Toy & Games Industry Outlook 2020: Impact of Covid-19

These are crazy times with the world in near lockdown over the spread of Covid-19 at the time of writing. You probably don’t need anyone else saying this, but please take the official advice & isolate as per government instructions so we can ride this thing out with as little as possible health impact on people around the world. Massive thanks also to those on the front line fighting this thing, especially those putting themselves in harms way to help others, not least of which are the underpaid health workers caring for ill people around the world in spite of the risks to their own health and wellbeing.

It is astounding at this point just a few weeks after the end of toy fair season 2020 how much has changed. While China seems to be reawakening after being first into lockdown mode, China’s massive manufacturing sector now appears to be facing the prospect of a massive drop in demand for many ‘non-essential’ items. There is clearly an immediate need for ventilators, masks, hand sanitisers and other medical supplies, which should help some factories to keep things ticking along for a while.

The major question now though is the extent to which the toy business specifically can operate in these unparalleled circumstances. People around the world are likely to cut back on non-essentials, tighten spending and also be out and about very little compared to the usual state of things. So what does that mean for the toy and games industry?

Clearly none of us can predict how things will play out from here, but from listening to a number of expert predictions it seems that there is a consensus among the experts on 2 points:

1.      Massive social isolation around the globe will force this horrible virus into retreat (but not surrender).

2.      The end to this crisis can only come about via mass implementation of a yet to be developed vaccine, the timings for which are 12 months on the optimistic side and 18-24 months on the pessimistic side (according to a cross-section of experts). There appears to be no publicly stated doubt at this stage that a vaccine can be developed, which is good news – this current scary state of affairs therefore is not expected to be an indefinite situation, there is definitely light at the end of the tunnel, we just don’t yet know how long that tunnel is.

So, let’s consider the implications of this for the toy and games business:

Firstly, let’s be really clear, there are good implications and bad implications of this mass social isolation for the toy and games industry. The biggest positive is that large numbers of children who are normally at school through the week will be at home. This could offer the biggest upsurge in demand for toys and games outside of Christmas (this would be the silver lining of a very dark and menacing cloud). Those of you with kids will know that they can be boisterous and energy draining on an ongoing basis (!), so if you are a parent trying to work from home while having the kids around it can be stressful, disruptive and challenging. Therefore, buying them board games, science kits, creative play sets, construction toy sets and various other toy products can both advance their development and education while also giving you some respite to do some work, or even just have a few minutes peace and quiet, without turning them square eyed from screen time.

It is already apparent that social and immersive toys and games are seeing a Covid-19 prompted sales upsurge, which is a great thing all round – kids get to play, learn and have fun, parents get some respite and toy and game businesses can continue…

…and this is the part of the article where we get on our soapbox - what we do in the toy and game business really matters. OK, we aren’t immediately saving lives, we aren’t health workers, or emergency services, but what we do makes a massive difference to lives of people around the world in normal circumstances, often for years after they grow out of using our products. In the current situation, we are offering really important help for parents and children as they come to terms with the new short- term reality. It is greatly admirable to see how many companies have posted free to use educational and play resources online, but we shouldn’t stop there.

WE SHOULD TAKE GREAT PRIDE IN PROMOTING OUR PRODUCTS DURING THESE HARD TIMES, BECAUSE THEY HAVE REAL SOCIAL VALUE AND FUNCTION RIGHT NOW IN THESE DARK DAYS AND FOREVER MORE!

Don’t forget also that our industry employs a lot of people around the world in all functions and all geographies from the production heartlands of China, Vietnam and India, through to the retail stores, the online fulfilment warehouses and toy companies themselves. By actively selling our products during this time we are helping both the people who buy our products, but also protecting the jobs of millions of people who work in our industry.

On the negative side, this self-isolation has a lot of other damaging consequences besides increasing demand for some of our products. Overall, this situation will hit the global economy hard, it is likely to send a lot of businesses broke - including both good profitable businesses - as well as those who were already struggling. This is bound to have economic consequences, and the longer the lockdown goes on, the harder hit the global economy will be.

Closer to home, this lockdown is going to exacerbate and accelerate the already strong movement from physical retail to online retail. While at the time of writing Amazon are trying to focus only on what they consider to be essential supplies, this current situation strengthens their prospects once we get through this immediate panic buying phase of the new short-term reality. Those physical retailers who can adapt, cut costs and push REALLY hard on their online and social media business may weather the storm, but sadly it is inevitable that not all will be able to. Some of the business survival factors include government support, which is inevitably going to vary by country to country. The UK government has taken aggressive and (for the generally laissez-faire UK establishment) substantial steps to protect businesses, job and individuals. There will clearly be a price to be paid for this, but then again in this type of crisis, failing to offer support can sometimes have worse consequences than spending big. We’ll see how governments around the world handle this situation, but a painful degree of consolidation, business failure and unemployment seem sadly inevitable for the short-term, let’s hope that can be minimised.

