This entry consists of establishments primarily engaged in manufacturing games and game sets for adults and children and mechanical and non-mechanical toys. Important industry products include games; toy furniture; doll carriages and carts; construction sets; mechanical trains; toy guns and rifles; baby carriages and strollers; children's tricycles, coaster wagons, play cars, sleds, and other children's outdoor wheel goods and vehicles, except bicycles. Also included are establishments primarily engaged in manufacturing electronic board games; electronic toys; and electronic game machines, except coinoperated. Establishments primarily involved in manufacturing dolls and stuffed toys are included in SIC 3942: Dolls and Stuffed Toys.
336991 (Motorcycle, Bicycle, and Parts Manufacturing)
339932 (Game, Toy, and Children's Vehicle Manufacturing)
The U.S. toy industry, a $20.3 billion business in 2002, is a fast-paced industry that showed slow overall growth during the first years of the twenty-first century. Product-driven, it rides the crest of a fad until the next fad happens through a combination of product merit, marketing, and luck. Although the classics such as Barbie, Monopoly, Scrabble, and Slinky have demonstrated strong, long-term sales performance, few toys or games stay on the shelves for more than a year or two. Several factors make the toy industry a risky business, including boom-or-bust sales patterns, short product life, and only one major selling season, Christmas, which historically has accounted for 50 to 60 percent of annual sales.
Although toy sales are likely to continue to be affected by fads that come to center stage but quickly lose their appeal, toy manufacturers are constantly working to develop long-lasting brands that hold value for years and sometimes decades. Companies also continue to build on well-established brands, such as Hasbro's G.I. Joe, Mr. Potato Head, and Tonka lines and Mattel's Barbie, Tickle-Me Elmo, and Hot Wheel. While the toy industry embarks on its unending search for the must-have items that will fly off shelves, the industry must also develop creative ways to address the increasing competition coming from video and computer games.
Because the industry is heavily dependent on capricious trends, miscalculation or misjudgment at times can result in enormous losses. The life span of even the most successful toys is often brief, with sales dropping as quickly as they rise. Typically, companies count themselves among the fortunate if they have one product that sells well for a year. Even if a product remains popular after its debut year, it is likely to be copied, since toy manufacturers often attempt to replicate each other's successful products.
The Toy Manufacturers of America (TMA), the industry's trade organization, was founded shortly after the United States entered World War I, when toy makers faced severe shortages of materials, and Congress was considering an embargo on the buying and selling of Christmas presents to conserve materials needed for the war. TMA was formed and successfully lobbied Congress to continue producing toys for America's children despite the war. A few years later, TMA convinced representatives to impose large tariffs on toy imports to protect the American toy industry. TMA continued to lobby and compile information and statistics for the toy industry in the 1990s.
Ideas for games and toys may originate in-house, but the industry also relies heavily on the ideas of freelance inventors. A company may pour thousands, even hundreds of thousands of dollars into market testing before committing to production. Toy development is risky and speculative. During the course of its development, a concept may change drastically. Most toy manufacturers also subscribe to Toy Retail Sales Tracing Service for quantitative market research that reveals trends, product performance, and competition. Qualitative market research involves product testing, usually with small focus groups of children. Until it is officially previewed at the annual American International Toy Fair, a project can be aborted at any stage if it does not meet expectations or if buyers do not express much interest.
Historically, distributors and wholesalers were the toy manufacturers' biggest customers, but in the early 1990s large retail chains began ordering directly from the toy makers. Smaller toy stores looked to regional distributors, but for the most part distributors were a dying breed.
While the big box merchandiser Toys "R" Us accounted for as much as 25 percent of the retail toy market in the United States in 1994, by 1998 Wal-Mart, with 17.4 percent of the market share, held a narrow edge as the top toy retailer. The rest of the toy market was comprised of national and regional toy store chains, mass merchandisers, wholesalers, catalog showrooms, warehouse clubs, variety stores, discount stores, department stores, drugstores, local chains, and independent toy stores. There were also "jobbers" who bought closeout merchandise from toy makers to sell to retailers. Mass merchandisers, such as Kmart Corp. and Target, did not carry as wide a range of merchandise as the large toy stores, but these retailers had tremendous clout with toy makers. The national distribution and volume buying that these stores and others, such as Sears, Roebuck & Co. and J.C. Penney, offered helped them negotiate beneficial deals with toy makers. Although the warehouse clubs mostly sold toy products during the holiday season, in 1997 a federal court ruled Toys "R" Us pressured manufacturers not to sell popular toys to the clubs. In the late 1990s, catalog and Internet shopping increased. In 1998 Toys "R" Us started selling on the Internet, and the eToys company acquired Toys.com, while other companies also developed sites on the Web to sell toys.
