The Trade Numerologist: China Dominates Christmas Toy Trade
It's almost Christmas, peak buying season for the $100 billion global toy market. That means it's time for manufacturers, shipping lines and logistics firms to gear up: Almost half of US sales take place during the fourth quarter.
It's a turbulent time for the sector, roiled by internet shopping, video games, and mobile phones. In the US, Toys "R" Us, a dominant retailer, has gone bankrupt, its market share was taken over by Walmart, Target, and Amazon.
But the industry is still riding modest growth as it builds on expanding middles classes all over the world, and the undeniable fact that kids still like to play with physical objects, especially if they're connected to a powerful brand.
The global market, heavily dependent on international trade, is dominated by China, where Mattel, Hasbro, Lego and other big players moved big parts of their production to take advantage of low labor costs, manufacturing zones and ripe Asian markets.
China itself is a prize. It has the world's largest population and has eliminated its one-child policy, and an expanding middle class is spending more and more money on its offspring.
Chinese toy exports
• 2017: $26.1 billion
• 2016: $20.7 billion
• 2015: $18.7 billion
• 2014: $17.1 billion
• 2013: $15.5 billion
• 2012: $14.9 billion
• 2011: $14.1 billion
• 2010: $11.3 billion
China's dominance of the global toy industry is so established that imposing duties on toys would severely hurt US consumers. No wonder the Trump administration has largely left toys off the list of over $250 billion worth of Chinese goods that it's imposing tariffs on.
And the US, which once dominated the industry through companies like Marx that manufactured in small towns in Pennsylvania and West Virginia, doesn't make that many toys anymore. It's only the fifth biggest exporter in the world, down from second in the world in 2000.
Top toy exporters, first 8 months, 2018
• China $11.7 billion* (+14%)
• Hong Kong $1.7 billion (-8%)
• Czech Republic $1.4 billion (+7%)
• Germany $1.3 billion (+10%)
• US $738.8 million (+1%)
• Netherlands $706.7 million (+10%)
• UK $529.6 million (+27%)
• Mexico $459.4 million (+6%)
• Belgium $458.4 million (-1.7%)
• Poland $422.7 million (+23%)
To be sure, wages are rising in China, forcing up costs. Manufacturers are adjusting by moving some production to India, Vietnam and elsewhere. Firms are also making plans in case the US ramps up tariffs on toys. Hasbro said this summer that it would move production out of China to avoid tariffs. A huge majority of toys made in China go to the US.
Top destinations for Chinese toys, 2017
• US $7.1 billion
• UK $1.3 billion
• Hong Kong $1.2 billion
• Germany $884.8 million
• Japan $830.0 million
• Netherlands $744.6 million
• Russia $647.0 million
• South Korea $595.1 million
• Philippines $568.6 million
• Australia $549.4 million
In Europe, the top producer is, surprisingly, the Czech Republic. Global toymakers such as Lego, Playmobil, and Ravensburger also manufacture in the Czech Republic.
A domestic firm, Efko specializes in puzzles, blocks, card and board games. Two other Czech firms, ABAfactory and Detoa Albrechtice, make wooden toys. Exports have taken off since the start of the decade, but have leveled off with the saturation of niche markets.
Czech toy exports, first 8 months
• 2018: $1.4 billion
• 2017: $1.3 billion
• 2016: $1.5 billion
• 2015: $1.4 billion
• 2014: $1.6 billion
• 2013: $1.4 billion
• 2012: $1.1 billion
• 2011: $958.1 million
• 2010: $687.3 million
Elsewhere in the world, growth in rich markets is being driven by learning-related and high-tech toys, and in emerging marketing by traditional toys that rising middle classes can now afford to buy.
To be sure, toy companies still face tough competition from video games and other forms of screen entertainment, whose cost is also falling.
The US is the world's top market, but China is expected to overtake it by the next decade. India is another hugely promising market, say analysts. However, both have big domestic manufacturers and aren't high on the table of importers.
Top toy importers, first 8 months, 2018
• US $7.4 billion (-5%)
• Germany $1.9 billion (+11%)
• UK $1.5 billion (+1%)
• Japan $1.4 billion (+8%)
• France $1.1 billion (-2%)
• Hong Kong $1.1 billion (-16%)
• Canada $884.7 million (-2%)
• Netherlands $793.2 million (+11%)
• Russia $772.6 million (+8%)
• Czech Republic $655.4 million (13%)
One saving grace for the sector: people love to buy new toys associated with the always-changing movie and TV brand names and characters. Frederique Tutt, an analyst with the NPD Group, said in August that "traditional play patterns, collectibles, social media and innovation" are driving the toy industry.
Popular themes, he said, include "dinosaurs and unicorns on the one hand, and slime or toilet humor on the other." There are some things companies will always be able to find a market for.
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
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