2007: Forward Thinking

In retrospect, there was some good, some bad and some ugly in 2006. Alas, it's all history now, and so the cycle begins again—the globe-trotting to shows, orchestrating product launches, going places, meeting people, creating new products, acquiring new licenses and stocking those shelves.

Will 2007 be a good or bad year for the toy business? What trends will impact the industry and the types of toys produced? Is your company prepared? PLAYTHINGS asked a sampling of professionals from across the industry—licensors, manufacturers and retailers—what they expected from the new year. Here's what they said:

What will have a major impact on the toy industry in 2007?

"First and foremost, the toy aisle continues to evolve into a kid's entertainment aisle. Buyers will buy differently and ultimately consumers will shop differently. Also, costs of materials could have an impact on the overall industry. The cost of plastics is rising and this could impact price and quality."

—Sherice Torres, vice president of hard goods, Nickelodeon & Viacom Consumer Products, New York

"I believe the toy industry will be faced with increasing pressure to help bring much-needed unstructured play and togetherness back into the lives of American families and, specifically, kids. We now work nine more hours a week, or one entire extra workday, than our parents did. When we're not working, we're plugged in and tuned out."

—Richard Tait, co-founder and company 'Grand Poo Bah,' Cranium, Seattle

"I think the new video game consoles will have a major effect on the dollars being generated out of the traditional toy aisles. While a lot of the dollars are being spent by older gamers that would not buy toys at all, others will buy one of the big three consoles, and also additional games. Eventually, that will be taking dollars from us."

—Rick Berman, director of marketing, licensing and design, Maisto, Fontana, Calif.

"Movies. Once a movie comes out, it sort of puts the brand name out again. How many moms are going to see the Transformers? Probably not a tremendous amount, but if the movie does well and the kids talk about it, it becomes very easy now for a mom who hasn't bought a Transformers toy for her in kid in a year or two to say, 'Hey you know, it's not their birthday or Christmas, but I keep hearing the kids talk about Transformers,' so Transformers has more value…it makes it that much easier for people to recognize it."

—Todd McFarlane, president, McFarlane Toys, Tempe, Ariz.

"The first is the rising cost in both labor and materials from China. The second is the retailer's desire for product differentiation. The third is the increase in compelling TV and film content and how to navigate through competing priorities in this arena."

—Jessi Dunne, executive vice president of global toys, Disney Consumer Products, Burbank, Calif.

"Playhut recognizes that the ways that kids play are changing. While they are still interested in traditional play patterns, they are becoming increasingly interested in electronic, interactive games as well, and at earlier ages."

—Brian Zheng, founder and CEO, Playhut, City of Industry, Calif.

"Recent consumer research reveals a trend towards more active parenting than ever before…moms and dads looking for more ways to interact with their children and spend quality time together."

—Jamie Cygielman, senior vice president of consumer products, HIT Entertainment, New York

"There's been a lot of news recently about companies entering into mobile platforms, for example. This is still a business that needs to be figured out, but could present another new channel to distribute great content."

—Gary Hymowitz, vice president of consumer products, Scholastic, New York

"Amazon's prominence in the online world is alluring to the specialty retailers and they are aggressively seeking to partner with them. There is very little downside for a specialty retailer to partner with what I believe has become one of the major search engines available to consumers, as Amazon is."

—Lea Culliton, vice president of marketing and sales, Haba USA (a division of Habermaass), Skaneateles, N.Y.

"While the toy industry is in many ways insulated from external influences, it is not totally immune. As always, the economy will have a profound impact. 2007 will be an off-election year, so consumers will not likely exhibit the same caution that they do during elections. China, as the major producer of toys and the largest potential market, will continue to shape many aspects of the industry. In short, we need to think beyond our traditional business model and explore new grounds to satisfy the consumers."

—Daniel Grossman, CEO, Wild Planet, San Francisco

"Innovation is key to the toy industry. To succeed, one must create a truly 'wow' moment for kids by designing toys that have fun, innovative features, incorporate new technologies and include engaging content."

