Are Toys on the Path to a Sales Recovery?

Mattel and Hasbro recently lowered their 2024 year-end sales forecasts, but both are hopeful for a continued stabilization of the toy industry over the key holiday quarter and a return to growth in the coming years.

In a recent analysis, Circana reported that U.S. toy retail sales declines in the last nine months have “slowed substantially” compared to the same period in 2023, with year-over-year dollar sales flat.

Toy sales had declined 8% in 2023 and 0.2% in 2022, according to Circana, with the weakness largely attributed to a downturn in discretionary spending amid persistent inflation, dwindling consumer savings, and a rise in consumer credit card debt.

The industry experienced boom years over 2022 and 2021 as the combination of lockdowns and pent-up demand boosted sales of board games, puzzles, dolls and action figures, and outdoor play. Compared to 2019 sales, the toy industry remained 37% ahead in the last nine months.

Mattel’s CEO Ynon Kreiz told the Wall Street Journal earlier this year that the recent broader weakness also reflects increased spending on “experiences” rather than goods.

In the nine months, Circana found declines across outdoor and sports toys, dolls, and action figures offsetting growth in building sets, driven by LEGO Botanicals; explorative toys, led by NBA trading cards; plush, driven by Hello Kitty; and vehicles, led by Monster Jam.

“During the third quarter the toy industry reached a level of stability that we have been moving towards,” said Juli Lennett, Circana’s VP and toy industry advisor. “However, the positive performances remain within a small group of categories; what’s needed is more stability across the board.”

Looking toward the holiday, the toy category may receive a boost, with Circana’s holiday forecast finding 43% of households with children planning to spend more this holiday season compared to last year, more than double that of households without children. Lennett added, “Still, a host of other categories are competing for a share of those same wallets. Necessities like clothing and footwear, technology like video games and smartphones, and trending categories like beauty will all challenge the toy industry.”

More optimistically, a survey of 1,000 U.S. parents from The Toy Association found that 69% would cut corners from other areas of the budget first to ensure their children have the latest toys.

“Our survey shows that parents are still prioritizing purchases that spark joy — and nothing sparks joy for both kids and, now more than ever, adults, quite like toys,” said Adrienne Appell, EVP of marketing communications at The Toy Association.

The trade organization highlighted “toys that teach” as a major trend, with 56% of parents considering the promotion of mental, emotional, and social health a “large” or “top” consideration when choosing toys for their children. Other trends called out by The Toy Association include anime, kidults (adults buying toys), and “mystical, magical, and supernatural” toys.

In reporting third-quarter results, Hasbro said it now expects sales from its Consumer Products Segment to decline 12% to 14% this year from a forecasted drop of 7% to 11% previously. In the latest quarter, continued softness in Nerf and action figures, particularly Star Wars, offset volume gains in Transformers, Beyblade, and Furby.

The lower annual guidance reflects the third-quarter shortfall, expected continued softness in action figures, and efforts to reduce closeouts with an overall emphasis on “profitable revenue.”

Encouragingly, Christian Cocks, Hasbro’s CEO, said on an analyst call that the pace of the Consumer Products’ decline “moderated significantly” in the third quarter versus the first half of the year, and that’s expected to continue into Q4. He said, “We’re already seeing some encouraging datapoints across toys and board games that prove our innovation is getting sharper and retail alignment is healthy.”

Mattel slightly lowered its overall sales guidance to flat to slightly down for 2024 from flat previously. Mattel still expects fourth-quarter growth as gains in vehicles, boosted by Hot Wheels’ diecast collections, and product launches tied to Disney’s “Moana 2” and Universal’s “Wicked” movie releases offset weakness in Barbie compared to last year, which benefited from the blockbuster movie.

Longer term, Mattel’s CEO Kreiz told analysts he expects the toy industry will “return to growth and continue to grow over the long-term,” noting that the category remains a “strategic lever” for retailers to drive traffic. He also touted healthy underlying trends, including adults increasingly buying toys, a strong pipeline of theatrical releases supporting toy tie-ups, and his belief that toys remain “an important part of consumers’ lives.”