Photo by Hannah Rodrigo on Unsplash
The Evolution of Retro Toys and the Future of AI Toys in the Market
In today’s market, toy entrepreneurs battle for costly licensing rights to vintage toys, banking on nostalgia and seeing intense competition for shared brand rights. This competition has led to a significant increase in licensing costs over the past decade and a situation where “manufacturers are counting on tried-and-true nostalgia brands like Teenage Mutant Ninja Turtles and Furby, making it tougher than ever for entrepreneurs to get shares of the lucrative businesses,” according to Forbes.
Despite the escalating costs, the reward is a product with a ready-made market, driven largely by adults. According to Circana, a market research firm, teens and adults now drive about 25% of all toy sales, which translates to about $9 billion. These adults often purchase modern versions of classic toys for their children, further driving demand.
Retailers are leaning toward classic toys amid economic uncertainty due to their consistent sales stability, Amanda Cioletti from Informa Markets explained. The unpredictability of holiday spending amidst mixed signals such as inflation has attributed to even more limited shelf space and more discerning consumer spending. Classic toys, being proven and reliable, are favored.
Furthermore, brands like Teenage Mutant Ninja Turtles have seen resurging popularity due to regularly rebooted new media content. While major companies like Hasbro, Mattel, and Disney have been reinventing their intellectual property for years, recent success stories like Barbie highlight the lucrative potential of reviving classic brands. The “Barbie” movie contributed to $1.4 billion in global sales, while Mattel’s Barbie sales soared by 25% to $350 million this summer, applauding its IP-focused growth strategy and entertainment expansion.
“Slicensing,” or dividing a brand’s rights among multiple licensees, adds complexity to the licensing game in the toy industry. As exclusive rights diminish, companies compete and need robust infrastructure, including manufacturing, supply chain, and retail distribution, to secure rights. Alan Dorfman, CEO of Super Impulse, views this as an opportunity as larger firms start to license out their classic brands, allowing other companies to rejuvenate them and remain competitive in the dynamic toy market.
Jay Foreman, CEO of Basic Fun, a toymaker notable for its annual sales of $160 million, spent a year securing the licensing rights to produce Care Bears collectibles. By infusing the iconic ’80s toy brand with brighter colors and fresh personalities, Foreman managed to appeal to children and college students. This led to retail giants like Target and Walmart agreeing to move these rejuvenated collectibles out of the preschool aisle.
The Shift in the Toy Market
If these trends continue, will the market grow stale with the same properties constantly recycled from previous generations?
Nostalgic properties are not a guaranteed success forever, as seen with the recent layoffs from Hasbro, a toy company that arguably owns the most popular and lucrative brands outside of Disney. According to its financial report, Hasbro’s annual sales have continued to decline, and its most profitable brand is currently Magic: The Gathering, after it acquired Wizards of the Coast in 1999. The card game has recently surpassed all of Hasbro’s properties and become its first billion-dollar brand, helped by its low-cost production and collectibility.
Almost a decade ago, many speculated that electronic devices would destroy the toy industry, and that seemed like the case when Toys”R”Us went bankrupt. And even with its recent relaunch, the once unstoppable toy retailer is struggling to remain relevant.
These factors have created a new retail space where vintage used retro toys are being sold alongside new indie toy lines without brand name recognition. But since the toy industry remains most accessible through big brand chains like Walmart and Target, as well as e-commerce sites like Amazon, these outlets will be the main gatekeepers for the toy industry at large. E-commerce sites do offer the chance for new toys to succeed amongst the countless generic toys and unknown brands, but this also opens up the market to low-quality toys and, in some cases, unsafe toys.
Back in 2014, before the dominance of AI, experts were already discussing the ability to create engaging products integrated with artificial intelligence. Mattel introduced the Hello Barbie in 2015, a doll capable of two-way communication through a Wi-Fi connection. A new Furby was also made with an advanced computerized brain that modified its behavior based on its interaction with users. At the time, Kenny Davis, the marketing director of new brand franchises at Hasbro, stated that the company intended to invigorate 20 toys with technological upgrades in the upcoming years to cater to the technology-enthusiast younger generation.
Nowadays, countless toys include advanced AI, including new plush toys from Curio that can have conversations with kids, answer questions, and engage in imaginary play.
Beyond entertainment, toys contribute to children’s holistic development, with smart toys potentially aiding autistic children, highlighting the potential for developing issue-specific products. The 8-12 age group, representing 22% of toy sales, provides a significant opportunity with their preference for virtual-real-life blends catered to by connected and movie-themed toys. A strong brand presence, achieved through immersive storytelling and creative gaming apps, is crucial for capturing families’ attention and driving innovative product development.
But this arena comes with some challenges:
- Smart toys, amidst security concerns like the VTech data breach, require better safety measures.
- Parental doubts over smart toys’ educational value call for improved communication.
- Cost-effective, robust, and reliable smart technology integration is crucial for toy manufacturers.
Ultimately, it appears likely that toy companies can thrive by maintaining a mix of nostalgic elements and new toy lines inspired by original media, with the potential inclusion of AI-based educational and entertainment toys.
Discussion Questions
How can new toy entrepreneurs compete and innovate amidst escalating licensing costs and the popularity surge for well-known branded toys? Could “slicensing” foster innovation in the toy market or harm it? How should manufacturers navigate challenges of security, parental skepticism, and tech integration in AI-integrated toys? To what extent should the toy industry aim to educate and aid child development alongside entertainment?
