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Special Report: Toy Sector Proves Immune to COVID-19 Pandemic

By Gary Symons, TLL Editor in Chief

Toy manufacturers, retailers and licensors could be excused for expecting a rough ride this year as the COVID-19 pandemic raged across the globe, killing more than a million people to date, and devastating most of the world’s economies. 

In fact, in a March survey from The Licensing Letter, licensing executives reported they felt overwhelmingly pessimistic about the upcoming year, with 75% of respondents predicting their business would drop by an average of 25% in 2020 as compared to 2019. 

In many sectors, such as sporting events or film revenue, that’s turned out to be optimistic, as some industries have reported declines in revenue well in excess of 50 per cent. 

By March two-thirds of all respondents in our survey said they were already working from home, 43% said they were already feeling direct impacts on their business, and more than 80 per cent said they were seeing at least indirect impacts. While the situation looks grim for many of these markets, the toy industry has blown the doors off all expectations for the year, with US manufacturers in particular enjoying double digit growth between January and June. 

This market strength was not completely unexpected, but arrives amid fears that parents would tighten up on spending in 2020 due to the overall decline in employment and greatly reduced income for many businesses across the country. Owners of restaurants, gyms, salons, spas, and other service oriented businesses—whether self-owned or part of a franchise—have reported massively reduced revenues, and bankruptcies are starting to climb in most Western nations. 


But against that generally bleak overview of COVID-19’s impact on the economy stands an equally powerful force: Parents love their kids, and they want them to be happy. Due to school closures, lockdowns, and a spring and summer spent in relative isolation, away from friends, families have compensated by moving their spending away from things like holidays, restaurants and movies, and have diverted some of that money to buying toys or games for their isolated children.

According to a July 30 report by the NPD Group, which tracks retail consumer spending, toy industry sales increased by 9% in the first half of 2020 (January – June) across the 12 global markets that they track. 

“The United States experienced the highest percentage growth at 16%, followed by Canada (9%), Germany (9%), UK (8%), and Netherlands (6%),” the report states, although the Latin American market recorded negative performance, largely due to the high incidence of COVID-19 in the larger economies, such as Mexico, Argentina and Brazil. 

This is particularly important for licensors and licensees who had previously seen a decline in global revenue in 2018 and 2019, and that certainly showed itself in US sales as well, largely due to the demographics and low birth rates in North America. Revenue in the US hit $22.16 billion in 2017, slipped by -1% in 2018 to $21.84 billion and dropped a significant 4% in 2019 to $20.91 billion. (Source: Toy Association))

The picture was slightly better globally, with the industry posting a small revenue increase of 0.5%, bringing the global total to $90.7 billion.

And while toy sales were strong in the first two quarters of 2020, the next two quarters are expected to be even better, with projections ranging from 15 to 20 per cent growth for Q3 2020 over the same period in 2020. 


One reason for the growth was explained during a seminar at the Festival of Licensing Leadership Summit by Juli Lennett, a toy industry analyst at the NPD Group. Lennett explained that as children were isolated at home and anxious about the dangers of the pandemic, parents reacted logically by diverting spending to toys and games that safely keep their kids occupied at home or out in the yard. 

Juli Lennett of NPD

“Parents will think first about safety for them and their kids when it comes to shopping, get-togethers, and play,” said Lennett. “Toys that support social and safe play, potentially among smaller groups, will align with the needs of parents and kids.”

Safety aside, Lennett says parents naturally feed bad about the restrictions their children are going through, especially as many children reported feeling fearful and anxious as they returned to school. 

“Even in difficult times parents put their children ahead of their own needs,” Lennett said. “And this year especially has been extremely difficult for kids. Parents feel bad for their kids and want to make them feel better, and what better way than toys?”

That focus on toys that offer long-term play value for bored, isolated children showed up in my neighborhood just a couple of months into the pandemic when my neighbour put up a massive trampoline in his yard for his grandkids, who at the time were not able to attend school. Those kids have been jumping up and down for several months now, banging out the message that outdoor toys and toys with repeat play value are dominating. 