—Neil Friedman, president, Mattel, El Segundo, Calif.

Will 2007 be a good year for business?

"2007 is looking great. With a lot of classic properties returning like Spider-Man and Transformers, as well as another Pirates film, there is little doubt that there will be a very good year for licensed products as well as more unusual items, like grow-your-own exotic plant kits and unique variations on the Monopoly board game."

—Adam Pawlus, director of marketing/merchandising, Entertainment Earth, Los Angeles

"2007 will be challenging but overall the signs are positive. Innovation and branding are key drivers, and the consumer has shown a resilient willingness to spend on kid's product. Retail differentiation has hit the toy business. Target and others are bringing proprietary brands to the toy aisle and—in some instances—they are direct sourcing these programs. This impacts on the availability of shelf space to manufacturers, but it presents opportunity for brand owners seeking exposure."

—Robin Sayetta, co-founder and co-president, Ripe Ideas, New York

"Going into summer and Christmastime, there are enough high profile items that the public will be exposed to that may be turned into sales. You're looking at another Pirates of the Caribbean movie and another Spider-Man movie. You have a big Transformers movie, too. I don't have any of those licenses, much to my chagrin, but they should be sufficient to generate some decent sales."

—Todd McFarlane, McFarlane Toys

"It will be a very strong year for licensed brands with major movie releases (e.g. Transformers, Spider-Man 3, and Harry Potter) as well as continued success with TV properties such as Pokémon, Naruto, and Ben 10."

—Carol Roeder, vice president of consumer products, Viz Media, San Francisco

"It won't be an easy year, that's for sure. Not that any of them are, but it seems to take a lot less time to list the hurdles than it does to list the ways to get over them. Overall, I believe consumers will ultimately have a lot more choices to make as manufacturers move into areas that they were not involved in previously. So consumers and retail buyers will be offered a lot more…some good, some not so good. Ultimately, this should be good for the industry."

—Rick Berman, Maisto

"It will be a tremendous year for those who have planned for and addressed the above issues with compelling product that consumers will respond to and that retailers feel they can differentiate themselves with."

—Jessi Dunne, Disney Consumer Products

"For companies and toy concepts that are ahead of the curve, it will be a good year. Traditional toys are falling behind and not keeping up to date with how kids are interested in playing. This is reflected through the decreasing price points, as well as the decreasing sales in traditional toys. However, toys that combine these traditional play patterns with innovative interactive technologies acknowledge the shift in children's play interests, which is why it will be a good year ahead for companies that implement this line of thinking."

—Brian Zheng, Playhut

"The key will be to innovate rather than to follow. There is not enough room on retailers' shelves for remakes of commodities."

—George Schimpf, vice president of marketing, Briarpatch, Millburn, N.J.

"2006 has been the best year I've ever had, so I would hope so. And I think that there has been a baby boom."

—Anna Walker, owner, Curious Kidstuff, Seattle

"It depends on who you're asking. As long as the toy industry continues to adapt to what's going on in technology, the business will thrive next year. If not, traditional toy makers have their hands full as shelf space dwindles."

—Adam Unger, vice president, Art Asylum, New York

What trends will affect the way the industry does business and/or the kinds of products that are developed?

"There's incredible competition in a wide slate of action-adventure movies, all targeted to the same audience. It will be interesting to see which of the major films get the most traction with boys in the toy line. The shelves will be filled with great action figures for boys."

—Cheryl Rubin, vice president of brand management, DC Direct, New York

"With the ever-increasing boom of video games, it seems there's no real shortage of demand for old-fashioned toys. People are always looking for more interactive and amazing animatronic toys, but the more you push new technology, the more a lot of classic toys hold up to the test of time. After all, Mr. Potato Head still seems to be doing quite well and adapts to market trends with new accessory packs like a pirate pack, a firefighter pack and the seasonal-favorite Santa pack."

