Toys and Hobby Goods and Supplies

SIC 5092

Companies in this industry

Industry report:

This category includes establishments primarily engaged in the wholesale distribution of games, toys, hobby goods and supplies, dolls, craft kits, model kits, children's vehicles, fireworks, and playing cards.

Industry Snapshot

The wholesale toy and hobby goods industry was worth approximately $4.2 billion in 2009, according to Dun & Bradstreet Marketing Solutions. About 6,226 establishments employed 34,414 workers in the industry. Seventy-five percent of establishments were small, consisting of only one to four employees. California was home to the most firms in the business, with 1,112, followed by Texas with 570, New York with 432, and Florida with 402. These states also accounted for the most revenues: California led by a wide margin, with revenues of $1.0 billion in 2009. New York was second with $519.9 million, Florida had $381 million, New Jersey had $310.9 million, and Texas had $250.9 million.

Background and Development

Wholesale distributors of toys experienced a shrinking customer base in the early 1990s, as national toy store chains and discount stores began to buy directly from manufacturers. Sales in the mid-1990s continued to grow, up by 20 percent from 1992 to $20 billion. However, expenses were rising faster than sales. While toy distributors were once the most important customers at toy fairs, Toys 'R' Us became the leading toy retailer in the mid-1990s and had the most purchasing clout with toy manufacturers, accounting for 20 percent of U.S. toy sales in 1996. Sydney Ladensohn Stern and Ted Schoenhaus, authors of Toyland: The High Stakes Game of the Toy Industry, wrote that toy manufacturers referred to the wholesale distributors as "dinosaurs because they used to be the toy company's most powerful customers, and today they are almost extinct." However, wholesale distributors of toys continued to supply smaller, independent toy stores and department stores and regarded their industry as playing a pivotal role in the toy marketplace.

Even toy specialty retailers were not immune to a shifting market, however. By 1998, Toys 'R' Us had been surpassed by Wal-Mart as leading toy retailer. Wal-Mart commanded 17.4 percent of the market, while Toys 'R' Us dropped to 16.8 percent of the market.

Acknowledging changes in the marketplace, the Toy Wholesalers Association changed its name to the Toy and Hobby Wholesalers Association in 1989. Like wholesalers in other industries, toy and hobby wholesalers refocused their business to provide value-added services generally not offered by manufacturers.

Value-Added Services and the Role of the Distributor
Consolidation of toy manufacturers and retailers meant massive changes for the distribution network of the toy industry. Eliminating the added expense of distributorships, major toy makers were able to offer volume discounts to toy stores and other retailers of toys. Furthermore, toy store chains such as Toys 'R' Us established their own distribution centers from which to supply their stores. In 1995, the pressure on distributors increased as more manufacturers went to direct distribution of their products, an effort led by Marvel comic books and Citadel Miniatures. This second wave in the direct distributorship drive proved even more vexing for the wholesalers because the manufacturers involved introduced the licensing of retail outlets. These licensed dealers received delivery of new product releases before nonlicensed dealers and wholesalers, which further tightened the market for distributors.

Consequently, toy and hobby wholesale distributors targeted smaller retail stores and chains, offering merchandise from the smaller manufacturers. They also expanded their industry to include the distribution of hobby and craft items. Distributors recognized that service was vital to their survival in a tough market.

William L. MacMillan of the Toy and Hobby Wholesalers Association noted in Playthings magazine that the distributor could still offer many unique services to both retailers and manufacturers. For instance, the distributor, having associations with thousands of products and retailers, was able to provide valuable information to toy makers and toy sellers. MacMillan suggested that the wholesaler could act as a consultant to new retailers, advising them about such issues as the proper quantities to keep in stock and the benefits of certain promotional techniques. Furthermore, MacMillan observed, the distributor could provide valuable services to manufacturers by offering information on how various products were selling in specific markets, providing advertising aid through distributor-sponsored promotions and in-store displays, and providing sales training to store personnel.

The distributors' volume buying power meant they could offer retailers lower prices than the manufacturer, and, by maintaining fully stocked warehouses, distributors also helped save retailers and manufacturers inventory space. A computer network for ordering, sales, and inventory became perhaps the most important value-added service. Through such a network, distributors provided an efficient means of sharing information with both manufacturers and retail clients.

According to a survey of the entire wholesale distribution industry, consolidation of the distribution industry led to fewer but stronger competitors able to offer a wide range of services including volume discounts, improved financing options, and adoption of state-of-the-art warehouse technology.

Although consolidation of the retail toy industry forced many distributors out of business, those that remained were more efficient and were able to explore smaller manufacturers and retail accounts, including independent drug and specialty stores.

