What You Need to Know in the Phil Toy Industry Pt. 2

From Thunderbreak,

First of all, I would like to thank everyone who took time to read and comment on part one. I took the additional inquiries at Cybertron Philippines and turned them into a Q&A format. The result is still a long read :) But I guarantee you that it's worth reading just like part one.

Enjoy! :)

Question:

Would Playkit be open to considering getting pre-orders (by the case) or even single orders as long as the single orders fill up one case? With that system, they can somehow gauge the demand...for the collectors market at least. Customers can make these pre orders at any branch of TK or TRU for example.

Answer:

The strategy that you gave is one for retailers... and not distributors. We should be giving this suggestion to Toy Kingdom (TK), Toys R Us (TRU) and other toy stores and ask them if they can employ such strategies in their respective stores.

But even if these stores initially agree, I personally think that it will not be feasible. There are certain factors that complicate this. First, Playkit doesn't even know if Hasbro will give them all their orders. Let me repeat my statement in the first part of this article…The Philippines is a very small market compared to the US/Canada. These countries are their first priority. They need/have to fill in demand in these countries first before they go overseas. Hasbro always has an option to give lower quantities than what was originally ordered. What happens now if TK/TRU/toy stores accepted pre-orders and demand was not filled? I'm sure we are going to hear lots of complaints.

Then, these toy stores also have to contend with the nasty habit of pre-ordering since arrival date is still months away... then, ignoring their order once the items arrive. And I have seen people do this with or without down payment. Just talk to specialty shop owners at Greenhills. They will regale you with tales about this matter. I'm sure you guys are aware that this sort of thing happens. This throws a monkey wrench to our assumption that "this system can gauge demand".

One more thing why this strategy is complicated. I think I already mentioned in the past that case assortment here in Asia is different from the case assortment in other territories. We cannot use case assortment announcements in the US/Canada to predict what will arrive. If that is the case, where will we get the basis for the pre-orders. The distributors themselves? Sounds plausible… but highly unlikely. Distributors order by the case and not per piece. I somehow doubt that they receive case assortment listing prior to receiving their shipment.

Question:

I can understand quota set by the toy manufacturers to its dealers and those are under contracts and sometimes the distributors don't even know what they are getting until the waybill or a notice from the toy manufacturers arrive.

Is there an option for distributors to order more? I’m sure that’s what toy manufacturers are hopping for. So, with that in mind, given that there is a noticeable amount of demand for a given toy line. Does our local distributors know the demand for a given figure. I know this is all speculative at best, but research based on - forums, news updates, talks etc etc. can be a very good deciding factor on how many to order, yes the orders are placed months before but there is always an option to order more right (same wave same figs)? or by the time the toys hit the shelves toy manufacturers don’t accept orders anymore for a certain wave? Since its been months since the initial order was placed as you have said?

Answer:

No. Local distributors do not know the demand for upcoming toys. I doubt it if anyone of us knows or understand the demand for upcoming toys... That is my whole point - no one can predict the future. You have to understand that even after decades, projecting demand is still not an exact science. Ask any marketing guru about his opinion in projecting and his answer will be "your guess is as good as mine".

Just like in my G.I. Joe Movie example in the first article, we don't know what will happen to it when it hits cinemas. We can speculate all day that it might probably become a hit. But "probably" will throw off our speculation. A lot can happen while waiting for the stocks to arrive. What if a bigger movie outfit suddenly announce that they are working on a big budget movie about... say a live action Avengers vs. JLA... it will have a powerful cast consisting of Hollywood A-listers... and they will launch it the same day as G.I. Joe Movie. What happens to demand now?

Anyway, to answer your question --> "is there is an option for distributors to order more" Yes, they can order more. But whether Hasbro will fill the orders is a totally different matter. Check my reply above about this thing.

Remember what happened to TFTM toys last year. No one was able to predict that it's going to be a huge success. Initial orders all around the globe were wiped out in a very short period of time. Playkit scrambled to reorder the items but Hasbro filled up orders in the US and Canada first. By the time, reorders arrived, it was already too late. Demand was already low and they were stuck with a high inventory.

