Toy Manufacture
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Industry Overview
The US toy manufacturing industry includes about 700 companies and has annual revenue of $20 billion. Almost all manufacturing is conducted in overseas factories, primarily in China. Major companies include Mattel, Hasbro, and MGA Entertainment, as well as gaming hardware divisions of Microsoft, Nintendo, and Sony. The industry is highly concentrated: the top 50 companies generate about 75 percent of revenue.
The industry includes manufacturers of video game consoles, which are covered in the Electronic Gaming Products industry profile, but does not include companies that produce software for video or computer games, which are covered in the Entertainment and Games Software industry profile.
Competitive Landscape
Growth in the population of children age 12 and younger drives demand for toys; demand for electronic gaming products is driven by personal income and product innovation. The profitability of individual companies depends on identifying market trends and marketing effectively. Large companies can offer a wide selection of toys, and have scale advantages in purchasing, manufacturing, distributing, selling, and marketing. Small companies compete effectively by specializing in a product segment, or responding faster to market trends. The electronic gaming console industry is capital-intensive.
Toy manufacturers face increasing competition from other sources of entertainment for children, including the Internet, television, and other consumer electronics.
Products, Operations & Technology
Major product segments for toys produced in the US include non-electronic toys (transportation toys and sets); electronic toys and games (video game consoles, excluding game cartridges and software); children’s vehicles (scooters, wagons, excluding bikes); model and collector sets; and non-electronic games and puzzles. Other products include dolls; stuffed animals (also known as "plush"); action figures; and doll clothing, accessories, and playsets.
US production doesn't reflect the total US toy market, since most manufacturers produce toys in China. Including imports, major product segments include infant/preschool toys, outdoor and sports toys, dolls, games and puzzles, and arts and crafts sets.
The manufacturing process for toys differs depending on the type of toy. Blow- or injection-molding uses air or pressure to force heated plastic into shapes, like dolls and action figures. Die-casting molds heated metal into shapes, like cars and trains. Spray painting adds color to toys and components. Companies use various printing processes to produce game boards and game components. Producing toys like dolls and stuffed animals is labor-intensive, and may require sewing, stuffing, or hand painting. Companies may source toy components from multiple third party manufacturers, and assemble a toy at a separate facility. For example, a company may buy a doll’s body parts from a vendor, then assemble, paint, dress, and package the doll at a separate facility.
Most video game console parts are manufactured and assembled offshore. The essential components of a system include a central processing unit (CPU); memory; optical drive; hard drive storage device; chassis; power supply; and controller (sometimes referred to as a game pad). Products are manufactured in high volumes using highly automated assembly lines. Process controls and testing procedures minimize product defects.
Most companies produce toys through third party contract manufacturers in the Far East, primarily China, due to low production and labor costs. Mattel, the largest US toy company, owns production facilities in the Far East and Mexico. Due to lengthy transport time, most companies must produce toys well in advance of when customers take delivery. Some large retailers place positional orders over a year in advance. Companies use customer estimates, historical trends, and market conditions to schedule production. Actual shipments can vary greatly from forecasts, resulting in inventory excesses or shortages. While most companies use warehouses to store inventory, many deliver large shipments directly to major retailers.
Major raw materials include toy components, plastic, resins, paperboard, fabricated metal, zinc alloy, fabric, and electronic components. Depending on the toy, companies may be sensitive to price fluctuations in the plastic and oil-based resin markets. Some companies source almost all components from third parties. Large companies may have contracts for key toy parts.
Technology has greatly influenced demand for electronic toys and toys that respond to and interact with children. As children gravitate toward video games and consumer electronics at younger ages, toy manufacturers have integrated computers into traditional toys to improve play value and remain competitive. For example, sensors and computers allow robotic dogs to move and respond to commands. Traditional games like "Candyland" and "Twister" have DVD versions. And some companies offer children’s versions of popular consumer electronics like digital cameras and DVD players.
Toy designers may use CAD to model prototypes. Companies may use computer-integrated manufacturing (CIM) to automate certain assembly processes.
Electronic game and peripheral makers utilize in-house design teams and third-party developers. Console makers continually upgrade the technology used in their systems to remain competitive. Peripheral makers are dependent on intellectual property licenses from console manufacturers in order to perform reverse engineering that ensures compatibility.