Craft and Hobby Boom
The crafts and hobby industry experienced a renewed popularity in the early 1990s, probably due to a return to homemade gifts and decorations prompted by the economic recession. A 1994 survey by the trade group Hobby Industries of America found that participation in crafts or hobbies had increased, with 81 percent of U.S. households participating in a particular craft or hobby, compared to 77 percent four years earlier.

New Technology's Impact
Probably the most intriguing change in the toy industry was the birth of the Internet. Companies such as eToys, founded in 1996, gained considerable publicity. eToys offered buyers the opportunity to shop at home for hard-to-find toys rather than braving crowded stores and frenzied shoppers during the holiday season. The company's sales in 1999 were $30 million, a 4,267 percent jump from the previous year. There are numerous concerns and challenges surrounding the concept of e-trade, but online toy shopping definitely became an important element of the sales structure.

According to Playthings magazine, the toy industry had to go 'back to the drawing board." Joe Diaz, president of the Learning Express, agreed in an interview that if independent retailers 'cannot find a way to cooperate, they will not survive." Longtime toy retailers KB Toys, FAO Schwarz, Inc., Zany Brainy, and The Right Start filed for Chapter 11 bankruptcy protection following the 2003 Christmas season.

The five top leaders in the toy industry controlled almost 60 percent of the overall market share in the late twentieth century. According to the Market Share Reporter, Wal-Mart accounted for 20 percent of the market, Toys 'R' Us claimed 17 percent, Target generated 8 percent, while Kmart had 6 percent and KB Toys had 5 percent. By 2008, Wal-Mart, Toys 'R' Us, and Target held more than 50 percent of the global market, whereas KB Toys went out of business in 2009.

Craft items continued to be a favorite among consumers. According to the Market Share Reporter, "Americans were spending more time at home." Michaels Stores were the leaders with $2.5 billion, followed by Jo Ann Stores with $1.6 billion and Hobby Lobby with $1 billion, followed by a distant fourth, Frank's Nursery& Crafts with $371 million. This trend continued in the late 2000s when the economic recession reduced Americans' discretionary income and kept more people at home.

Current Conditions

The wholesale toy and craft supply industry suffered a steady decline in the late 2000s. Revenues for the industry decreased at an average rate of 3.9 percent from 2005 to 2009. According to IBISWorld, major factors for the downturn included wholesale bypass, whereby manufacturers supply retailers directly; changing consumer preferences; age compression, in which marketers play on children's natural desire to be older and target them for more advanced products; and poor economic conditions.

The largest category in this industry in 2009 was video games, a segment that employed 6,701 people and generated annual sales of $870.8 million. Wholesalers that provided both toys and hobby goods and supplies numbered 956, with 5,141 employees, and together these firms had revenues of $750.6 million. The third largest segment was toys not elsewhere classified, with 745 establishments, 3,862 employees, and $602 million in sales. Toys and games accounted for 623 establishments employing 4,373 people and generating revenues of $457 million. Together, hobby goods and hobby supplies accounted for 282 establishments, 2,002 employees, and $179.1 million in sales. Dolls comprised another important category, employing 1,001 people at 463 establishments with sales of $104.3 million. Smaller sectors included fireworks, toy novelties, educational toys, bingo games and supplies, and board games.

Industry Leaders

According to IBISWorld, the two industry leaders in the wholesale toy and craft supply industry in the early 2010s were Mattel Inc. and Hasbro Inc. As maker of such brands as Barbie, Fisher-Price, Hot Wheels, and others, Mattel was the largest toy maker in the world. Based in El Segundo, California, the company employed approximately 27,000 people in 43 countries and recorded revenues of $5.4 billion in 2009. According to Hoover's, in 2010 Mattel was seeking to reduce its reliance on its biggest customers--Wal-Mart, Toys 'R' Us, and Target--by selling through catalogs and online.

Hasbro Inc. of Pawtucket, Rhode Island, was the creator of brand names Play-Doh, Tonka, Nerf, and My Little Pony, in addition to board games marketed under the Milton Bradley and Parker Brother names. Hasbro also made Star Wars and other licensed products through Disney and other large media companies. With 5,800 employees, the firm had sales of $4.0 billion in 2009.

Another significant player in the industry was JAKKS Pacific Inc. of Malibu, California. About 55 percent of JAKKS sales, which totaled $803.7 million in 2009, came from Target, Toys 'R' Us, and Wal-Mart.

Workforce

According to Dun & Bradstreet, 34,414 people were employed by the toys and hobby goods and supplies industry in 2009. California employed 7,414 people, or just over 22 percent of the industry total. Texas was second with 2,484 workers, followed by New York with 2,463; Illinois with 2,080; Washington with 1,837; New Jersey with 1,824; and Ohio with 1,813. A large majority of establishments in the industry were small, and only 21 percent of employees worked for firms that employed more than 100 people.

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