Hobby, Toy, and Game Stores

SIC 5945

Industry report:

This industry consists of establishments primarily engaged in the retail sale of toys, games, and hobby and craft kits and supplies. Establishments primarily engaged in selling artists' supplies or collectors' items, such as coins, stamps, and autographs, are classified in SIC 5999: Miscellaneous Retail Stores, Not Elsewhere Classified.

Industry Snapshot

According to industry statistics, 25,125establishments primarily engaged in the retail distribution of sale of toys, games, and hobby and craft kits and supplies in 2009. These firms employed 143,077 and generated an estimated $21.78 billion in revenues. Over 81 percent of establishments employed fewer than five workers and 98 percent employed less than 50. However, the few firms large establishment, such as ToysRUs, dominated sales. Specifically, 3 percent of the establishments generated nearly 91 percent of the industry's revenues. Large discount stores, such as Wal-Mart and Target were also top outlets for U.S. toy sales.

Stores ranged from independent shops to national chains, which sold toys and hobby supplies exclusively. Other types of stores carrying toys as part of their retail offerings include discounters, department stores, warehouse clubs, home supply stores, catalog houses, and drug stores.

Organization and Structure

Manufacturers of toys and games sell their products either to wholesalers, or directly to retailers, although some manufacturers sell to both retailers and wholesalers. Retailers with multiple outlets require efficient delivery systems from their manufacturers. Toy manufacturers with outdated systems have thus found it difficult to convince large retailers to carry their products.

In the hobby and craft industry, manufacturers sell products through independent sales representatives or through their own salespeople. Wholesalers and distributors often play the role of middleman. Pre-packaged craft kits are increasingly sold in non-traditional outlets. Independent craft and toy retailers now compete with nationwide chains of specialty stores as well as with large discount stores carrying craft products.

Background and Development

With the opening of the first Toys "R" Us in the 1950s, retailing of toys in the United States changed forever. The vast retail chain began as a bicycle shop, was transformed into a juvenile furniture store, and finally became a toy store. Additional Toys "R" Us stores were soon opened; these outlets emphasized deep discounts and wide selections.

Another key factor in the growth of the retail sale of toys was the increase in the use of television advertising. In the late 1950s and early 1960s, television promotions reached into many homes where toy purchasing decisions were made.

In the 1970s many parents expressed concern about toy safety. Several consumer groups began to lobby on behalf of toy safety, as well as in search of manufacturers and retailers who would support limitations on television advertising. The National Advertising Division of the Council of Better Business Bureaus was established in 1974. It included the Children's Advertising Review Unit (CARU), which promoted responsible children's advertising.

Many toy manufacturers helped toy stores sell items by licensing products that were perceived as popular, or "hot toys." One emerging trend was the production of licensed promotional items by the retailers themselves, though this practice was limited to larger retailers who could make the investment of time, money, and space in their stores.

The late 1970s and early 1980s also saw the introduction of electronic games and toys. While retailers were enthusiastic about the tendency of buyers to purchase these items year-round, they suffered from a glut of products left on their shelves. These unsold items became so costly for some retailers that losses forced them to close in the late 1980s. This led to the consolidations that occurred in the 1990s.

In the competitive toy store industry, the latest technological advances have always been sought. Scientific progress has for many years been mirrored in toy development and sales. Independent retailers of toys, mindful of maintaining good relationships with their manufacturers, try to get early shipments of these new toys.

Video games changed the face of toy stores in the 1970s and 1980s. That craze was followed in the 1990s by excitement in toy stores over advanced software, such as computer games that incorporate CD-ROM technology.

Electronic Learning Aids, or ELAs, accounted for large sales increases in many toy stores in the early 1990s. Unlike video games, the electronic toys appeal to parents as well as children. They are age-specific and can be used even by very young children. Some ELAs require no more technology than batteries. Some, however, require purchase or rental of CD players, televisions, or VCRs. Milt Schulman wrote in Playthings that industry executives expected to see interactive technology increase its presence in toy stores. "These new, interactive toys will challenge retailers to take innovative merchandising approaches that help explain what these advanced toys are capable of doing."

New technology also helped toy retailers keep track of their inventories and increased sales. Even smaller toy retailers were moving from manual inventory tracking to computerized systems that hinged on the point-of-sale computer register.

The Internet has also helped bolster the retail toy industry. While sites offering books, movies, and music grew by 17 percent in 1998, toy sites grew by 86 percent. This trend served as a signpost for a bright immediate future for the industry. Amazon.com, Inc, an online shopping company that generated sales of $1.6 billion in 1998, entered the toy-retailing market in the late 1990s and was expected to have a large impact on the industry. According to the U.S. Census Bureau, consumers spent $2.9 billion online for toys in 2000. That increased to $3.2 billion in 2001, and to $3.7 billion for 2002. Overall, there were a total of 22.3 million consumers who purchased toys online in 2002. By 2007, 7.3 percent of all toy sales were made online representing a 9 percent increase from the prior year, per the Toy Industries Association (TIA).

