What is the 'difficulty of managing a toy maker' that investors say?
For decades, investors have regarded it as 'very risky to invest in a toy maker'. Investor Burn Hobart explains that the reason is not the decline in sales due to the declining birthrate, but the difficulty of management peculiar to toy makers.
Why Are Toys Such a Bad Business?-The Diff
For example, Hasbro , which sells Monopoly, etc., and Mattel , the distributor of Barbie , have not seen a big change in stock prices for decades. It is rather good that the stock price does not fluctuate, and Louis Marx & Company, the largest toy maker in the United States in the 1950s, went bankrupt in 1980. Coleco, which recorded the highest return on equity among the Fortune 500 companies in 1985 due to the boom of cabbage field dolls , also went bankrupt in 1988 when the boom was over. Management of toy mass retailers is also tough, and Toys'R'Us collapsed in 2018. Hobart says that in the toy industry, manufacturers that have made big hits and mass retailers that sell hits are also under tight management, and it is difficult to generate stable profits.
Hobart cites that the toy business operates on a one-year cycle as a reason why toy makers and mass retailers are running so difficult. Every year, about 40% of toy sales occur during the holiday season, about half of which occurs in the two weeks before Christmas. Approximately 84% of US toy sales come from exports to China, so you'll need to arrange toys for months to complete the shipping process.
Cheap toys can be price competitive, but an effective advertising campaign is essential to sell toys with high profit margins. By Christmas, we will purchase a TV commercial frame in advance and broadcast the commercial from March to May to the end of the year so that the product will be recognized by the end of the year. In addition, toy makers must carry out 'trend forecasting' and 'product development' at an earlier time than during the busy season and produce results. ``Toy makers are like betting, product development is like betting,'' says the toy trend, which tends to be short-lived and requires new products to be developed each year, while technological advances aren't so fast, Hobart said. States.
A handful of companies are producing results in toys or near-toys businesses, and the gaming industry and Disney are making consistent profits. What all stable companies in the toy industry have in common is 'getting out of the troubles of many toy makers,' Hobart points out.
Many toy makers are developing toys that satisfy new born children every year, such as 'nothing ever existed', 'advanced', and 'appealing to children's sensitivity'. One of the reasons for many toy makers to struggle is that they have to deal with new children every year because most of them will graduate from toys as they get older, and it will be difficult to obtain a stable customer base.
Also, since the average age of playing games tends to be higher, the current mainstream is to market to game fans who have money, rather than marketing to young people whose trends change drastically every year. It is coming. Disney, which also has an aspect as a toy maker, offers a wide range of services such as movies, theme parks, and streaming videos as well as toys, and attracts many people from children to adults with their own IP. As a result, Hobart cites a common denominator for successful companies as having a core intellectual property.
According to Hobart, a successful toy company can make tremendous profits for several years because many hit products are produced even if there is no core intellectual property in the toy industry. However, how much you produce and how much you spend on marketing are always issues to consider. 'If you make a mistake, you'll end up with a bankruptcy company in 3-5 years,' Hobart noted.
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