Question:

You mentioned the toy fair (the Hasbro one). Here's where the conspiracy starts hehe...

Did the distributor uhh... actually held back the line for promotional reasons? (in other words released the really good figures in very small amounts and let the "Butaws" go out and hit the shelves.) so that collectors will have something to look forward to at the fair and the public will see the best of the best of the line has to offer?

The reason I asked is because the good figures from the past waves of the GI Joe line sold near the counter where plentiful but at the pegs in the shops they where almost non-existent.

Don’t get me wrong. I would actually love it if it was like that. Since everyone gets a fair chance of getting the figs they like all at the same time. And since there was a limit to the number of figs per person, hoarders where kept to a minimun.

Answer:

I would normally not answer inquiries like this because speculations are baseless... and the so-called "conspiracy" is unfounded and claims have no solid substance... But since we our primary objective is to make everyone aware of what is really happening in the industry (and that you are still a newbie), I will answer this as direct as possible.

If you are monitoring what has been happening at the Hasbro Grand Toy Fair, then you would know that a scalper (orange shirt guy) had a field day during the first day (Friday). This idiot threw the stocks all over the floor and pushed other collectors just to get to the hard to find items first. He even had the gull to say profanities at the TK executives. He even complained to MOA mall management as if he was the aggrieved party.

Originally, the responsibility of Cybertron Philippines was limited to running the program. But because of what this idiot did, Toy Kingdom management asked us to help distribute the items. Guidelines were simple. Everyone should have a fair chance of getting at least one hard to find collectible... and the distribution process should be as orderly and peaceful as possible... and the rest is history. GRAND HASBRO TOY FAIR (NOV 21 to 23 - SM MOA) thread for more info>

The HTF figs went to the distribution table/area so that everyone will have a fair chance in getting them... and the unwanted figs went to the pegs.

You should also know that product launches (like the Hasbro Grand Toy Fair) are very common. These events serves as venue for launching new stocks, new product lines and/or major restocks... nothing special or uncommon about it.

Lastly, please see the case assortment part of my post in the first article.

Here's a sample assortment courtesy of BBTS

G.I. Joe Wave 9 - Case of 8 Figures
1x Hawk
1x Bazooka
1x Barbeque
1x Ninja-Ku Leader Storm Shadow
1x Snow Serpent
1x B.A.T.
1x Lt. Torpedo
1x Wild Bill

I understand that collectors want to army build BATs. But with this case assortment, you have to understand that there is an equal amount of peg warmers like Ninja Ku, Wild Bill and Torpedo.

Meaning if you want to bring in 1,000 pcs. of BATs so that everyone who wants to army build BATs can easily have access at SRP, the distributor has to order 1,000 cases. If the distributor gives in to your request, it means that they also have to sell 1,000 pcs of Ninja Ku, 1,000 pcs. of Torpedo and 1,000 pcs. of Wild Bill. I seriously think this is feasible?

Question:

Is there a monopoly over distribution of Hasbro products here in the Philippines?

Answer:

I don't know what kind of license Playkit has. But I would bet it's an exclusive distributorship license.

I believe they are just lenient on other stores... that is why there are no cease and desist orders that are passed around. This is another good reason why we should thank Playkit.

I know for a fact that one distributor already started dishing out cease and desist orders for their product lines. Specialty shops in Greenhills and Alabang received stern letters from this distributor’s lawyers.

Question:

Why are there so many recolors?

Answer:

Moulds for plastic pieces are made of metal. And these are very, very expensive (it costs Php100,000 ++ for a small mould. How many pieces does a Transformers and/or a G.I. Joe figure have? Yep, making a toy is that expensive. This is the reason why Hasbro (and other toy companies) resort to recolors, retools and reissues. This is basically to have an ROI on their initial investments.

Question:

Can we negotiate directly to the distributor? Maybe we can get the volume by pooling our orders and buy directly from the distributor. The DVD industry can be our example. A DVD collector group had talks with the local Distributors for DVDs and they came to an agreement with WB, Sony, Magnavision, Viva.