—Adam Pawlus, Entertainment Earth

"Trying to figure out what will work in the toy business is like trying to pick stocks. I remember a couple of years ago it was going to be everything electronic. What are you talking about? They [kids] want a bunch of Pokémon cards. That's as simplistic as it comes. Printing on a piece of paper and the kids go for it. So I think the 'trend'—whatever that thing is—is less important to the kid than it is to the adults who are making it and the adults who are reading the article about it. The kids just want something that will grab their imagination. It can be something very simplistic and it can also be something very complicated. It's not anything you can force down their throats. I'm sure that if I had a company that spent $1 million on bell bottoms I would hope that that would be the trend for the next year or two, but it doesn't necessarily make it so."

—Todd McFarlane, McFarlane Toys

"Age Compression. Children typically 'age out' of traditional toys and this trend plays a big part in how the industry does business. New toys and games are historically created with this is mind, anticipating this trend and possibly moving into new areas of entertainment for children. A second trend is that the industry is seeing fewer and fewer toy manufacturers each year. This will affect the toy industry in that retailers will have to become more creative when looking to purchase quality products for their stores.

December is the most crucial and critical month for any toy retailer, as the sales during the holiday season directly reflect the following year. The more 'healthy' or lucrative sales are, the more time and money can be placed into research and development of new, fresh, exciting, creative toys for the next year. Therefore, the better the sales in December, the better the quality of toys a retailer can offer customers the next year."

—Brian Miller, owner, Geppetto's, San Diego

"Kids and parents expect more. Bottom line: You have to innovate, and you have to entertain. There are also fewer vendors and less SKUs. This definitely impacts how we look to roll out and build a property. We're capitalizing on new technology. We're a leader in bi-lingual products with both Dora and Diego. We have definitely developed more product that encourages role play and imagination. Most importantly, we're an entertainment leader which gives us a wide variety of product that fits into the changing toy aisle."

—Sherice Torres, Nickelodeon

"There is a trend towards getting kids active. Mattel is addressing this need with fun new toys that encourage kids to get out and play. For example, we're introducing a cool new line of performance products from Hot Wheels and a Smart Cycle from Fisher-Price—both of which promote kids to get active and play in a fun and exciting new way. Technology is also much more prevalent in today's world and comes second nature to kids. Kids are very engaged in what they see older kids playing with, and [they] are growing up with cell phones, computers and MP3 players. They like gadgets as much as you and I do. It is our job to meet the needs of today's kids with fun, innovative products that appeal to them."

—Neil Friedman, Mattel

"Last year, we saw adult technology (cell phones, MP3 players, etc.) start to encroach the kids' space. As a result, just as it happened with adults, we're going to see kids start to crave more personal connections and toys/products that bring them together rather than isolate them."

—Richard Tait, Cranium

"There are some interesting trends developing that all relate to the Internet. There has been the rise of online retailers over the past 10 years, but many manufacturers are now selling direct, and many brick-and-mortar businesses are adopting sophisticated, multi-channel marketing operations. Retailers and manufacturers alike must adapt to this changing landscape. While the mass market is dominated by the mammoth toy manufacturers, I see exciting developments from the many small and independent manufacturers and toy designers. There is a strong market for wholesome, unlicensed toys, and I think these independents will find a receptive audience for their innovations."

—Mark Carson, owner, Fat Brain Toys, Elkhorn, Neb.

"We will see increased retail segmentation with every retailer asking to have a unique 'exclusive' line of licensed merchandise for their stores. Licensors and licensees will have to put even more focus on this when developing their SKU plans. Being able to give consumers the ability to impact the design of what they buy/wear/watch means that we will be focusing even more attention on interactive retailing. Build-A-Bear Workshop and YouTube are just two of many examples of this successful model."

—David Imhoff, senior executive vice president of worldwide licensing and merchandising, New Line Cinema, Los Angeles

"I think that the one trend that I'm fearful of that I see is that throughout the year, there are so many retailers now that have toys…you can buy toys at your local grocery store, at your drugstore, at every little place, and so there's just so much more competition for that part of it. And then by Christmastime, people that really only buy toys then, they tend to go [to the big box retailers]."

—Sara Scott, owner, The Perfect Toy, Avon, Conn.

