Not yet in World Cup form

The year 2005 failed to change the fortunes of the German toy market.

For years, the sector has been battling with dwindling sales, as traditional toys in particular struggle to withstand fierce competition from video games, mobile phones and digital cameras. The figures speak for themselves: In 1994, traditional toy sales totalled around EUR 2.78 billion, dipping to EUR 2.34 billion in 2004, according to market researcher Eurotoys.

However, the market as a whole has held its own over the past 10 years, generating around EUR 3.2 billion — a number the toy business owes solely to growth in video games. This trend continued unabated last year. After the period from September to November fell short of the previous year, above average sales during the Christmas season were desperately needed to offset declines for traditional toys. However, recent signs suggest that the German retail trade was confronted with sliding Christmas sales for the fourth consecutive year, and that the toy retail trade was not shielded from this overall contraction.

In the absence of hot trends and convincing winners, the past year as a whole turned out to be rather lackluster. Even so, some companies managed to come out on top: After losing its way for several years, Lego was back on track in 2005. With a market share of around 10 percent, Lego is now neck-and-neck with Mattel in the race for market leadership. Playmobil has been sitting in third place for years, and is one of just a handful of companies recording constant, above average growth. Other players such as Schleich and VTech are also performing well.

A gloomier picture is painted by two traditional German companies: Zapf Creation, which for a long time rode a wave of success with doll concepts such as Baby Born, has been hit hard in recent years, resulting in falling sales in its core markets of Germany and the United States, as well as personnel changes at the top, and restructuring measures with an uncertain outcome. Model railway maker Märklin is also fighting to turn the tide. Its cost-intensive production setup at its headquarters near Stuttgart has been gradually shifted to eastern Germany and Hungary in an attempt to compete against Asian suppliers. Even so, the family-run company has failed to halt the sales slide of the past three years. Management has only halfheartedly denied reports of a possible takeover by investors.

Although this may not seem very encouraging, 2006 offers more than just a glimmer of hope.

Economic activity looks ready to pick up, with economists unanimously forecasting greater growth. Additionally, the new government led by Chancellor Angela Merkel has postponed the planned VAT increase from 16 percent to 19 percent until 2007. Last but not least, as Germany prepares to host soccer's World Cup tournament, the retail trade's imagination is being captured by this sports spectacle.

During the Christmas shopping season, World Cup licensed products were already booming. The toy industry is also determined to cash in on this opportunity, with almost every manufacturer offering products linked in some way to soccer. Even the little Playmobil people, which have not changed for 30 years, will be joined by a soccer player with a moving striker leg. However, the World Cup will be over by the middle of the year, and it remains to be seen whether the economy will have gained enough momentum by then to encourage consumers to spend, spend, spend.