Poll
Loading …BrainTrust
Allison McCabe
Director Retail Technology, enVista
Oliver Guy
Global Industry Architect, Microsoft Retail
Traditional toys remain big business and have not been killed by technology. That said, the kids toys market is very price sensitive which pressures margins. This is somewhat avoided with the ‘must have’ popular toys and brands which tend to hold their price better. But even so, this is a business that needs volume and an ability to remain very competitive on price.
An interesting expansion in the past five or so years is the rise of toys for adults. Lego has been brilliant with this – creating a whole range of sets to appeal to adults and pushing the therapeutic aspects of building models. Margins here are not quite so squeezed.
I have not purchased any tech toys for my grandsons this Christmas. Our 8 year old is getting a chemistry set, something he can actually learn from. Tech toys tend to get thrown in the corner after the initial thrill wears off.
Not to pick on Dennis – he’s assuredly asking question that need to be asked (The toy business is, after all a business) – but is there any better way to destroy the Holiday Mood than to analyze toys ?? God forbid that all we ask of them is that they’re fun.
All of these nostalgic toys were new to the market at one time. Those that offer a captivating story/”reason to be” for the consumers will join those ranks. These days the customer capture is far more than a tv commercial and some product placement so the climb is steep. But innovators should not be deterred. Everyone needs toys in their life.
How are we defining toys these days? Are they physical products that one can touch and feel? Or does it include electronic games? Much of this answer depends on that definition.
With grandchildren in their upper teens, I cannot remember the last time we bought “toys” as Christmas presents. It has all been electronics or devices, with one exception.
If Lego counts as toys, our promising engineer is getting a Lego kit to build a “working” race car engine this year. It strikes me as not a toy at all.
Is an AI toy that talks back to you really equivalent to a toy with which you must create both sides of a conversation? Vinyl records, thrifting and throwback toys – nostalgia has always been a critical element of marketing, just ask Disney. And toys have always been a great mechanism for learning. There’s no better way to learn than accidentally. I’m a big fan of EDC’s Smart Lab Toys (shameless plug). However, I would agree with my colleague Craig that a toy should be first and foremost fun; otherwise, it’s a school book! The challenge for new toy entrepreneurs remains target market and distribution. It can require a significant investment to generate the demand necessary to acquire real or virtual shelf space and many toy entrepreneurs won’t have those funds. But entrepreneurs and their new toys will find a way. Unfortunately, it will take a lot of creativity and out of the box thinking. Thankfully, both of those skills are developed and aided through play. I’m feeling the sudden urge to watch Tom Hanks’ Big (again, for the millionth time).
Well, I was surprised to learn that toy sales are down. My sage friends on LinkedIn pointed out that unless it’s digital, interest has waned. Given that toys have low margins to start with, I don’t think it’s a business I would get in.
In my family it’s the opposite, no one has asked for digital toys.
This article answers its own questions in the last paragraph:
“Ultimately, it appears likely that toy companies can thrive by maintaining a mix of nostalgic elements and new toy lines inspired by original media, with the potential inclusion of AI-based educational and entertainment toys.”
Nostalgia is a relative product or experience in every generation and culture. Toys were once simple and built with wood or porcelain in a mini-me adult-to-be world. Today, the concept of toys challenges the imagination by using advanced materials and technologies to recreate a reality not necessarily rooted in the adult world. Moreover, the boundary between toys for kids and those for adults is blurring as gaming’s broad attraction and adoption rages on.
I see two nodes of attraction in the toy market: the neo-traditional lines that are low or no tech and the other is a high-tech adventure into imaginary worlds that suit today’s digital-first consumers- adults and children. The former is controlled by the major brands of the past decades and is difficult to penetrate; the latter is a battlefield of competition and constant renewal and opportunities.
Right up my company’s alley! We were the publisher that made scratch ‘n sniff stickers so popular in the early 1980s, and this year we released a vintage collection of the original designs – huge response with great sell-through & have added hundreds of new merchant accounts. They’re just $3.99 MSRP so it’s affordable nostalgia and a great intro to sticker collecting – and we have years’ worth of titles yet to release. Next step is to start licensing our IP for clothing, games, and such!
‘They don’t make things like they used to’ – or so the saying goes. Toys can very much fall into this category. Even before connected toys, those available 20 years ago were generally not as sturdy or long lasting as those from 20 years prior.
Technology based toys have been attractive for many years but as more and more toys melt into that category the amount of e-waste being created is likely to be growing.
Combined with security concerns the toy industry potentially has some thinking to do – but so do parents and those who choose toys for children.
I am stumped on this one. It depresses me to see toddlers with tablets, etc. but who needs imagination and toys when you can stare, comatose like, at a screen?
Over the past 15 years or so, among my own friend group and younger siblings, I’ve seen more of a trend towards ‘simple toys’ for kids. Less plastic (unless it’s Lego). Less batteries. More wood and natural fibers, and toys designed to inspire imaginative play… with playing being the educational goal for young kids. Rather than leaning into toys being educational, I’d lean into them inspiring imagination, curiosity, experimentation, etc.
Most of the ‘nostalgia’ purchases were for themselves and their peers rather than kids.