Games, Toys, and Children's Vehicles, Except Dolls and Bicycles

SIC 3944

Industry report:

This entry consists of establishments primarily engaged in manufacturing games and game sets for adults and children and mechanical and nonmechanical toys. Important industry products include games; toy furniture; doll carriages and carts; construction sets; mechanical trains; toy guns and rifles; baby carriages and strollers; and children's tricycles, coaster wagons, play cars, sleds, and other children's outdoor wheeled goods and vehicles, except bicycles. Also included are establishments primarily engaged in manufacturing electronic board games; electronic toys; and electronic game machines, except coin-operated. Establishments primarily involved in manufacturing dolls and stuffed toys are included in SIC 3942: Dolls and Stuffed Toys.

Industry Snapshot

The U.S. toy industry is fast-paced and product-driven, as few toys or games stay on the shelves for more than a year or two. Several factors make the toy industry a risky business, including boom-or-bust sales patterns, short product life, and Christmas as a major selling season that historically accounts for over 60 percent of annual sales. Nevertheless, classic games, such as Monopoly and Scrabble, and toys, such as the Slinky, have demonstrated strong long-term sales.

In addition to being affected by fads, toy manufacturers constantly work to develop long-lasting brands that hold value for years and sometimes decades. Companies also continue to build on well-established brands, such as Hasbro's G.I. Joe and Mr. Potato Head, Tonka's trucks, and Mattel's Hot Wheels. The toy industry faced increasing competition from video and computer games in the early twenty-first century.

The value of shipments in the toy and game industry, which excludes video game consoles and other related items, stood at $2 billion in 2009 according to the U.S. Census Bureau. Some blamed the economic recession at the end of the first decade of the 2000s for the downturn in 2009 from a 2008 value of $2.8 billion, while others pointed to the proliferation of video games. In 2009 the industry's 579 establishments employed 7,858 people, according to the U.S. Census Bureau. About 57 percent of employees were production workers earning an average wage of $16 an hour.

Organization and Structure

The Toy Manufacturers of America (TMA), the industry's trade organization, was founded shortly after the United States entered World War I. At the time, toy makers faced severe shortages of materials, and Congress was considering an embargo on the buying and selling of Christmas presents to conserve materials needed for the war. The TMA successfully lobbied Congress to allow production of toys for America's children despite the war. A few years later, the TMA convinced representatives to impose large tariffs on toy imports to protect the U.S. toy industry. The TMA continued to lobby and compile information and statistics for the toy industry in the twenty-first century.

Ideas for games and toys may originate in-house, but toy companies rely heavily on the ideas of freelance inventors. Toy development is risky and speculative, so a company may pour hundreds of thousands of dollars into market testing before committing to production. During the course of its development, a concept may change drastically. Most toy manufacturers also subscribe to Toy Retail Sales Tracing Service for quantitative market research that reveals trends, product performance, and competition. Qualitative market research involves product testing, usually with small focus groups of children. Until it is officially previewed at the annual American International Toy Fair, a project can be stopped at any stage if it does not meet expectations or if buyers do not express much interest.

Historically, distributors and wholesalers were the toy manufacturers' biggest customers, but in the early 1990s, large retail chains began to order directly from the toy makers. Small toy stores turned to regional distributors, but for the most part distributors became a dying breed. While the big box merchandiser Toys "R" Us accounted for as much as 25 percent of the retail toy market in the United States in the early 1990s, by 1998 Wal-Mart was the top toy retailer. The rest of the toy market comprised national and regional toy store chains, mass merchandisers, wholesalers, catalog showrooms, warehouse clubs, variety stores, discount stores, department stores, drugstores, local chains, and independent toy stores. There were also "jobbers" who bought closeout merchandise from toy makers to sell to retailers. Mass merchandisers, such as Kmart Corp. and Target, did not carry as wide a range of merchandise as the large toy stores, but these retailers had tremendous clout with toy makers.

Although manufacturers are prohibited by law from selling merchandise to different customers at different prices, in reality, the larger the customer, the larger the volume discount. The purchasing power of the customer also affects many other negotiable terms, including credit against future sales and extra merchandise from the manufacturer. These discounts and special terms result in widely varying retail prices. Powerful customers also are able to receive markdown money from manufacturers of products that failed so badly that retailers were forced to sell them below cost. However, what small retailers lack in price breaks often is made up in convenience, service, and product uniqueness.

