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While as adults we might have a strong sense of nostalgia about walking through a toy store lined with aisles of flashy boxes, from an industry perspective, the efficiency and accessibility of e-commerce has become a much more powerful sales tool. This is especially true since the stay-at-home orders and social distancing guidance of the pandemic, which has parents and children held-up at home missing out on the fun parks, zoos, museums, and other forms of family entertainment. And so, it shouldn’t be surprising that in 2020, toys sales were up... big time.  While toy sales typically spike around the holidays, toy sales were up across the board all of last year. In fact, the toy industry grew 19% in the first three quarters of the year, according to NPD Group. Families, stuck at home, still wanted to spur their children’s creativity and curiosity, and they spent money on toys to do just that.  So, what toys are parents buying to keep their kids (and maybe even themselves) busy? People are buying a lot of puzzles, plus on action figures, plush toys, sports equipment, building sets, and preschool products. For Lego alone, sales increased 14 percent in the first half of 2020 compared to the same period in 2019, even as many stores closed around the world.  The toys market is forecasted to exceed $120 billion in revenue by 2023. Here’s what investors should know about the industry. 

What Are the Trends in the Toy Industry?

The toy industry uptick is in large part thanks to the increased adoption of e-commerce. As a result of COVID-19, consumer preferences— even among older generations who tend to be slower to adopt new technologies— shifted from face-to-face to online. Three in four buyers and sellers now prefer digital options over in-person sales because of safety, speed, and convenience. In the third quarter of 2020 alone, e-commerce sales jumped 37.1 percent from the third quarter of 2019. Tied to the rise in e-commerce and the greater demand for reduced waste, toy packaging is becoming less eye-grabbing and more sustainable.  After all, there is less need for toys to stand out on a toy store shelf these days.  According to Nasdaq, in the first three quarters of 2020, leading toys included L.O.L. Surprise!, Barbie, Star Wars, Marvel Universe, Pokémon, Disney Frozen, Nerf, Hot Wheels, Little Tikes, and Paw Patrol. Video games also performed well, with Nintendo and Activision Blizzard both reporting record sales. In just the holiday quarter of 2020, Nintendo sold more than 11.57 million Switch consoles, adding up to nearly 80 million consoles sold since the Switch’s 2017 launch. Consumer spending on video content is on the rise, in part thanks to virtual reality products, mobile gaming, and a rise in competition.  Another trend is the rise in toy subscriptions services for kids. From educational toys to project-based crafts, more and more boxes of curated toy-products are arriving monthly via the mail for children. Many subscription-based toys (as will all toys) are increasingly personalized and STEM (science, technology, engineering and math) oriented.  Another trend is that toys are becoming more diverse and geared towards encouraging inclusion. In 2020, Crayola released a new pack of crayons called “Colors of the World” to reflect the diversity of skin tones around the world. In 2020, Barbie also got a makeover, with a newly launched group of Barbie dolls that includes a Barbie with no hair and a prosthetic limb. Toy companies are moving more and more to celebrate differences, rather than ignore them. 

Why Invest in the Toy Industry?

Parents are spending more than ever on toys, in part because of “COVID-guilt.” Parents are willing to spend more as their kids miss out on experiences like birthday parties, as well as “normal” in-person school interaction and experiences with their peers.  In other words, what might have been considered discretionary spending in a “normal” year now feels—to many parents— like necessary spending.  According to the Children Toys Market 2021 Global Industry Research Report, “toys are the backbone for children to turn their mental processes such as imagination and thinking into behaviors. Children's toys can develop athletic ability, train perception, stimulate imagination, evoke curiosity, and provide material conditions for children's physical and mental development.”  Many parents agree and as such, are willing to spend money on everything from pricey building sets to monthly project boxes to keep their children’s minds growing.  [/vc_column_text]

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