'70% of that growth is coming from trading cards': Schacht on U.S. toy market growth

Key Concepts

• Supply Chain and Tariffs: Impact on toy prices and availability.
• Price Strategy: Differential pricing for preschool vs. adult collector toys.
• Adult Collector Market: Growing segment driven by nostalgia and passion for brands.
• K-Pop and Demon Hunters: Emerging trends influencing toy licensing and co-licensing.
• Retail Landscape: Shift from big box stores to specialty retailers and direct-to-consumer models.
• Trading Cards: Significant growth driver in the collectibles market.
• AI and Chip Shortages: Minimal impact on the toy industry compared to other sectors.

Impact of Supply Chain Issues and Tariffs

The initial concern regarding supply chain issues and tariffs impacting toy prices was less significant than anticipated. In the US, a collaborative effort among retailers, manufacturers, and factories led to them absorbing some of the tariff costs, resulting in single-digit price increases. In Canada, the impact was even less pronounced due to a smaller volume of direct US-Canada toy trade, with most toys originating from Asia.

Price Strategy in the Toy Market

A notable trend is the divergent pricing strategy for different age groups. Prices for preschool and toddler toys have remained flat. Conversely, there are larger price hikes for adult collector items. This strategy targets consumers with disposable income and a strong desire for these products, such as LEGO, Star Wars, or other collectible brands.

The Growing Adult Collector Market

The adult collector segment is a significant and expanding part of the toy market. Major toy companies like Mattel and Hasbro have dedicated product lines for adult collectors, including Hasbro's Pulse and Mattel's Creations line, which allow direct purchases. LEGO is also a leader in this space with its adult collector series. Even private companies like Jazwares have a "vault" for adult collectors.

Emerging Trends: K-Pop and Demon Hunters

A new and exciting trend involves the K-pop phenomenon and "Demon Hunters," which are generating substantial excitement. This has led to unprecedented co-licensing agreements, with Hasbro and Mattel collaborating on a single brand for the first time. Hasbro's Monopoly is already available, while Mattel's fashion dolls are available for pre-order for next fall. Funko has also capitalized on this trend with products already on shelves. Despite the high demand, these new releases are not causing significant supply chain strains, as some product delays from earlier tariff-related issues have allowed for better inventory management.

Retail Landscape Shifts

The retail environment for toys is undergoing a transformation. In Canada, big box stores are struggling. Toys R Us has reduced its store count to 40, with many others up for sale. Mastermind and Indigo, which performed well during the pandemic, are now adapting. In contrast, specialty stores are thriving. Examples include Cow Town Toys and Candy, which boasts over 30,000 SKUs and attracts customers from afar, and Village Toy Castle, which aims to bring toy manufacturing back to Canada and features a retro museum alongside its retail offerings. GameStop has also rebranded as EB Toys and, under a single owner who also co-owns Mastermind, Imports Dragon, and McFarland Toys, is expanding into a "mass specialty" model that includes trading cards.

The Boom in Trading Cards and Collectibles

Trading cards are a major driver of growth in the collectibles market. The US market has seen a 7% sales increase, with Canada experiencing a 17% rise (data from Circana). In the US, 70% of this growth is attributed to trading cards across various categories, including Pokémon cards and NFL non-sports cards. Collectibles are also up approximately 35%, and licensed goods have seen a 14% increase.

AI and Chip Shortages: Minimal Impact on Toys

The impact of AI and chip shortages, such as those involving Nvidia chips, is not considered a significant issue for the toy industry. While electronics in toys are affected by chip availability, the problem is more pronounced in "grown-up electronics" like automobiles. The availability of popular gaming consoles like the Nintendo Switch 2 or PS5 is not expected to be jeopardized.

Conclusion

The toy industry is experiencing robust holiday sales, driven by a dynamic market that includes a growing adult collector segment and emerging trends like K-pop. While supply chain and tariff concerns have been mitigated, the retail landscape is shifting towards specialized stores and direct-to-consumer models. Trading cards and collectibles are significant growth areas, while the impact of AI and chip shortages on toy availability remains minimal.