The Sky’s The Limit

Sometimes small victories count for a lot.

Construction toys have been offering some blue sky performance and a little hope in an industry continuously fending off sales erosion and competition from other product categories.

Accounting for only a 3 percent share of traditional toy sales, the category certainly isn’t threatening to prop up the entire toy industry. On the other hand, there’s arguably plenty of room for continued growth. That’s right, growth.

“Building sets increased in 2004 from 2003 which is terrific considering the softness of the toy industry overall,” says NPD Funworld analyst Anita Frazier. “Building play is an evergreen kids’ play pattern and the performance of the category is a testament to its ongoing appeal.”

And why not?

According to NPD, category sales rose 1.2 percent last year, from $621.9 million in 2003, to $629.2 million in ’04.

And there’s plenty more to build on, as evidenced by some of the more hotly contested sub-segments, like magnets. For its part, the overall construction toy segment is prime for all ages. But 6-10 comes in as the magic age.

While staples of plastic and wood blocks remain on the scene, magnetic construction products are hot.

Selling construction toys has usually gone by one guiding principal: as goes Lego, so go construction toys. Well, all of that has changed in recent years. The plastic building block market constricted and magnetic building toys have taken off.

“When the magnetic construction toys were invented there were nothing like them on the market.” Says Jeff Evans, president of GeoMag USA, “The category outperforms [other construction categories] every year.”

Vito Amato, sales and marketing manager at Rose Art, Livingston, N.J., notes that “Lego is down and Mega Bloks is flat. Magnetic is the growing segment because of two reasons: free play (you aren’t limited to what you create), and themes.

Those themes, often translating into product line extensions, are critical to driving sales and winning more retail shelf space, Amato notes. The kits work interchangeably, enabling the sets to expand, so product cannibalization has not yet become an issue, he says.

The main players in the category are Progressive Trading, Glendale, Calif., PlastWood, Sardinia, Italy, GeoMag, New York, and RoseArt. There are also a number of niche players that can be found mostly at the specialty level.

The category is just beginning its evolutionary stages, as most companies have the required balls and rods. RoseArt is featuring lighted rods in a magnetic collection called Lightastix. The concept is basically the same as the rod and ball connection except the rods are illuminated and 16 rods can be connected to one ball. The sets run from $14.99 to $49.99 depending on the number of pieces in the sets.

Also new from RoseArt is the Magnum Man series ($9.99), a Bionicle-like product that will have a movie and DVD to follow. “Basically you use magnetics to build characters that have a story line,” says Steve Morowski, product development manager for the company.

Available from Progressive Trading is its well-known Magz lines, Glow Magz, Skrooz and Webz.

A game of note in the magnetics category is the GeoMag Magnetic Challenge (49.99). The game comes with a metallic board that is used to anchor the pieces. The object is to snake your pieces across the board while your opponent try to do likewise from the opposite side.

And display of magnetic construction couldn’t be easier for the retailer, according to GeoMag’s Evans. “Just put it on the shelf,” he says. “Kids know what they are and what they do. Our experience is that if you offer smaller sets to begin with, that sometimes kids will come back for a larger set the same day.”

Wooden blocks aside, the granddaddy of all construction toys is plastic blocks. Enfield, Conn.-based Lego has been the pacesetter for years and that pretty much remains the same today. Despite some sluggish sales numbers, Lego recently reported its products outperformed the toy market as a whole—even claiming a one percent gain in market share, according to Michael McNally, senior brand relations manager.

That’s come largely on the strength of the company’s efforts refocusing on its core competencies, along with enhanced speed to market capabilities.

“We’re gaining a more competitive spirit in the industry,” McNally offers, adding, “Competition is healthy and it’s brought us back to focusing on what we do best.”

Lego’s Knight’s Kingdom recently won the Boys’ Toy of the Year honors, and the company saw it as an affirmative statement.

“That sent a signal to us that we don’t have to follow, we don’t have to put lights and sound, and we don’t have to be an electronic toy to survive in today’s industry,” McNally says. “We can deliver on the Lego play pattern. We can take an evergreen theme like castles and we can update it, make it look different, and make have different play functions and values.”

