by STEPHANIE WISSINK, Managing Director, Jefferies
As I write, it has been over two years since the first identified case of COVID-19. It’s as if we could call COVID-19 endemic compared to a pandemic, given that this is our new living reality. Consumers and business leaders operate under one certainty: uncertainty. That said, in uncertainty there are new opportunities, even if the clarity around those prospects seems hazy.
While industry analysts focus on connecting capital to ideas, we at Jefferies are optimistic about future opportunities. Due to the dynamic nature of the short-term context, toy companies should pay attention to the following trends and topics that we are monitoring this year that may shape the industry over the next 3-5 years.
WHAT ARE THE TRENDS
We are seeing an ongoing renaissance of the classic game. Whether collective, in categories such as games and puzzles; or independent, open play in building, playsets, and arts and crafts; the classic game has garnered attention and affection during the pandemic for the past two years. We expect lasting effects and look forward to continued storytelling and innovation in classic gaming in the years to come. We are particularly intrigued by the connection between classic play for all ages and the 21st century skills that employers are increasingly citing as necessary to compete in a tight job market, such as imagination and creativity, problem solving, complex thinking versus linear thinking, and emotional intelligence.
Generations Z and Alpha (today’s teens, tweens, and children) are also more culturally aware than previous generations at their age. Their families, communities and classrooms are diverse and their thinking is equally informed. The East inspires the West in fashion, skincare, entertainment and even food (like bubble tea!), while minimalism and second-hand goods are favored by the Excessive consumption. They prefer experiences to the product. TikTok is their chosen social media platform. They are the agents of change who are entering the era of influence, calling on all of us to do better. Pay attention to them.
Gen Z and Alpha are both today’s toy enthusiasts and tomorrow’s sustainability investors. Toymakers and brands can be the first channels to educate and embrace the circular and sharing economy, donate and divert landfills, and build new pathways to resale. Capital markets are starting to transform in a similar sense of responsibility, with new standards around environmental, social and governance (ESG) factors and corporate social responsibility (CSR), creating a real movement.
THE GAME ECONOMY
When it comes to economic trends within the toy industry, the past two years have generally favored large corporations, brands and retailers at the expense of smaller independent players in the industry. Supply chain disruptions, rising labor costs, rising digital marketing rates and staff disruptions due to COVID-19 are just a few of the factors hurting growth small businesses.
Meanwhile, larger companies with large profit pools and access to low-cost capital have been able to digest these impacts more easily. To restore the industry to the range of choices and experiences consumers deserve, small businesses need our support. Marketplace platforms, stronger digital marketing strategies and social media modules are part of the solution, but they also need industry support, incubator capital and gateways to enter the market. market and grow.
Last year also brought a shopping boomerang: Surprise — US consumers like to shop in stores! 2020 defied all conventions around areas of shopping and quickly set new standards of digital fluency with e-commerce at over 50% of consumer product sales in some categories. Yet as soon as the vaccines started to be pushed into the arms, the feet started to come back into the stores. This is the good news. The bad news? These in-store experiences still require work, and we anticipate a multi-year cycle of investment in stores as consumer zones and local e-commerce processing hubs. Toymakers and retailers are in a unique position to harness the wonderland effect of the toy department: tell stories on shelf, create unique partnerships, redesign packaging as part of the experience, and make buying toys as fun as playing with them.
“Consumers and business leaders operate under one certainty: uncertainty. That said, in uncertainty there are new opportunities, even if the clarity around those prospects seems hazy.
Where are my friends? With fan conventions, hobby shops and other gathering places closed or subject to strict capacity restrictions, fans have had to find new ways to connect with each other and their favorite brands over the past two years. years. Digital forums provided a quick fix and Wall Street became a new unified target. Meme stocks grabbed the headlines and empowered the collective of individual investors. The rocket emoji had never been used so frequently. The future of fandom is increasingly digital and co-created, and we’re counting on toy, game and entertainment brands to take bold steps this year and beyond by exploring new ways to connect communities. of fans.
We closely monitor physical collectibles brands making the leap to digital opportunities, testing new possibilities for accessibility and real-time downstream value. It’s still a bit of the Wild West in the sphere of digital collectibles, but efficient and scalable models are beginning to form. Community is at the heart of fandom, and many of the most successful digital spaces are rooted in inclusivity and co-creation. Never underestimate the power of fans coming together to fight for a unified cause, whether it’s a battle royale in a video game or sending stock over 1000% in one year.
While the Metaverse was initially thought of as a completely alternate and parallel world for digital existence, recent thinking incorporates greater transferability between the physical and digital realms. Toy manufacturers and partnerships will need to redefine their business approach, integrating digital universes into physically defined legacy contracts. Non-fungible tokens (NFTs) are just one element of this new world order, but are the most obvious way so far to expand brand value in this new frontier. The temptation is to simply digitize physical elements, but the greater opportunity is to expand the continuum of possibilities, with some experiences potentially starting in the metaverse and spilling out into the physical world. The invitation is to completely rethink the game – when, where and how it happens. The next few years will determine how “mass market” the metaverse can become, and how quickly. Yes fortnite, Minecraftand Roblox are an indication, the metaverse is going to be “mass”.
CONTINUING EFFECTS OF THE PANDEMIC
Finally, it is important to focus on mental health at this time. Children and families are experiencing levels of stress never seen in modern times as they experience a global health crisis, environmental destruction and life-threatening weather events, racial tensions, extreme political bifurcation and the collapse of many trusted institutions. Mental health is moving from taboo to today’s topic of action, gaining deserved visibility as top celebrities and influencers share their stories on the world stage. Did you know that the average wait time to be assigned to a psychologist/therapist is 12-14 weeks and most of the costs are your responsibility? Kudos to youth-focused brands that push for reform, give voice to feelings, de-stigmatize mental health, and promote belonging and self-esteem. Looking to commit to a solution? Start in schools. Mental health professionals in elementary, middle and high schools have long been under-resourced. As an industry that sparks and seeks joy, the need couldn’t be greater for companies to step in and fill a real purpose-driven void.
In what felt like a two-year period of great loss and monumental change, we take comfort in the resilience of humanity and the toy industry. There are ongoing risks, but there are also tangible opportunities to grow, prosper and give back. We are inspired by the next generations of consumers, seeing their influence grow day by day and admiring their persistence in changing the world around them for the better. Capital markets are open for business and, together with all of you, finding and funding new ideas that meet a new set of accountability standards continues to be our commitment to fostering the future growth of the toy industry. Partnership is a powerful force that we are ready to fully embrace. 🚀
This article originally appeared in the February 2022 edition of the toy book. Click here to read the full issue!