"Online [sales]—that's probably what has cut into our business. That will probably just get stronger and stronger. Every year it does."

—Jane Nesbitt, owner, Thinker Things, Del Mar, Calif.

"[Due to] technology, China, and continual price pressure, stores will have to be creative and smart to succeed."

—Rob Wilson, owner, Challenge & Fun, Ashland, Mass.

"Health and wellness are hugely important to parents and we are seeing organic products gaining momentum across a variety of categories (from food to clothes to toys) and distribution channels (specialty, mass, grocery, drug). The design craze that has swept the home and fashion categories is starting to appear in the kids' aisle. The success of boutique stroller brands like Bugaboo and Silver Cross and designer alliances like Wendy Bellisimo and Babies "R" Us are good examples of this trend. We are also seeing demand for some of our designer clients in the kids' market as parents seek to make their kid's environment consistent with the feel of the rest of the home."

—Robin Sayetta, Ripe Ideas

"There has been a trend for many retailers to become licensees and attempt to create private label brands. While we expect the trend to continue, it has met with marginal success in the toy category. At the end of the day, the consumer puts dollars behind products that deliver the goods. Blue chip licenses will become more important as many of the flash in the pan properties begin to fade. Licensing will become more competitive. And retailers will want to work more closely with manufacturing partners to differentiate themselves from the competition."

—George Schimpf, Briarpatch

"In toddler/preschool, it is important to address learning as a feature in traditional toys. Moms are expecting it more and we won't concede that component of a child's toy to the ELA aisle only. For older kids, digital technology will continue to grow in importance. The old concept of lights and sounds has been relegated to 'traditional toy' status and the emergence of content (pictures, music, video) and the interesting platforms where they can be presented will continue to thrive."

—Jessi Dunne, Disney Consumer Products

"For a few years now, retail consolidation, shrinking shelf space and retailer differentiation have been ongoing trends. I do not see that changing any time soon. Licensors and manufacturers will need to continue to offer retailers differentiation, and retailers may continue to look to direct source products where they believe they can get better margins."

—Tamra Knepfer, senior vice president, American Greetings Properties, New York

"Sesame Workshop seeks to develop products that respond to a need, or fill a particular void. We developed an ancillary business around our Healthy Habits for Life initiative, in response to parents telling us they need help encouraging their kids to eat healthier and making choices grocery aisles."

—Maura Regan, vice president and general manager of global licensing, Sesame Workshop, New York

"You will see a lot more over-$100 high tech toys next year. Lots of electronics and magic."

—Isaac Larian, president, MGA Entertainment, Van Nuys, Calif.

"We know that demographics are in our favor and will deliver a sharp increase in kids of core toy-buying age. As a continuing trend we see grandparents continuing to wield clout as baby boomers age and have grandchildren. And, of course, the trend of international markets becoming more significant will only gain momentum."

—Daniel Grossman, Wild Planet

"Licensing deals that try not to make amends for the different sales costs to different customers is a major concern. Shrinking shelf space in the traditional toy aisles is another. Also, mass retailers cutting down relationships with the smaller vendors is a problem. The issue of selling products to the retail buyers versus selling products to the end user is a scary trend that will continue to cause problems in the industry. Making the buyer happy does not often equate to making the end purchaser happy with the final product."

—Adam Unger, Art Asylum

"It's not about new trends, it's about staying true to play value and brand trust by using imagination to create toys that will entertain and educate children." —Charles Falzone, co-chairman, CCI Entertainment, Ontario

What are some challenges that you'll face in the New Year?

"Oversaturation of properties is one of the bigger issues. Retailers will be faced with many options and retail shelf space is decreasing. There are fewer retail accounts to sell and everyone is knocking on the same doors."

—Juanita Palomino, vice president of domestic licensing, DIC Entertainment, New York

"A major impact in our little corner of the business is the rising costs of raw materials and subsequent higher product costs."

