The toy industry is quickly learning how to best respond to a changing market. The main issue cited is that women are starting families later in life and having fewer children. Further, the medium for children’s toys is changing: physical toys are being replaced with electronic versions. The changing market occurred faster than Hasbro and Mattel could respond, resulting in Hasbro’s year-on-year operating profit down 11% and Mattel’s net income down 24%. The Economist points out that despite the two companies’ losses, “global sales growth for all traditional toys and games was 5% in 2012.” This further underscores the market shift toward a technological medium. Smartphones and tablets have directly reduced the toy industry’s market share.
This shift does not mean that physical toys will become obsolete. Instead, characters will have to be integrated into multiple media – video games, iPhone apps, dolls, etc. – in order to ensure success. Sales for virtual renditions may be the catalyst for characters in other media, as the platforms that support applications and video games are far more robust than physical toys like dolls. Hasbro is gearing for this transition by purchasing a 70% stake in a mobile gaming company, Backflip Studios. Further, Hasbro is working to translate its board games into video games.
Of the two companies, Mattel is in a more stable condition. Mattel’s international sales grew at 4% last year while Hasbro lost 4% in sales. Mattel’s international position highlights its advantage over competition, as “North America is a saturated market, where toy sales are flat-lining,” which means that growth will likely have to happen on the international playing field.