Background and Development

Tower Toy Company, the first U.S. toy manufacturer, was established in the 1830s. Tower Toy produced doll furniture, toy tools, and toy boats. In 1860 Milton Bradley Co. established a publishing and lithography business, but as financial problems plagued the company, Bradley diversified by inventing and publishing The Checkered Game of Life, the precursor to The Game of Life, which continued to be popular in the first decade of the 2000s. The Civil War slowed the toy industry somewhat, although toy guns were popular, as were Milton Bradley's portable editions of chess, checkers, and dominoes.

In 1883, 16-year-old George S. Parker started his own game company. When his brothers joined him, the company became Parker Brothers & Company, Inc. In addition to producing the perennial number one selling board game, Monopoly, Parker Brothers became known for such games as Sorry!, Risk, and Clue.

Around 1900, the "Golden Age of Toys" featured walking and talking dolls, toy pianos, friction motorized vehicles, steam-powered toys, the Erector Set, the Flexible Flyer sled, Lionel toy trains, and Crayola crayons. Between 1900 and 1910, U.S. toy production doubled. During the next decade, it grew 500 percent, largely because World War I halted the import of European toys. In 1930 Herman G. Fisher and Irving R. Price established the very successful Fisher-Price, Inc., which became the biggest name in infant and preschool toys and merchandise by the end of the century. Fisher-Price merged with Mattel, Inc., in 1993.

World War II slowed the toy industry's growth because of labor and material shortages, but as the post-war years brought prosperity to the entire country, the toy industry reaped the benefits. Following World War II, the toy world was revolutionized with the introduction of plastic.

Television Advertising.
In 1955 an advertising move by Mattel, Inc. changed the way toys and games were marketed and also launched the promotional toy business. The nascent American Broadcasting Company (ABC) television network approached Mattel in November of that year about helping sponsor a weekly new show, Walt Disney Co.'s The Mickey Mouse Club. Mattel took a big financial risk and paid half a million dollars to become a sponsor. Before this bold move, most advertising money was spent on catalogs and trade ads during the Christmas season and on an occasional local TV ad to promote the most promising items. With this advertising agreement between Mattel and ABC, Mattel's famous slogan was born ("You can tell it's Mattel, it's swell!") and the power of weekly advertising to kids was demonstrated. The product Mattel had advertised, the Burp Gun, sold out that Christmas, and the promotional toy business was on its way.

Television became the number one advertising force in the toy industry. In 1969 Mattel underwrote a program based on its very successful Hot Wheels line. When a competitor complained, the Federal Communications Commission (FCC) banned the program, calling it a "program-length commercial." In 1983 the FCC ruled that the marketplace should determine programming. This change of policy cleared the way for toy-based programming. By the 1986-1987 season, more than 40 toy-based programs were on the air.

According to Sydney Stern and Ted Schoenhaus in Toyland: The High Stakes Game of the Toy Industry, television changed the very nature of toys by allowing the industry to sell toys that it never sold before, because it could demonstrate the features of the product. Products that could do something, such as walk, talk, move, or crash, had existed for a long time, but as they came to life on television they began to dominate the market. Advertising even began to dictate product development. Concepts were developed on the basis on how well they would lend themselves to television commercials. Television also allowed the toy makers to create a fantasy around the product, so children were not only demanding a toy, but they also were buying into the fantasy that made that particular toy unique. By the 1980s, the TV commercial became more important than the product itself, because the commercial created the concept, while the product actually did little on its own. Retailers tried to anticipate what toys kids would want and paid close attention to the manufacturers' ads and ad budgets in making their purchasing decisions in the early 1990s. At toy fairs for buyers, toy manufacturers previewed the commercials as well as the toys.

Because toy manufacturers sell to children, their ads generated controversy about ethics in advertising. Children's advocates contend that children are easily exploited and they lack the experience to discern poorly made products or recognize that a commercial has presented a fantasy world rather than the reality of a particular toy. Action for Children's Television unsuccessfully tried to convince the FCC that toy-based shows were 30-minute commercials and should be purchased as advertising time. Critics of children's television and its ads also continued to protest the promotion of violence through toy-based shows and the weaponry toys advertised, as well as gender stereotyping reflected in many shows and advertised toys.

