The Kingdom's Comers

As I started to write this article, the Bank of England had just announced an interest rate increase of 0.25 percent. This may not seem like a seismic event in itself, but in a retail market where confidence is already a little on the fragile side, seemingly small occurrences like this can have significant impact on consumer spending.

Having recovered from a slow start to the year and an indifferent summer trading period (where the heady combination of a prolonged hot spell and the World Cup lead to shoppers staying away from High Street in droves), the toy trade in the United Kingdom was starting to show tangible signs of improvement going into the 2006 holiday selling season.

Make no mistake—despite the early year doldrum, a vast number of toys will have been sold in 2006, particularly in the run up to Christmas; the table below gives details of the Toy Retailers Associations' predictions for 2006's holiday best sellers. Among its candidates, special mention should be made of Bandai's Tamagotchi, which continues to perform phenomenally three years after its reintroduction to the market; the Dr. Who range from Character Options, which propelled the company to within a whisker of overtaking Hasbro in the October NPD sales statistics; and Mattel's Cars range, which has mirrored the strong American performance of the brand. Unlike much of Europe, MGA Entertainment's Bratz doll range continues to sell in large volumes (although in many cases, heavy promotion and price cutting has been a key driver), whilst many are predicting that Barbie's 2007 performance will be her strongest in some years. But, as in previous years, the fight is on for holiday season market share amongst the different retail channels, and unsurprisingly, the pre-eminent weapon remains price cutting.

There were two predominant areas of significant growth in the U.K. toy retail market in 2006: supermarkets and online retail.

In the grocery sector, Tesco enjoyed a tremendous trading year (at least through October), with NPD suggesting that it was responsible for as much as 50 percent of the U.K. toy market's 2006 growth to that point. Supermarkets like Asda—and to a slightly lesser degree Sainsbury's—also made significant inroads, with the belief that busy mothers favour the convenience of buying toys whilst they are doing the weekly food shop.

Online purchasing of toys is also growing at a fast pace again, and the convenience of ordering goods from home by simply clicking a button seems to be finding favour with an increasing number of time-pressured parents.

Of course, the major High Street retailers fought their corners as hard as possible. Woolworths launched the impressive Big Red Book, a 500-plus-page catalogue of which 190 pages were devoted to toys, whilst catalogue/showroom retailer Argos responded with heavily publicised price cuts (which naturally prompted Woolworths to retaliate). With seven weeks to go to Christmas, there were clearly many more twists and turns likely to happen yet among the major toy and game merchants.

All of this was great news for the consumer, but not such good news for independent toy retailers.

Leading toy buying group Toymaster saw a number of its larger members close in the last year, and it is an inescapable fact that there has never been a harder time for independents to make a profit from selling toys. Those that attempt to price match run the risk of failing to generate sufficient profit, particularly when the discounting affects the biggest-selling toys (which it invariably does in the run up to Christmas). But failing to be competitive is a mortal sin in 21st century retailing. Hence many independents have found themselves caught between 'a rock and a hard place.'

Moving into 2007, it isn't all doom and gloom for the U.K.'s toy industry, but it's certainly a rapidly changing landscape. Manufacturers are continually challenged to find ways to appeal to children's changing interests, whether through innovativation or popular licenses, while at retail, opportunistic new competitors increasingly compete for attention, and pricing pressures, especially during the holiday season threaten their profitability.