—Rick Berman, Maisto

"As a licensor, our challenge is to break the mold of traditional kids' property launches which once upon a time were purely theatrical and/or television driven. Today, kids' mindshare is across multiple digital platforms, from videogames to computers to music devices to cell phones. Also, television is very fragmented and becoming more and more so—even daily placement of a property on television does not guarantee levels of awareness to warrant full merchandising programs. It's time for some of the more traditional toy manufacturing and buying patterns to take a bold step forward to look at new properties and new product opportunities based on the multiple digital platforms where today's kids are increasingly going."

—Tamra Knepfer, American Greetings Properties

"Retailers will continue to demand differentiation to help drive their importance with consumers and help them compete with 'non traditional' retailers, such as Best Buy. To drive traffic, they will need to leverage the excitement created by the film studios and the toy manufacturers with the best promotional tools. With the crowded portfolio of properties vying for attention, it will be critical to place the right bets on which property will be showcased and how."

—Jessi Dunne, Disney Consumer Products

"I expect the regulatory environment will become more complicated, ranging from the raw materials we use to how we market them to children. I believe that the toy industry will continue to lead in this regard, crafting and adopting standards where necessary and resisting where appropriate."

—Daniel Grossman, Wild Planet

"Online retailers will face increased pressure on profits as new competitors enter the space and the cost of doing business increases. Companies who aren't well capitalized will find it difficult to bring on as many new lines as their competitors. An inability to embrace and implement industry-accepted technology could also make Web sites less compelling or efficient for consumers." —Milanie Cleere, CEO, Oompa.com, Los Angeles

"We are all experiencing increases in our costs, especially freight and production costs. Our biggest challenge is going to be to maintain our low reorder levels and reasonable free freight order levels for our retail customers. The on-going challenge of trying to increase the amount of retail floor space (or dot com space) each specialty retailer is willing and able to support will continue."

—Lea Culliton, Haba USA

"Toy retailers are constantly competing for kids' leisure time. Today's kids are extremely techno-savvy and are leaving the toy aisle at a much younger age in favor of spending more time on the Internet and playing video games."

—Carol Roeder, Viz Media

"The market opportunity for products and services that truly engage kids is expanding, not contracting, as kids control and influence more and more dollars. As kids are bombarded with more varied and increasingly sophisticated product choices, it is critical that marketers ensure that their products deliver what kids really want—interactivity, networking, gaming, etc. The days of the 'watch me' toys are over."

—Joshua Kislevitz, senior vice president of domestic licensing, United Media, New York

"Trying to make product for the mass market retailer that will still work for specialty toy retailers is a major disconnect. Hopefully, the specialty toy retail business can come back and make themselves valuable to the manufacturer again. Right now, it's hard to warrant creating different products for both markets."

—Adam Unger, Art Asylum

"It's a cluttered landscape at the moment and especially tough to break through at retail long enough for parents and kids to find you. As a new property, these challenges are magnified, but with strong and confident partners your chances to overcome the challenges are much stronger."

—Charles Falzone, CCI Entertainment

"We have yet to come together as an industry and find a home. We need more leadership and less posturing from our trade partners. It is in the best interests of the industry to promote diversity and innovation that comes from companies of all sizes. Look at the impact that companies like Cranium, Melissa & Doug, Zizzle and Briarpatch have had in the market. Without a broad base of toy companies, the industry will continue to lose dollars. A two- or three-company industry would be boring for our grandkids."

—George Schimpf, Briarpatch

"Probably the number one challenge is that there are very few 'specialty' retailers in this industry. Specialty stores have a strong sense of community pride and involvement, giving back when and where they can, strengthening relationships with customers, vendors and manufacturers, and providing the highest quality product and service, all of which contribute to [success]. A second challenge involves the relationship between the retailer and the vendor. This relationship is very important to the success of a toy company. If a retailer does not have a good relationship with his vendors, this poses a great challenge for any year."