Answer:

The DVD market is a whole different market. First of all, it's currently embattled with the whole piracy thing. Deals like this will easily be accepted by distributors to ensure sales and protect their top line. It's a win-win situation.

Distributors will, normally, protect their wholesalers/retailers by not dealing with individual (or even group) orders. Can you just imagine how much business Toy Kingdom or Toys R Us (nationwide) give Playkit, Ban Kee, Richwell, and other toy distributors? These companies will not exchange that amount for a one time deal even if a lot of money is involved. Remember that there's still the mass market (please see definition in the part one). It is much, much bigger than the collector market. All these companies have mass market products in TK/TRU.

Question:

Simple illustration. When I started collecting back in 2003, Beyblade was the big thing, ala Bakugan is now. It admittedly sold a lot. Quick question, does it still sell now?

A lot of the so-called "toy hits" are fads which equate to revenues in the short-term but glosses over the basic business tenet of consistency. Peaks and ravines aren't preferred and that's what happens with these toy fads backed up by an Anime series or a cartoon.

But look at TF/GIJOE/ML, the staying power of these franchises guarantee constant income streams. That’s over 20 years of income! Loyalty is the unique element of a collector line. So in as much as there might be some product clogging the pegs (which just could be a snag regarding distribution and allocation), overall, the brand continues to soldier on because of the loyalty of collectors.

Answer:

Let's talk about marketing basics first. Let's talk about the Product Life Cycle (PLC)... just like the name implies, it is the life of the product as it goes through market introduction, growth, maturity and decline. Some brands have short life cycles and some have long. Marketing mix decisions are based where the product's/brand's PLC. Bakugan, and Beyblade (in non toy industry we can name pearl shakes) have very short life cycles but demand is extremely high. Strategy: Enter the market, meet the demand and bail out when the brand starts to decline. Of course, there's still strategic inflection point but we will talk about that some other time.

There are also brands that have long PLCs... These products have a different marketing mix altogether. Some brands have strong brand equity (simply put – brand strength). Transformers and G.I. Joe are not YET mega brands, btw. Superman, Batman, Mickey Mouse, Barbie (non-toy Mc Donalds and Colgate). These are mega brands.

Let's take a look at Transformers and G.I. Joe. In an honest assessment, where is it really. Some, if not all of you, will immediately jump up on your seats and say, "Growth Stage"! And to some degree, all of you are right. But look deeper into the brand.

Remember that we are looking at the Philippine market. Transformers enjoyed its popularity from 1984 to probably 1987... but the brand has been very, very weak since that time. It was only revived in 2007 when Michael Bay launched the TFTM live action movie

Let's compare it with Mickey Mouse (Disney) or Bugs Bunny (Warner Brothers) which have been staple brands for kids. That is the reason why license holders here in the Philippines slap these brands on low priced staple kids toys (magic slate, toy drum set, kiddie cars, coin banks, etc) <-- btw, this is what I meant by "mass market toys". Bakugan and Beyblade (Just like transformers and G.I. Joe) are still niche market. Why? Karen de Asis' wrote an article in the PDI last May 2008. It identified the current socio-economic strata of the Philippines. The AB market (which has a monthly combined household income of Php50,001 and above) is only 2%, Class C (Php15,000-50,000) is 12%, Class D 63% and E at 23%.

How many of these people can buy Bakugan and Beyblade? How many of these people can afford to buy a P70 Scooby Doo water pistol?

Let's translate these to numbers:

Deluxe Class Transformer Toy @ 700 - Demand is 5,000 collectors (est.). Potential Sales = Php3,500,000

Scooby Doo Water Pistol @ 70 - Demand is 75% (Let's stick only to Class CD for the meantime) of total population (83M)... let's say only 10% of these are children (which we know is not true since there are more children than adults now)... and only 10% of these children will be given a toy as a Christmas gift (622,500) = potential sales is Php 43,575,000

Which market do we want to enter?