Broken toys
Wednesday, 10 September 2008
Last Updated: Tuesday, 9 September 2008
By Robert Bryant
The toy and sporting goods industry has been struggling against a trend towards kids playing video games and surfing the internet. If the local industry can’t beat the electronic goods makers, then they better join them.
Australia’s ever-growing obesity problem has been both a help and a hindrance to the toy and sporting goods sector. The trend towards sedentary activities such as playing video games or surfing the internet has pushed children away from traditional toys and towards electronic ones. On the other hand, campaigns and programs designed to reduce obesity have led to something of a pick-up in demand for sporting goods.
That pick-up has not been able to prevent the industry performing poorly over the last few years. IBISWorld estimates industry revenue declined at an average annual rate of 4% over the five year period to 2007-08.
While real GDP, population and household disposable income and expenditure on leisure and recreation growth during this period was positive, the decrease in import and increase in export prices due to an appreciating Australian dollar resulted in the consolidation of local operators and contraction of local industry. This is due to the labour intensive nature of the industry which allows low-cost Asian manufacturers to be more competitive.
While demand for traditional toys is decreasing in favour of electronic toys, periodic toy fads (such as Bratz or the latest remote control car) help to boost sales and keep them in the lead. Counterfeit goods continue to inflict direct costs on the industry.
IBISWorld forecasts that the outlook for the sector will improve over the next five years, with the industry set to experience static growth over the outlook period to 2012-13.
The industry will be helped by an increasing real GDP and population growth during this period. Real household income is also expected to increase as stronger economic growth and skill shortages improve wages and decreasing interest rates leave consumers with more money to spend.
Increased interest in healthy lifestyles is not expected to offset the increase in demand for electronic toys hurting growth, although sporting goods manufacturers should be able to counter this by expanding into the fashion industry. Industry will also try to boost its growth prospects by producing more electronic toys and video games.
Finally, the industry can improve growth by using research and improved manufacturing techniques to produce more innovative, high-premium products, such as sporting goods that enhance sporting performance.
Products and service segmentation
Major market segments
Key success factors for operators in the industry
- Having contracts that are favourable to purchaser. Access to low cost materials, either locally or through imports.
- Establishment of brand names. Brand name and image are important or agreements to supply major companies with these attributes.
- Management of seasonal production. Many goods manufactured have a short selling season (such as Christmas, or winter), requiring strategies to manage resources in on- and off-season.
- Production of premium goods/services. Product quality, or patented technology, can be important when competing with imported products.
- Level of competition existing in the market. Production of goods which are not subject to significant import competition.
- Development of new products. Some toys and sporting goods cater to fads and therefore have short life cycles, necessitating new product development.
- Having a wide and expanding product range. Some toys and sporting goods cater to fads and therefore have short life cycles, necessitating new product development.
- Product is sold at high profile outlets. This provides better attractions to potential purchasers.
- Well developed internal processes. To keep unit costs down
IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au
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