But there are other formidable players in the market such as Mega Bloks, Montreal. Plastic building blocks remain a tough and hotly contested category, especially with the appeal and growing market share of magnetics.

“I would have to say it is basically flat,” says Andy Witkin, marketing manager at Mega Bloks. “A couple of years ago it was down double digits, but I would say it has stabilized and is basically flat.”

Witkin says for the category to begin seeing growth again, there needs to be more innovation. “If you copy, you’ll be flat. Innovation will show growth.”

One product Witkin is looking to fill that innovative niche is its Super Tech Heroes, character figures that seem to be a growing trend in all segments of the construction category. Witkin also notes that the company has new products directly aimed at specific age groups. There’s the original large MaxiBloks for the 1-4 age groups; MiniBloks, which are smaller and more detailed for kids ages 2-5 and there will be several build and play sets featuring castles and medieval warriors and pirates. These sets will include a CD with the toy to immerse the kids in the world of play.

But a lot still depends on Lego, celebrating its 50th anniversary this year. As Torsten Geller, CEO of Best-Lock says, “I think its coming back. When it’s bad for Lego, it’s bad for the whole category.” Geller notes the pirate ship theme ($20.00) as a popular choice this year, and has also added licenses such as Jeep, GM, Hummer and John Deere, which add extra value to a product.

“The hip stuff comes and goes,” says Geller of the magnetic craze. “They got a lot of shelf space, a lot of TV attention…”

And the Bob the Builder craze has worked its way into the blocks category, which probably does make sense since, after all, he is a “builder.” RC2, Oak Brook, Ill., under its Learning Curve brand, is offering Bob the Builder—Project: Build It. The line comes out this fall and will feature toddle-sized talking vehicles, interactive playsets, and magnetic building blocks called Click Bricks. Prices range from $9.99 to $19.99

Crayola, a division of Binney & Smith, Easton, Pa., has available in July ’05 a unique building kit called Tube Tech Starters Set ($19.99), which includes a workbench for use with all other Tube Tech products. The bench allows the builder to turn raw materials—heavy duty plastic tubes—into toys they design themselves. The starter set comes with more than 170 pieces including lots of tubes to let kids’ creativity go wild. Tube retail packs (60 tubes) are available for $3.99.

Building categories are reaching into new areas, too. After the plastic tubes and building blocks, kids can start working on other projects like the railroad—more correctly, building it—with Basic Fun’s XTS Expandable Train System. The micro-sized train system has now gone 3D, enabling the products to age up a bit to become more challenging for slightly older kids, suggests Alan Dorfman, president.

“This year we introduced a pretty significant extension where we have a series of struts and ramps where you can actually go vertical through a series a track tiles,” Dorfman says. “It’s pretty neat. There’s something about guys and trains. We developed the system actually to bridge the gap in a hole in the market that’s existed forever, really.”

Dorfman says there’s been nothing in the marketplace for kids between the time they age out of Thomas and before they’re old enough for more expensive electric trains. The XTS incorporates snap together tile sections to expand the sets. Prices range from $2.99 for a single piece of track to as high as $59.99.

So it’s been around forever, wood blocks, logs, etc., and somehow manages to stay around. But the wood category has had to first fight the plastic block craze, and now the magnetic category. Admittedly, it is shelf-space challenged.

“Construction has always been Lego…Lego and Mega Bloks,” says Chuck Millington, president of Middleboro, Mass.-based Maxim Enterprises. “Still there is an area of logs, timbers, wood blocks…but once you get past Lego and Mega Bloks, there isn’t a whole lot of room. But the specialty [retailers] are crying for it and starving for something new in the category.”

Yes, the wood products category, other than a few exceptions, is basically a specialty retailer staple.

Michael Heun, product manager at Brio, Germantown, Wis., concurs that specialty is the destination for higher end wooden products and within that specialty market the category is growing.

“It’s just better quality than plastic,” says Heun. “I believe there is a special tactile attraction. I think wood, of all the construction categories has the biggest room for growth.