Analyst Insight by Utku Tansel, Global Head of Toys and Games Research
In just a few years, Asia Pacific is forecast to surpass North America to become the largest traditional toys and games market with a 28% share of global value sales.
In 2011, the region was also one of the most dynamic globally, recording around 9% value growth in comparison with just 4% globally. Rising disposable incomes, new product launches, the increasing penetration of organised retailing in rural areas and second-tier cities as well as strong demographic fundamentals have all contributed to the region's outstanding performance in recent years.
Accounting for over 17% of global value sales combined, Japan and China were the second and third biggest traditional toys and games markets in the world in 2011. However, these two markets are very different, characterised by a number of distinct attributes.
Over the last few years, China's toys and games market has experienced solid growth due to the combined effects of overseas and domestic demand. Disposable incomes in China have been growing faster than GDP growth, making toys more affordable for parents and children. Moreover, China is experiencing the impact of the baby boom of the 1980s, with this generation now starting to push China into an unprecedented consumption surge. Due to its unique one-child policy, the number of children in China is lower than it would otherwise have been, but parents born in the 1980s appear to be willing to spend heavily on their only child, a factor which has dramatically increased demand for toys. In 2012, China is projected to overtake Japan to become the second largest traditional toys and games market globally.
While being a much more saturated market than China, the Japanese population is also ageing rapidly. The Japanese population peaked at 128 million in 2008 but has continued to decline since. Manufacturers are increasingly having to expand their target audience to cover adults and elderly consumers in order to compensate for declining sales of toys for children. If the government fails to make a concerted effort to increase the birth rate, toy sales will continue to suffer, with the market forecast to stagnate in the future. Despite all of these drawbacks, however, Japan remains a very important toy market both globally and regionally. In 2011, value sales of traditional toys and games exceeded US$7.2 billion for the first time thanks to modest growth of 3%.
Which markets to target?
Thanks to phenomenal growth in China, Thailand and India, Asia Pacific is projected to be the most dynamic region for traditional toys and games sales in actual terms, adding a whopping US$7.2 billion to global sales over the next five years.
Japan, Hong Kong and Singapore were the leaders in terms of per capita spend among 0-14-year-olds in 2011, all recording more than US$150 per child. Click to tweet! This also highlights the huge contrast between the countries in the region. In 2011, in Japan, the top country in the region, toy spend per child stood at US$433 in comparison to just US$1 in India.
China is already the third largest traditional toys and games market globally , and the low current rate of spend per child suggests that it has considerable growth potential. Its 215 million 0-14-year-old population offers great opportunities in terms of traditional toys and games sales. In actual terms, China will add a further US$5.3 billion to global traditional toy sales by 2016.
Thailand is projected to be the second most dynamic country in the region with a 12% CAGR over 2011-2016, translating into US$240 million in actual sales. Urbanisation, demand for recreational activities and the greater recognition of the involvement of traditional toys and games in children's physical and mental development will underlie future growth. The strong presence of the online channel will bolster cutting-edge innovation alongside the continuous expansion of other distribution channels. However, toy manufacturers and distributors face the dilemma of fierce competition due to the fast-growing number of brands, including private label ranges imported by retailers.
Due to its massive size, Japan's stagnant 0.8% CAGR over 2011-2016 is forecast to translate into sales of US$305 million, making it one of the most dynamic markets in the region in actual terms. With the current population trends, it is likely that more toys will emerge targeting adults. The 45-54-year old and over 65-year-old brackets are forecast to be the only age groups to register increases during the next 10 years, and toymakers will scramble to attract them to their brands early. It is possible that in a few years' time, Japan could become the first country where toys targeting adults will outsell toys targeting children.
Republished with permission from Euromonitor Market Research Blog, originally posted on 12 July 2012