Although the law prohibits manufacturers from selling merchandise to different customers at different prices, in reality, the larger the customer, the larger the volume discount. The purchasing power of the customer also affects many other negotiable terms, including credit against future sales and extra merchandise from the manufacturer. These discounts and special terms result in widely varying retail prices. Powerful customers also are able to receive markdown money from manufacturers of products that failed so badly retailers were forced to sell them below cost. However, what smaller retailers lack in price breaks often is made up in convenience, service, and product uniqueness. In the late 1990s, the small retailers offered the extremely popular Beanie Babies, Leapfrog's technology-driven toys, and chains specializing in educational toys were growing.
The first U.S. toy manufacturer was established in the 1830s. Tower Toy Company produced doll furniture, toy tools, and toy boats. In 1860, Milton Bradley Co. established a publishing and lithography business, but as financial problems plagued the company, Bradley diversified by inventing and publishing The Checkered Game of Life, the precursor of The Game of Life, still popular in the late 1990s. The Civil War slowed the toy industry somewhat, although toy guns were popular, as were Milton Bradley's portable editions of chess, checkers, and dominoes.
In 1883, 16-year-old George S. Parker started his own game company. When his brothers joined him, the company became Parker Brothers & Company, Inc. It became the publisher of many games still popular in the late 1990s, including the perennial number one selling board game, Monopoly, as well as Sorry!, Risk, and Clue.
Around the turn of the century, the "Golden Age of Toys" brought walking and talking dolls, toy pianos, friction motorized vehicles, steam-powered toys, the Erector Set, the Flexible Flyer sled, Lionel toy trains, and Crayola crayons. In 1906, the Teddy bear craze began with the stuffed animals named for Teddy Roosevelt because he refused to shoot a trapped bear cub during a hunting trip. Between 1900 and 1910, American toy production doubled. During the next decade, it grew 500 percent, largely because World War I had halted the import of European toys. In 1923, Hasbro Inc. brought out its classic real estate game, Monopoly, and Milton Bradley introduced Easy Money—games that allowed players to imagine being rich by making deals with play dollars. In 1930, Herman G. Fisher and Irving R. Price established the very successful Fisher-Price, Inc., which in the early 1990s was the biggest name in infant and preschool toys and merchandise. Fisher-Price merged with Mattel, Inc. in 1993.
World War II slowed the toy industry's growth because of labor and material shortages, but the post-war years brought prosperity to the entire country; the toy industry reaped the benefits as well. Following World War II, the toy world was revolutionized with the introduction of plastic.
Television Advertising. In 1955, an advertising move by Mattel, Inc. changed the way toys and games were marketed and also launched the promotional toy business. The nascent American Broadcasting Company (ABC) television network approached Mattel about weekly national advertising on its new show, Walt Disney Co.'s "The Mickey Mouse Club," beginning in November, just as the Christmas shopping season opened. To the surprise of many, Mattel took a big financial risk and paid half a million dollars to become a sponsor. Before this bold move, most advertising money was spent on catalogs and trade ads during the Christmas season and an occasional local TV ad to promote the most promising items. With this advertising agreement between Mattel and ABC, Mattel's famous slogan was born ("You can tell it's Mattel, it's swell") and the power of weekly advertising to kids was launched. The product Mattel had advertised, the Burp Gun, sold out, and the promotional toy business was on its way.
Promotional toys were products advertised on television directly to the consumers—the kids. Television became the number one advertising force in the toy industry. With the line between advertising and entertainment blurred in the late 1980s and early 1990s, entire shows became based on the exploits of a line of characters invented or promoted by a toy company. In 1969, Mattel underwrote a program based on its very successful Hot Wheels line. When a competitor complained, the Federal Communications Commission (FCC) banned it, calling it a "program-length commercial." In 1983, the FCC ruled that the marketplace should determine programming. This change of policy cleared the way for toy-based programming. By the 1986 to 1987 season, more than 40 toy-based programs were on the air.