In the 1980s, the major television networks required the last five seconds of a toy commercial to show the product all alone so that children could see what they were really getting. The networks also limited animation within the ad to one-third of the total ad time. However, independent stations had no such restrictions, and with the growth of cable, the independents became important advertising channels for toy makers during the 1990s. Bandai America produced numerous toys based on top-rated children's television series on Fox Kids Network.

By the late 1990s, companies tried to increase market share through cross-marketing. These activities included product tie-ins with movies and various sports, such as NASCAR. The success of these tie-ins was unpredictable. Despite heavy marketing, sales of products associated with the Star Wars trilogy, The Hunchback of Notre Dame, Godzilla, and other movies were disappointing. Nonetheless, Danish manufacturer Lego signed its first licensing agreement for products tied to the Star Wars prequels.

The Advent of Video Games.
A second "revolution" in toy making began with the first video games. In 1972 Nolan Bushnell and a friend invested $250 each to found Atari Corp. and produce Pong, a simple video table tennis game. It became a coin-operated hit in bars and arcades and in 1975 Bushnell began marketing a home version to compete with Odyssey, a video game system being produced by Magnavox Co. Atari was sold to Warner Communications Inc. in 1976. Mattel followed with Intellivision in late 1979 and Coleco Industries Inc. brought out ColecoVision in 1983.

Soon the industry was licensing the most popular arcade games for home video systems. Video games brought in hundreds of millions of dollars. Many new companies were formed just to manufacture and sell cartridges for Atari and other game systems, thus taking valuable profits from the systems' developers. Large and small toy companies rushed to produce their own video systems. In a few short years, however, the video game and cartridge fad ran out of steam. Warner lost $539 million on its consumer electronics segment in 1983, and it ended up burying truckloads of game cartridges. Warner, Mattel, and Coleco sold their video game businesses during the next two years.

Nintendo Co., Ltd., a Japanese electronics company, learned from the mistakes of its predecessors. In the late 1980s, Nintendo was generating sales of more than $1 billion in the United States alone. It was making this money at the expense of other traditional toys and games, taking market share from industry leaders Hasbro Inc. and Mattel. Nintendo controlled licensing and sales of all game cartridges so it would not meet the same fate as Atari.

U.S. computer and video game software sales grew 6 percent in 2006 to $7.4 billion, nearly three times industry software sales of a decade earlier. Video sales were led in units by Madden NFL 2007, and the most popular computer game was World of Warcraft. In 2008 computer and video game software sales totaled $11.7 billion with 298 million units sold. Women comprised 38 percent of computer game players.

Room for Large and Small Players.
Beginning in the 1990s, U.S. companies sought to expand sales and profits by aggressively marketing abroad, working to open markets in Asia, South America, and the Middle East. Exports were projected to maintain a 6 percent annual growth rate. Most of this growth was projected to be in high-end products, educational software, computer games, and electronic toys.

Although the industry was dominated by several giants, small companies also had opportunities for success. Some small companies acquired rights to products that the big companies had retired, such as Erector Sets and Creepy Crawlers, or introduced their own new products. The toy and game industry was attractive to small businesses because start-up costs remained low when manufacturing was subcontracted. Small companies could be more innovative because they did not have the layers of bureaucracy associated with the large companies, and they did not have to generate as much income. Consolidation also reduced the likelihood that a large company would take a chance on an item able to generate only $1 or $2 million.

At the end of the first decade of the 2000s, Mattel and Hasbro dominated toy development and marketing in the United States. With the bankruptcy of both FAO Schwarz in 2003 and KB Toys in 2004, the retail sector was controlled by two discounters, Walmart and Target, and ailing toy store chain Toys "R" Us. Mattel controlled more than 22 percent of the toys that reached store shelves, and Hasbro maintained nearly 14 percent of toy industry products. On the retail end, Walmart commanded more than 20 percent of the toy market by carefully choosing how it stocked the toy shelves and selling fewer toys at near cost. Toys "R" Us, once the market leader, fell to second place, with around 17 percent of market share.

By the middle of the first decade of the 2000s, toys generated more than $2.5 billion in sales. Nearly 25 percent of those sales were toys based on popular movies, and the boost from toy sales no doubt influenced Hollywood to produce such sequels as Spider-Man 3, Shrek the Third, Pirates of the Caribbean 3, and The Fantastic Four 2. Toys, candy, and other merchandise was promoted preceding the releases of these films. Prior to the release of Shrek the Third, the Walgreens drug store chain held a sweepstakes that awarded a $10,000 grand prize and $250 gift cards as runner-up prizes.

