skills. We have substantial growth plans for both brands and an incredible pipeline of new, innovative products.”


In spite of LEGO’s challenging 2017—when the company saw a drop in its sales and profits for the first time in more than a decade—2019 shows promise and growth, according to LEGO’s Kodak. “Earlier this year, we announced a partnership with Blizzard Entertainment to bring the popular Overwatch game to the LEGO collection in 2019. Overwatch is one of the fastest growing digital games in the world with more than 40 million active players, so we are excited to explore the play possibilities of this gaming phenomenon in tactile LEGO building. We will also introduce the sequel to The LEGO Movie in the first part of 2019, continuing the story of Emmett and Lucy as they explore the universe, which has inspired a whole new collection of building sets for kids of all ages.”


ZURU’s Mowbray reveals, the company will be exploring a number of different categories next year. “We are always looking to bring great ideas to life and create amazing play experiences for kids, regardless of the category,” she says. “As a hint, we will be looking to test the waters in a few of the fastest growing categories such as plush, with the launch of ZURU Rainbocorns, which is already starting to fly off shelves, as well as expanding our portfolio into more dolls, games, and larger toys. Our partners can look forward to seeing loads of really exciting new lines from ZURU this October.”


As Just Play looks ahead to 2019 and beyond, “we have some exciting new licenses, as well as new products within existing properties that we’re very excited about,” says Just Play’s Emby. “Kids will be thrilled with the new hot items in PJ Masks, Vampirina, Doc McStuffins, Spirit, JoJo Siwa, and Barbie.”


Alpha continues to dive full force into its expansion that’s taken place over the last 24 months—transforming “from a lesser-known Chinese exporter to a global toy and animation player,” says Alpha’s Maul. “Moving forward we will continue to focus on our core initiatives of building our portfolio of global IP and licensing great brands, while driving innovation and differentiation.


“Our preschool pipeline is well stocked with Super Wings season four that is currently in development. Rev & Roll, our co-production with DHX Media, is set to launch in 2019; and we just announced a new property called Super Builders that we are excited about. In boys, we are launching Massive Monster Mayhem this October and we will have another top boys IP announcement to share very soon. R/C continues to show a strong presence with Terrasect that launched in fall 2018. Its much-anticipated successor is in development for 2019. The SpongeBob SquarePants launch in 2019 is just the start of a great partnership with Nickelodeon, and with the feature film slated for 2020 we are excited to see where we can take this IP in toys.”