Toy Retailers.
Manufacturers' shipments of toys, not including video games, increased from $11.4 billion in 1992 to $14.4 billion in 1996, and reached $29.9 billion in 1999. Retail sales rose from $17 billion to $24 billion in the same period. The retail industry as a whole appeared healthier following a difficult recession in the late 1980s and early 1990s. This recovery, coupled with the continued popularity of discount chains such as Wal-Mart, Kmart, and Target, had strong effects on the toy store industry. Some of the toys sold at small independent stores were available at a lower cost on the discounters' shelves because of the inventory advantages such large chains enjoy. Meanwhile, catalog houses, which have made inroads in a number of areas of retailing, had yet to establish themselves as a significant force in the toy retail sector. Toy and hobby catalog purchases still account for only a small share of the total toy market.

On June 1, 2001, the International Council of Toy Conferences announced that toy sales worldwide reached $69.5 billion for 2000. By 2007 this had increased to nearly $72 billion per The NPD Group.

Retailers also examined the effect of the increasing numbers of mothers in the workforce, as well as the increasing buying power of the children themselves. Children not only influence their parents in the choice of school items and toys, but, outfitted with greater amounts of disposable income than ever before, also comprise a significant target market by themselves.

Another measurable asset to the toy industry was the sale of video games. Much of the burden of selling these toys fell on the retailers, whose marketing efforts showed parents and other buyers that the play value of these items was high enough to justify the price. These video games did not fit neatly into retail stores and their existing toy categories. A combination of home entertainment and toy, the video game needed its own space on the retail floor; those retailers who realized this found tremendous profits in video games.

TIA indicated that 2007 toy sales in the United States dropped to $22.2 billion from $22.6 the previous year. Much of this was attributed to the anxiety caused by toy safety concerns due to substandard toys manufactured in China. Of the so-called supercategory performers, the leading segments all experienced decreases from 2006: infant/preschool led with $3.1 billion in 2007 sales (by 5 percent); outdoor and sport toys with $2.7 billion (by 5 percent); arts and crafts with $2.6 billion (by 3 percent); and games/puzzles with $2.4 billion (by 3 percent). Segments with increases included action figures and accessories with $1.4 billion (by 8 percent) and vehicles with $2.1 billion (by 5 percent).

The majority of purchases were made at mass merchants and discounters per TIA with nearly 55 percent of sales in 2007, a drop of 3 percent from 2006. Toy stores came in second with 17.2 percent of sales, which was a 5 percent decrease from the previous year. Online and Internet sales represented 7.3 percent of total sales, a jump of 9 percent from 2006.

Meanwhile, Web-play toys exploded onto the market as they featured a physical toy that provided access codes to play games online in a "virtual world," such as Webkinz stuffed animals. These types of toys became popular with parents as well due to the exclusivity of the websites offered protection from typical online safety worries. TIA research showed that girls were overwhelmingly consumers of these toys with 73 percent of 2007 sales aimed at them.

Current Conditions

According to TIA, total U.S. toy sales for 2007 stood at $22.2 billion, a relatively minimal decline from $22.6 billion in 2006 considering the effect of toy safety fears generated by substandard Chinese products, which had initiated the recall of millions of toys in the United States. Sales declined to $21.46 billion in 2008 and $21.78 billion in 2009.

A downturn in the U.S. economy affected consumer confidence and impacted sales during the late 2000s. In addition, the influx of cheaper toys from Asia continued, and big discounters such as Wal-Mart drove prices down, filling shelves with their own brands and working with razor thin profit margins. Small retailers continued, however, to compete in the industry by offering specialized or niche products or brands that appealed to particular segments of the populations, such as educational toys or "green" toys.

After several shaky years during the late 2000s during the economic recession, the toy industry anticipated a recovery during the peak fourth quarter of 2010 as the economy had begun to right itself during the year, and toys sales were up--albeit marginally--during the first three quarters. However, according to Sean McGowan of TIA, fourth quarter 2010 did not shape up to be all that retailed had hoped for. "Black Friday itself was very promising, but it now appears that the strength of that weekend came at the expense of sales later in December. . . . mostly the mood of retailers was subdued." McGowan predicted that, as a result, retails in 2011 would be more cautious with their inventories, so they did not once again leave too much inventory on their shelves come January.

Industry Leaders

The industry leaders in the late 2000s included general merchandisers Wal-Mart, K Mart, Meijer, and Target. Based in Wayne, New Jersey, Toys "R" Us, the world's largest toy retailer, had sales of $13.57 billion in fiscal year 2009. It operated discount toy stores in the United States, the United Kingdom, Canada, France, Japan, Spain, and other countries. In 2009, Toys R Us acquired competitor KB Toys (formerly known as Kay-Bee Toy Stores), the second-largest toy retailer in America.

In response to the increasing dominance of large toy chains, specialty toy store owners formed the American Specialty Toy Retailers Association (ASTRA) in 1992. ASTRA created a forum for store owners to exchange ideas, and attempted to create a unified voice that would enable the industry to promote the sale of educational and high-quality toys. By the late 2000s, ASTRA's membership exceeded 1,000 retailers, manufacturers, representatives, and others.

America and the World

A growing concern for consumers in the late 2000s was product quality issues from toys produced in China. In 2007, excessive amounts of lead were discovered in paint used on toys leading to massive recalls. The U.S. government also became involved by holding hearings that resulted in the creation of the Consumer Product Safety Improvement Act of 2008. This legislation added regulations on testing of children's products, banning toys with more than extremely minimal amounts of lead, and ending the use of some phthalates (a plastic softener). Further, the Consumer Product Safety Commission was ordered to create a searchable database of safety hazard reports.

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