by Euan Stuart Parents have always found the toy business terrifying. But these days, they aren�t alone: the sector is making investors rather nervous too. There are a couple of reasons for this, says Lex in the FT. First, toymakers are heavy users of plastic and as a result they are seeing their costs rise fast, along with rising oil prices. A worse problem, however, is that �children are getting older younger� and their tastes are changing faster.
This means that each toy appeals to an increasingly narrow age group and that even the most popular of toys may only keep its cool for a short time. And failure to keep up with the times can lead swiftly to collapsing revenues. Take Mattel: recently the company�s shares hit a five-year low as it reported, among other things, that sales of the ageing Barbie Dolls fell 30% in the third quarter. Others are feeling the pain too: Hasbro has disappointed the market, German dollmaker Zapf has an accounting investigation as well as young customers to cope with, and all efforts to rebuild the family-owned Lego company have so far �merely succeeded in reducing losses�.
All this is likely to mean that there is consolidation ahead in the industry, says Suzanne Kapner in the New York Post. Analysts are predicting that Mattel may make an acquisition, with Hasbro �a likely target�. The two companies discussed a merger in 1996, but the issue of industry monopoly scuppered the deal. However, with falling market shares at the two firms that would not be so much of a problem now (together, they have under 30% of the $21bn toy market) and it would also offer �substantial cost savings�. And consolidation in the US toy industry is nothing new: Mattel itself has a history of acquisitions, buying Fisher-Price in 1993 and Tyco Toys in 1996. But the big manufacturers have another plan, says Marketing magazine. They�re aiming to make more and more technology-based toys. This should allow them to get more toys on to the market faster and at higher prices. Better use of electronics is also at the heart of the industry�s attempts to reinvigorate old brands: Mattel is, for example, trying to redevelop its Barbie brand - which lost its mantle as the UK�s bestselling doll to Vivid Imagination�s cutting-edge Bratz dolls last year - by expanding into DVDs and interactive accessories, such as the Barbie Talking Townhouse. This might work: Barbie, who now comes as a Princess with an electric light-up wand, has regained her place on the annual Toy Retailers Association (TRA) DreamToys list (which predicts the bestselling toys for Christmas) after failing to make the cut last year.
Indeed, the best indication that the days of old-fashioned, last-forever toys are over (however much middle-class mums wish it were not so) is that this year�s TRA list is dominated by technology-based items, says Martin Hickman in The Independent. They include a Star Wars Darth Vader voice-changer helmet, a remote-controlled �cyber-ball� resembling a competitor on the BBC�s Robot Wars and the Tyco Cyber Shocker, which flips up and threatens to knock over anything in its path. The dolls, too, have technological twists. There is Barbie and her wand, as well as the all-singing Bratz Rock Angelz. Even old favourites have been updated to reflect the trend. A Thomas the Tank Engine train puffs smoke from its funnel while Tumble Time Tigger, a battery-operated tiger that AA Milne �would dimly recognise�, break-dances to a hit by MC Hammer. None of it is tasteful or parent friendly, but it may all be more profitable than toys without tech ever were.
Apparently you all have short memories. This company has said it would do this kind of thing before and been unable to produce. Remember the "merger" about a year ago that was called off? That wasn't a toy company either. Face it. This is a small, sort of has-been company that is struggling to right itself. It isn't an attractive acquistion and it has no real assests of its own to use for acquisiton. The history is that these folk try to use the stock to leverage expansion. But when your stock is worthless noone will accept it as "payment" for their company. Small World tried to do this about a year ago and folks laughed Ms Fine out of their offices. APII suffers from a similar dearth of management know how (with the exception of the recent President). They really should focus on re-building their brands and making the stock worth something. As it stands, no one will want to acquire or be acquired by this company. At least, no one of any significance (or value). I'm not trying to rain on anyone's parade - heck, I'm a stockholder, and I'd like to see this company "regrow" itself.But I fear that the board of directors suffers from the same narrow vision as the CEO and his family. That said, good luck to us all.