According to Sydney Stern and Ted Schoenhaus in Toyland: The High Stakes Game of the Toy Industry , television changed the very nature of toys by allowing the toy industry to sell toys that it could never sell before because it could now demonstrate the features of the product. Products that could do something—walk, talk, move, crash—had existed for a long time, but now they came to life on television and soon dominated the market. Advertising even began to dictate product development. Products were developed on the basis of how well they would lend themselves to television commercials. Television also allowed the toy makers to create a fantasy around the product, so that children were not only demanding a toy, they were buying into the fantasy that made that particular toy unique. By the 1980s, the commercial became more important than the product itself because the commercial created the concept, while the product actually did little on its own. Retailers, trying to anticipate what toys kids would want, paid close attention to the manufacturers' ads and ad budgets in making their purchasing decisions during the early 1990s. At toy fairs for buyers, toy manufacturers previewed the commercials as well as the toys.
By the late 1990s, companies sought to increase market share by engaging in cross-marketing. These activities included product tie-ins with movies and various sports, such as NASCAR. The success of these tie-ins was unpredictable. Despite heavy marketing, sales of products associated with the Star Wars trilogy, The Hunchback of Notre Dame, Godzilla , and other movies were disappointing. Yet, Danish manufacturer Lego signed its first licensing agreement for products tied to the Star Wars prequels.
The Advent of Video Games. A second "revolution" in toy making began with the first video games. In 1972, Nolan Bushnell and a friend invested $250 each to found Atari Corp. and produce Pong, a simple video table tennis game. It became a coin-operated hit in bars and arcades and, in 1975, Bushnell began marketing a home version to compete with Odyssey, a video game system being produced by Magnavox Co. Atari was sold to Warner Communications Inc. in 1976. Mattel followed with Intellivision in late 1979 and Coleco Industries Inc. brought out ColecoVision in 1983.
Soon, the industry was licensing the most popular arcade games for home video systems. Video games were bringing in hundreds of millions of dollars. Many new companies formed just to manufacture and sell cartridges for Atari and other game systems, thus taking valuable profits from the systems' developers. Large and small toy companies rushed to produce their own video systems. In a few short years, however, the video game and cartridge fad ran out of steam. Warner lost $539 million on its consumer electronics segment in 1983, and it ended up burying truckloads of game cartridges. Warner, Mattel, and Coleco sold their video game businesses during the next two years.
Nintendo Co., Ltd., a Japanese electronics company, learned from the mistakes of its predecessors. In the late 1980s, Nintendo was generating sales of more than $1 billion in the United States alone. It was making this money at the expense of other traditional toys and games, taking market share from industry leaders Hasbro Inc. and Mattel. Nintendo controlled licensing and sales of all game cartridges so that it would not meet the same fate as Atari.
Sega Enterprises Co., Ltd., another Japanese company, challenged Nintendo in the United States during the early 1990s. In 1991, Sega introduced its Genesis system, and Nintendo responded with Super Nintendo. The battle continued throughout the 1990s, with Sega launching a major market offensive with its high-performance, CD-based Saturn game system. During this period, a number of other companies entered the fray—most notably the U.S. company, 3D Co., and the Japanese electronic giant Sony Corp. While Sony's PlayStation managed to establish itself in the market, 3D's game player eventually fell by the wayside, largely as a result of being priced too high for the average consumer. In late 1996, Nintendo struck back with Nintendo 64. Boasting high-resolution, 64-bit, 3D graphics, Nintendo 64 delivered processing power exceeding that of many personal computers, and its eagerly awaited introduction led to long waiting lists, high-priced black marketing, and even theft. Sega countered with the introduction of its 128-bit Dreamcast machine in 1999.
Because toy manufacturers sell to children, their ads are designed to appeal to children, thus generating much controversy about ethics in children's advertising. Children are easily exploited, children's advocates contend; they lack the experience to discern poorly made products or recognize that a commercial has presented a fantasy world rather than the reality of a particular toy. Action for Children's Television unsuccessfully tried to convince the FCC that toy-based shows were 30-minute commercials and should be purchased as advertising time. Critics of children's television and its ads also continued to protest the promotion of violence through toy-based shows and the weaponry toys advertised, as well as gender stereo-typing reflected in many shows and advertised toys.