—Brian Miller, Geppetto's

"Our biggest challenge right now is trying to get more sophisticated in getting the right products in the right stores at the right time. Why are there not more [figurines of] Chicago players of any of the four sports in Chicago area stores? I understand Batman is Batman in every city—I get that. But a New York Yankee is not a New York Yankee in every single city. You have to think of it as a sled or sun tan lotion. I bet you sell more sleds along the Canadian border, and sell more sun tan lotion and patio umbrellas down in Miami. I need to find a way to convince some of my retail accounts to think in a more seasonal mentality—or in this case with sports, a regional mentality. Allow me to put more Seahawks figures in Seattle and more Miami Dolphins down in Miami. Let's go to where the consumer is and put the right product in the right stores and see if we can get some growth there."

—Todd McFarlane, McFarlane Toys

"The marketplace is very dynamic, but like other areas of life, it's what you make of it. On the specialty front, other retailers are trying to jump into this game, but I don't see it as a big threat, but rather a great way to introduce the public to a new universe of toys that they may not have known existed."

—Mark Carson, Fat Brain Toys

"The key to our growth—as well as retailers' and licensors'—is to continue to drive the industry with innovation."

—Neil Friedman, Mattel

"Fickle consumers will always be the challenge for our industry. Do they want tech or basic, do they want upscale or value, do they want selection or convenience? That will affect us all. Rising costs in China will also be a big factor. It's more than past the time their price compression can be tolerated and prices of product can continue to decline. There is no longer a way to take cost out of product. The challenge will be to offer more apparent value or appeal while not really providing plastic by the pound any longer. 'Bigger and cheaper' is no longer healthy for anyone in our industry. Better, more fun and more desirable have to be the drivers."

—Jay Foreman, president, Play Along, Deerfield, Fla.

"It's a cluttered landscape at the moment and especially tough to break through at retail. New properties have it rough in particular, but there is room to grow if you have a standout brand."

—Gary Hymowitz, Scholastic

"Piracy is something that poses a constant challenge to the industry. It dilutes the market and affects consumer confidence. We'll continue to work diligently to police our own brands to the best of our ability, but is a challenge to the industry as a whole."

—David Luner, senior vice president of interactive and consumer products, Freemantle Media, New York

"There are fewer licenses on the shelves but more licensed properties competing for the space. SKU consolidation also means that there's less opportunity to bring all the really creative products that our licensees develop to market. Some great ideas get left on the drawing board and, unfortunately, the consumer has less to choose from."

—Sherice Torres, Nickelodeon

"Toy retailers need to support small companies with breakthrough product. It is also important that hot items are chased aggressively. Finally, in some markets like San Francisco, legislation around plastics will create big challenges in 2007.

—Bob Moog, president, University Games, San Francisco

"Making toy sales all year round."

—Isaac Larian, MGA Entertainment

"Constant price pressures and general economic factors that impact spending will continue to be the biggest issues. The industry has typically relied on big hits, which are harder than ever to generate. Retail is consolidating, while the entertainment universe is fragmenting."

—Robin Sayetta, Ripe Ideas

"Shopper behavior is changing and, in response, retailers are re-organizing the shopping experience. These days, shoppers are making lifestyle statements for different ages. We're seeing more and more consumer products, not just traditional toys."

—Richard Tait, Cranium

"The toy industry is constantly facing the challenge of finding new and exciting ways of grabbing the consumers' attentions. The way to do that is to recognize what children enjoy in their modern-day lifestyles. In today's world, technology is not just the future, but it is in the here and now. The toy industry needs to find ways to communicate ways to compliment the thirst for new and innovative technologies, while at the same time maintaining the traditional play patterns that are timeless in nature."

—Brian Zheng, Playhut

"It's going to be tough to tell if Spider-Man, Captain Jack Sparrow, Mr. Fantastic, Optimus Prime, or another character will helm the year's biggest summer draw, or if kids are going to want toys, video games, or just to see the movie."

—Adam Pawlus, Entertainment Earth

"We have been so consistently successful in raising the bar on great products and featuring exciting retail promotions that the consumer is eager for the next best, latest and greatest. We need to keep pushing to meet that need."

—Maura Regan, Sesame Workshop

Additional reporting by Karyn M. Peterson.