In the first quarter of 2020, as the coronavirus sank its claws into the world’s economies, the Games and Puzzles category boomed by an astounding 37%, while Outdoor and Sports Toys grew by 27%. The other big winners by category were Building Sets (+14%), Arts and Crafts (+11%), and to a lesser extent ‘Explorative and Other Toys’ (+1%). 


Among the licensed brands marking the greatest revenue increases Disney’s Frozen led the pack, followed by Star Wars, Little Tikes, and LEGO Star Wars. (Source: The NPD Group)

Mattel, which holds the licenses to a wide variety of popular toy lines, has been a prime beneficiary of this pandemic trend. The US toy giant announced a return to profitability powered by a 10 per cent increase in revenue for Q3 2020 as compared to the same period last year, including a 13 per cent increase for North America.

CEO Ynon Kreiz credited the work Mattel has done in ensuring the integrity of its supply chains, and in acquiring key licenses with Disney and Warner Bros. for its DC Comics properties, as well as less obvious deals like the license for line of dolls based on the wildly popular South Korean K-Pop band BTS. 

“Mattel is working closely with its retail partners on the challenge of meeting consumer demand heading into the holiday season and is mindful of the COVID-19 volatility and other macro-economic uncertainties, which could negatively impact performance,” Kreiz said. “Based on the POS momentum we are seeing, the low retail inventories and the early start of the holiday shopping season, we expect Net Sales and Gross Sales to grow in the fourth quarter.”

The story of growth for Mattel has been fairly consistent throughout the industry with small, mid-size and large operators all reporting similar growth patterns since the COVID-19 pandemic began in late 2019. 

But analysts say there’s a lot more to the industry’s success this year than just the licensing themselves. Licensors to the toy industry should be aware that their products are in high demand right now, due to unique market factors brought about by the world’s reaction to the coronavirus. Despite the retraction in other sectors, such as film or sporting events, toy brands are doing exceptionally well, particularly those connected to powerful brand like Frozen, Marvel, LOL Surprise or Paw Patrol. 


These reasons have less to do with a desire to increase family spending, and more to do with a lack of other entertainment options. 

Put simply, as multiple industries contract due to the pandemic, families that remain employed now have more disposable income that isn’t going toward a night out at the movies, restaurant meals, sporting events, or travel. 

According to the research firm Forrester,global retail sales as a whole will fall by an average of 9.6% in 2020, due almost entirely to the COVID-19 crisis, representing a loss of $2.1 trillion.

“Retail categories like grocery and essential consumables are performing well, while other categories like fashion, beauty and cosmetics are seeing a marked decline in consumer spend,” said Forrester analyst Michael O’Grady.

Forrester predicted that non-grocery sales from stores will fall 20% in 2020, for a loss of $360 billion from the company’s pre-coronavirus forecasts for growth, with online sales remaining flat.

All that said, the big losers in the COVID-19 sweepstakes are the entertainment and travel sectors, including movie producers and theatres, sporting events, cruise lines, airlines, hotels and resorts, and concerts. 

The Global Entertainment and Media Outlook 2020-2024 by Price Waterhouse Cooper (PWC) illustrated that bleak reality, saying 2020 will “…see the sharpest fall in global entertainment and media revenue in the 21-year history of this research.” PWC is projecting a decline of 5.6% in annual revenue for box office and cinema advertising revenue. In dollar terms that equates to more than $120 billion. 

The same thing is true in other sectors. The sports industry is expected to shrink from $129 billion in 2019 to $73.7 billion in 2020, a figure even more galling considering the sector was poised for continued growth of an estimated $6.4 billion before COVID-19 appeared. (Source: Statista)

At the same time players like Disney or Universal are getting hammered at the box office, their amusement park businesses are also falling off a cliff. Disney’s theme park revenues crashed by $3.5 billion in Q3 alone, a decline of 85% for the same period last year, and that doesn’t include losses in its retail and licensing segments, as its stores were closed for most of that period. Universal is in a similar fix, forecasting a $500 million loss in Q2. 