In 2007 and 2008 the industry was hit hard by recalls of toys that were manufactured in China, many of which were related to the use of lead-based paint by some Chinese suppliers. Outsourcing had become common in the industry beginning late in the twentieth century. Mattel, which had more than a dozen recalls from 2002 through 2006, including a Batmobile that had sharp tail wings, was expected to spend over $30 million in 2007 because of recalls on toys produced in China. Over 60 of Mattel's toys were made in China, with most of the rest made in Thailand, Malaysia, Indonesia, and Mexico.

Despite the trials faced by the traditional toy industry in the early twenty-first century, some products seemed to retain their status as must-haves for many Americans' board-game shelves. For example, since 1935, more than 250 million copies of Monopoly have been sold in 80 countries and 26 languages. More than 200 different editions of the game have been published, but the most popular continued to be the classic "Number Nine." Affectionately known by its original product number, "Number Nine" is based on the streets of Atlantic City and is nearly identical to Charles Darrow's original submission to Parker Brothers. The Monopoly name and logo, the distinctive design of the game board, and each of the distinctive elements of the board and playing pieces are trademarks of Hasbro for its property trading game and game equipment.

Current Conditions

According to the Toy Industry Association, sales of toys and games were up 2 percent in 2010 compared to 2009, and 2010 sales of all traditional toys reached $21.7 billion. Sales of video games that year were not far behind, at $18.5 billion. In the traditional categories, infant and preschool toys garnered the most revenues, with $3.2 billion, followed by outdoor and sports toys ($2.83 billion), arts and crafts ($2.78 billion), and dolls ($2.77 billion). Games and puzzles accounted for $2.17 billion, whereas plush (stuffed) toys and vehicles were almost even at $1.73 billion and $1.75 billion, respectively.

After suffering through the economic recession at the end of the first decade of the 2000s, the toy and game industry received a boost in November 2011 when Americans spent record amounts on Black Friday, the traditional "biggest shopping day of the year" on the Friday after Thanksgiving. According to the National Retailers Federation, a record 86.3 million people shopped either online or in a store that day, and total spending over the holiday weekend reached $52.4 billion. About 33 percent of the shoppers purchased toys (not including video games). The hottest licensed toys for the period between August 2010 and August 2011, according to the NPD Group, were (not in order), Cars The Movie, Disney Princess, Dora The Explorer, Star Wars, and Toy Story.

Industry Leaders

The toy industry experienced extensive consolidation after the video game era began. Some of the most familiar brands lost their independence and became part of the world's two largest toy corporations, Mattel and Hasbro. Nevertheless, there were nearly 780 companies in this category in the early 2010s.

Mattel Inc., held the top spot among all toy manufacturers in the early twenty-first century. The company posted sales of $5.8 billion in 2010 and employed 31,000 people. In the 1990s, Mattel merged with Fisher-Price (infant and preschool toys) and Tyco Toys (Matchbox cars, View-Master, Magna Doodle, Sesame Street toys) and acquired International Games (UNO and Skip-Bo card games), Power Wheels (ride-on vehicles), J.W. Spear (Scrabble), and the Pleasant Company (the American Girl brand). Mattel signed a multiyear agreement with Walt Disney Co., guaranteeing it worldwide toy rights for all Disney television and film properties. The company also had licensing rights to Barbie, Cabbage Patch Kids, Polly Pocket, and characters on Nickelodeon. Convinced that children everywhere like the same toys, the company made no effort to modify its products for different markets. Instead, it designed products with universal appeal and marketed them globally. In the middle of the first decade of the 2000s, Mattel operated in 36 countries and marketed its products in more than 150 countries.

Hasbro Inc., a small company in the early 1980s, became a major player in the industry in 1985, benefiting from widely popular products, such as G.I. Joe, Transformers, and My Little Pony. In 1984 Hasbro bought Playskool, as well as the Milton Bradley company, the fourth-largest company in the toy industry. With Milton Bradley came the rights to The Game of Life, Twister, and other solid-selling games. By 1988 Milton Bradley accounted for 20 percent of Hasbro's sales. Hasbro also acquired Coleco and Tonka just as each was headed for bankruptcy. Tonka had owned Kenner Products and Parker Brothers, so the acquisition of Tonka also brought the second most-famous game company into the Hasbro empire. In 2010 the company had 5,800 employees and revenues of just over $4 billion, up from $3.2 billion in 2006.

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