In the 1980s, television networks ABC, the National Broadcasting Company Inc. (NBC), and CBS Inc. required the last five seconds of a toy commercial to show the product all alone so that children could see what they are really getting. The networks also limited animation within the ad to one-third of the total ad time. Independent stations, however, had no such restrictions, and with the growth of cable, the independents became important advertising channels for toy makers during the 1990s. Bandai America produced numerous toys based on toprated children's television series on Fox Kids Network.
Video games continued to present a threat to the traditional toy market in the 1990s. Nintendo and Sega were the video leaders, and unlike other toy trends, which soared briefly and then saw sales drop dramatically, this generation of electronic games remained popular, with sales expected to keep rising. Sony also was a player in this segment. During the early 1990s, traditional toy makers were considering whether to compete for market share with traditional, non-video toys, or to enter the video market themselves.
By the mid-1990s, another threat challenged both traditional toy makers and the electronic game giants. This threat came in the form of computer games. Long the poor cousin of the video game, computer games increased their market share rapidly with the advent of the CD-ROM and continued reductions in the cost of personal computers equipped with multimedia capabilities. With more than half of U.S. households owning computers, manufacturers saw an emerging market and began developing CD-ROM products based on their toy and game lines. In 1996, Mattel introduced "Fashion Designer Barbie," for designing Barbie doll outfits on the computer, and Hasbro released its first Tonka CD-ROM, for building construction projects. Since then, these companies and others have released numerous CD-ROM titles that extend their toy brands, as well as interactive versions of board games. Mattel was the leader in children's CD-ROM sales in the late 1990s, and with its merger with The Learning Company, an educational software publisher, Mattel attained interactive sales of $1 billion.
The toy industry turned to more intensive brand management during the 1990s, focusing on extending existing lines of products, spending more money marketing the "classics," or entering into licensing agreements. For example, Hasbro added new products to the Nerf line of foam sports toys (including Nerf Turbo Football and Nerf Bow 'n' Arrow), augmented its Monopoly line of products with the introduction of Monopoly Junior, and dominated the top 15 selling toys introduced in 1999 with licensed products. Hasbro was Nintendo's worldwide master licensee of hot-selling Pokemon toys and games—products that included action figures, trading card games, electronic plush, and Pokemon Monopoly. Hasbro also had agreements with baseball greats Mark McGwire and Sammy Sosa, Universal Studios, and NASCAR.
Demand for toys in the United States declined slightly in the late 1990s as the population of children declined, yet it was estimated that $350 on toys was spent for each child in 1998. The industry also saw an increase in year-round sales, believed to be due to movie tie-ins, new releases of Beanie Babies and Tamagotchis, and more toy givers per child. Imports accounted for 75 percent of consumption in 1996 and were expected to increase because of lower production costs offshore. American companies sought to expand sales and profits by aggressively marketing abroad, working to open markets in Asia, South America, and the Middle East. Exports were expected to maintain a 6 percent annual growth rate. Most of this growth would be in higher-end products, educational software, computer games, and electronic toys.
Although the industry was dominated by several giants, small companies also had opportunities for success. Some smaller companies acquired rights to products that the big companies had retired, such as Erector Sets and Creepy Crawlers, or launched their own new products. The toy and game industry was attractive to small businesses because start-up costs remained low when manufacturing was subcontracted. Smaller companies could be more innovative since they did not have the layers of bureaucracy associated with the larger companies, and they did not have to generate as much income. Consolidation also reduced the likelihood that a large company would take a chance on an item able to generate only $1 or $2 million. By the early 1990s, large manufacturers needed $10 million in product sales to justify spending their advertising dollars. Advertising costs continued increasing into the 2000s.
The U.S. toy market struggled through the first years of the 2000s. The terrorist attacks of September 11, 2001 depressed toy sales during the fourth quarter's Christmas season, which usually accounts for around half of the year's sales. The following year showed no improvement, with 2002 sales of $20.3 billion, a 2.8 percent decline from 2001. Since 1999, when sales increased by 9 percent on the year, the toy industry as grown at a snail's pace that averages out to 2.1 percent annually; however, when adjusted for inflation, this minimal growth actually represents a loss of almost 3 percent.