Everywhere you look in the COVID-19 economy, consumers are spending less and also doing less. According to the global accounting giant Deloitte, spending is down in virtually every sector of the service and retail economy. The big loser, as indicated above, is the Recreation sector, which fell by an incredible 54.3% for the period Q4 2019 through Q2 2020. Other sectors getting hit included clothing (-23.8%), gas and energy (-21.7%), transportation (-41.3%), and the hotel/restaurant sectors (-40.1%)

To sum up the big picture, while many consumers have less money because they are out of work or underemployed, there are many others who earn the same salaries, but have very little to spend it on, and very few options to keep their children entertained. Literally hundreds of billions of dollars in ‘normal’ spending has been left on the table, leaving more money for those things considered important for families largely isolated at home. 

With many of those people now working remotely, the importance of toys and games that keep the kids occupied—and not photobombing your Zoom conference—has become much more important this year. 

As a result, according to data presented at The Festival of Licensing by Lennett, average spending for middle and upper income individuals on toys and games has increased sharply, partly compensating for the decline in spending among those who have faced insecurity in their employment or revenue situations.


However, despite the optimism expressed by Mattel and other toy manufacturers, a continued surge in toy spending is not a sure thing. The devastating ‘second wave’ now running rampant through Europe and the Americas could result in more job losses and stronger feelings of financial insecurity, just as the Christmas shopping season begins.

“The question we should ask is, how many more toys will parents continue to buy, and will the rate continue in those double digit rates,” Lennett said. “We also have to remember this year is unlike any other. We have a recession and a pandemic. We have nothing to compare it to. 

“I do think parents will do everything in their power to make their children happy, but I also think they will do it within their means, and that might mean that unemployed and underemployed parents can’t afford as many toys this year.”

Celine Pannuti, a researcher at JP Morgan Research, says spending will very likely depend on the continued course of the disease … and the news may not be good. 

“In the next 12-24 months, consumers are going to be left with less money in their pocket,” said Pannuti. “Many people will be left unemployed and will have less to spend. This will reinforce the trend for staying at home. We could also see some downtrading as consumers settle for more affordable options, though for now we have seen consumers buying big brands and, choosing household names over value or private label products.”

Given the unpredictable nature of the virus and how it affects both employment and financial markets, analysts disagree on how the Christmas season will go. 

Britain’s Centre for Retail Research predicts this will be a happy, shiny Christmas for retailers and particularly for toy sellers, forecasting a $1.7 billion increase in spending in the UK during the six weeks leading up to Christmas Day. 

At the same time, an Accenture survey says pandemic-weary shoppers plan to spend only $540 on Christmas this year, close to $100 less per person than last year’s average spend of $637 from the 2019 survey. Nearly one-quarter of the 1500 respondents said they’re cutting holiday spending because of tough financial times. (Source: Accenture)

And there’s another dark cloud on the horizon that is expected to make its presence felt over Christmas and into the New Year. Many of the most powerful brands for toys come from the big ‘tentpole’ movies that are normally released in the weeks and months preceding Christmas, but this year virtually all of Hollywood’s output of blockbusters have been put on the back burner.

These include potential licensing windfalls like Avatar, the Batman, Wonder Woman 1984, Black Adam, Black Widow, Cruella, The Flash, and Minions: Rise of Gru, among many others. A lack of strong licensing deals could cause a drop in demand for toys among kids who are looking for something new. For example, one of the toy lines that saw the greatest declines in 2020 was Toy Story, simply because no Toy Story films have been released since Toy Story 4 came out in June of 2019. 

Despite that, researchers at The NPD Group disagree and believe toy sales will remain strong over Christmas and the early months of 2021. While acknowledging the impact of delayed film releases and the general decline in income for families, they project a holiday spend of $691 per person this year, just slightly below 2019 and on par with 2018. 

“With no end to the pandemic in sight, toys sales could continue on a growth path,” Lennett says. “And with limited entertainment options available to consumers that are self-isolating, and if more schools move online, and more parents work from home, they might continue to turn to toys to fulfill their household entertainment needs, which would lead to increased sales.”


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