31 May 2013 ~ Comments Off

Are You Ready For The Direct To Consumer Revolution That’s Looming For The Toy Industry?

Are You Ready For The Direct To Consumer Revolution That’s Looming For The Toy Industry?

These are very dangerous times for those with a vested interest in the status quo. The music industry has been revolutionised by digital downloading driven by easy consumer access and online portals versus physical purchase.

For those who remember the resistance from the music industry to the change, perhaps in hindsight we can reflect that they should have taken an ‘If you can’t beat ‘em, join ‘em’ approach.

The book industry has been revolutionsed by Amazon’s Kindle and others. The Home Video industry has been massively affected by the trend towards D2C, cutting out traditional retail.

Just looking at the towering market value of Netflix on the stock market, and their substantial and growing annual profits shows just how much this industry has been changed. So none of this is news.

We all know of these changes, but are you clear on the coming changes for the Toy industry? Or are you wallowing in ‘it will never happen to us’ inertia? Because any business without a D2C strategy in this industry is missing a huge opportunity, and failing to protect their future prospects.

As an industry, we’ve certainly embraced new media in terms of marketing and Brand licensing. Angry Birds et al proves the latter point! However, we really haven’t seen any major players (publicly at least) embrace what is clearly the coming revolution of our industry. And as with all revolutions, new power bases emerge, and old power bases disappear.

The 2 major areas of change are 3d printing and crowd funding.

Now again, everyone knows about these 2 up and coming area, however, it appears to me that many companies have failed to understand the implications.

Just as the book industry power balance was entirely in favour of the publishers who controlled the gateway to retail/commercial opportunity, so the same effectively applies to Toy companies today.

Kindle stripped away the gatweay effect for book publishers.

Will crowd funding and 3d printing do the same to the Toy industry…?

Firstly let’s look at fundamental challenges in our industry:

1. Inventory/justifying MOQs.

2. Limited shelf space/listings at mass retail.

The first issue is a critical point, inventory represents THE biggest risk Toy companies have on an ongoing basis. But in terms of the industry as a whole, inventory risk and MOQs effectively act as barriers to entry into the industry. Combine that with limited mass retail shelf space for our Category, limited number of vendors per retailer and potentially company busting huge orders from some mass retailers, and in effect there is a bottleneck, where those who effectively control product input to retail effectively act as gatekeepers to the industry as a whole – like a dam holding back a huge mass of products pooling up behind the dam.

Anyone who has tried to open a new trading account with Walmart, Carrefour etc will understand my point here!

So here’s the critical point – by allowing (effectively) direct access to consumers 3d printing and crowd sourcing offer ‘dam busting’ opportunity to smaller players, to those with no capital, to those with low engineering/manufacturing understanding and therefore potentially can revolutionise our industry.

Although we might not think it (!), we currently have comparatively few Toys on offer versus App stores/book stores etc. This is because of the sheer risk of developing Toy products in terms of launch risk and financial investment.

BUT if you can use crowd funding to meet initial breakevens on mass produced products and 3d printing to allow more customisation and less need for robust and costly tooling etc., then you have completely changed the game! Suddenly those products that can’t hit a 50k units tooling breakeven become possible. The flood gates will open, which will open the market and lead to huge shifts in what sells and how it sells!

Now by way of perspective, I am not at all suggesting the death of bricks and mortar retail, or that the industry as we know it will fade away. Far from it!

In fact the success factors will remain the same I.e. Brands, innovation and consumer footfall will always win. Toy companies that embrace other technologies will continue to discover opportunity, and mass retailers will continue to sell huge quantities of boxes.

However, take a look at the music, video, video game and book publishing industries and how they’ve been revolutionised in the last decade by D2C digitally driven distribution…

It’s time to make a choice, will you man the barricades and shore up the dam, or will you embrace the considerable opportunities ahead…?

Steve and team

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