The sluggish economy that ushered in the twenty-first century is partially to blame for the toy market's woes, but the industry is also suffering from noncyclical problems. First, retail consolidation has concentrated the toy market into a few hands. Mattel and Hasbro dominate toy development and marketing, and with the bankruptcy of both FAO Schwarz and K-Mart, the retail sector is controlled by two discounters (Wal-Mart and Target) and two toy store chains (Toys "R" Us and KB Toys). Mattel controls more than 22 percent of the toys that reach store shelves, and Hasbro maintains nearly 14 percent of toy industry products. On the retail end, Wal-Mart commands more than 20 percent of the toy market by carefully choosing how it stocks the toy shelves and less toys for near cost. Toys "R" Us, once the market leader, has fallen into second place, with around 17 percent of the market share. Target and KB Toys hold approximately 7 percent and 5 percent of the market, respectively.
The toy industry constantly struggles to develop and market profit-producing toys. Even as continued consolidated within the industry affects its makeup, the industry faces a tremendous challenge from the changing demographics that have altered toy purchases. Traditionally focused on children from ages 2 to 11, the toy industry has come under increasing competition with video and PC games. While the toy market has remained stagnant, the video game market has grown by leaps and bounds. Deluging the market with new gaming products targeting younger and younger audiences, the toy industry is seeing toddlers and preschoolers moving directly to easy-to-use computer and video games that often require no reading skills. Sales of videogames reached $10.3 billion in 2002, up 10 percent from 2001.
The toy industry underwent extensive consolidation after the video game era began. Some of the most familiar brands lost their independence and became part of the world's two largest toy corporations, Mattel and Hasbro. Still, there were some 752 companies in this category in 1997.
Mattel, Inc. held the top spot among toy manufacturers in 2002, with a net income of $230 million on sales of $4.9 billion. In the 1990s, the company merged with Fisher-Price (infant and preschool toys) and Tyco Toys (Matchbox cars, View-Master, Magna Doodle, "Sesame Street" toys) and acquired International Games (UNO and Skip-Bo card games), Power Wheels (ride-on vehicles), J.W. Spear (Scrabble), and the Pleasant Company (the "American Girl" brand). Mattel signed a multiyear agreement with Walt Disney Co., guaranteeing it worldwide toy rights for all Disney television and film properties. The company also had licensing rights to characters on Nickelodeon, Cabbage Patch Kids, and Polly Pocket. Convinced that children everywhere like the same toys, the company made no effort to modify its products for different markets. Instead, it designed products with universal appeal and marketed them globally. Mattel operates in 36 countries and marketed its products in more than 150 countries.
Hasbro Inc., a small company in the early 1980s, became the largest U.S. toy manufacturer in 1985 by eschewing the video market and benefiting from widely popular products such as G.I. Joe, Transformers, and My Little Pony. In 1984, Hasbro bought Playskool, as well as the Milton Bradley company, the fourth largest company in the toy industry. With Milton Bradley came the rights to The Game of Life, Twister, and other solid-selling games. By 1988, Milton Bradley accounted for 20 percent of Hasbro's sales. Hasbro also acquired Coleco and Tonka just as each was headed for bankruptcy. Tonka had owned Kenner Products and Parker Brothers, so the acquisition of Tonka also brought a second most-famous game company into the Hasbro empire. Hasbro also acquired Larami (1995); OddzOn Products and Cap Toys (1997); Tiger Electronics, MicroProse, and Galoob (1998); and Europress and Wizards of the Coast (1999). Brands included Furby, Mr. Potato Head, and Play-Doh, and partnership brands included Pokemon, Star Wars, Batman, Teletubbies, and Superman. Though Mattel eclipsed Hasbro's position in the 1990s, the company nevertheless finished a strong second with 2002 revenues of $2.8 billion, but a net loss for the year of $171 million.
Founded in 1995 Leapfrog Technologies, which makes technology-enhanced products, has grown rapidly, completing its initial public offering in July 2002. In 2002 the company posted a net income of $34.4 million on sales of $531.8 million. Two other surviving independents are Little Tikes, a division of Rubbermaid, and Ty, the maker of Beanie Babies. In 1999, in collaboration with IBM and Edmark software, Little Tikes began producing the Young Explorer computer for 3- to 7-year-olds.
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