On the manufacturing side once the immediate need for hand sanitiser, ventilators and masks has abated, there will be some struggling factories who will inevitably be at risk of going out of business. This will affect some long-established toy factories in China, as quite a few have been trying to hold onto low end manufacturing business in a fast-developing economy which no longer really supports their business model. This will (in our somewhat biased view) lead to further growth in toy manufacturing outside China as new suppliers with lower labour costs in other Asian countries pick up the slack, and as toy companies themselves diversify their sourcing to allow for both short term supply risks due to Covid-19 and ongoing due to the need to find and secure manufacturing capacity.

Overall the harsh reality is this – one way or another we will see a lot of changes as a result of the coronavirus pandemic. As is always the case in hard times, it becomes a time for survival of the fittest, survival of the most adaptive, the most durable and the cleverest. If you have been in any doubt, please don’t be, this is a time to fight like your business and job depends on it, because in reality it might well do, whether we like that fact or not.

Looking beyond the immediate short term though, having thus far been the harbinger of immediate doom, the outlook beyond the next few months looks far more positive in our view. The lockdown should (according to the experts) regress the pandemic within 3 months, and then we seem likely to head back towards slightly curtailed normality i.e. with more social isolation for the vulnerable, travel restrictions as well as sporadic localised shutdowns as the virus comes back in pockets.

This partial reawakening should see shops re-open, jobs saved and demand pick up across the economy again around the world, although it is hard to see how travel related businesses like airlines could operate properly until the vaccine is readily available. From the toy business perspective, the main concern is that the vital last 4 months of the year see open trading, with full production capacity and with every chance to save as much of 2020’s forecast revenue as possible – depending on product line, marketing approach and stock manufacturing & management there seems no reason why 2020 can’t still be an okay year for our industry.

One practical suggestion we'd like to promote is that aside from the usual cut and thrust of commercial enterprise in a cut-throat space like retail, a bit of goodwill goes a long way. Maybe goodwill gestures won’t buy life-long loyalty or hard tangible benefits, but let’s be nice to each other and help out other people where we can, the more of us that can pull through this thing in good order the better position we’ll all be in afterwards. Those small things that can really help people who are struggling but which cost so little should be a moral imperative at times like this.

From an admittedly layman’s perspective with no scientific basis whatsoever, when the entire might of the human species is directed in one direction, it’s hard to see how a vaccine can possibly take the normal length of time to develop and test. If 12 months is normally the best case, how can that not become 8 or 9 months with a huge effort and investment and resources beyond what is normally possible? If the entire global economy is relying on a vaccine to be able to get back to normal, then huge brain power and resources are going to be focused on that, as well as massive competitive spirit – who wouldn’t want to be the country, institute or individual scientist who delivers an end to this crisis?

And once there is a vaccine which can be mass produced, this whole crisis will fade away, albeit leaving some short-term economic consequences. Moreover, each day that goes by scientists and healthcare professionals are understanding more about our enemy – Covid-19, and due to the volume of cases by way of trial and error, we’re going to stumble across some effective existing treatments by trial and error which can help to minimise the risk of death, and the seriousness of the illness some people experience.

In the meantime, the best thing we can do is self-isolate, support those who need supporting and adapt our businesses to the short-term reality which is a global society and economy in social isolation lockdown mode for a few months, which really needs our products to keep kids and parents learning and occupied.

In the meantime, let’s rejoice in the human spirit – we can overcome…AND WE WILL!

P.S. We’ll be publishing a series of articles in the coming weeks looking at how toy companies can survive and prosper in these times from a few different angles – watch this space.

This article is authored for, published by and copyright of Kids Brand Insight.

?We run a Consultancy business to toy companies around the world: www.KidsBrandInsight.com/services.

Apart from Consulting with toy companies on their business growth plans, we also help toy companies find manufacturing in both traditional and non-traditional countries via our Sourcing venture: www.ToyTeamIndia.com, we have extensive experience in India, and work with factories in Vietnam, Indonesia, Eastern Europe and other geographies around the world, as well as of course working with some awesome factories in China.

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If you need our help, support or guidance please feel free to get in touch via the contact details on our websites – we are committed to helping the global toy & games industry overcome this current situation, but above all we are caring human beings who want peace, health and prosperity for everyone.