Kids Brand Insights’ Steve Reece takes a look at the growing sales opportunities of the Spring/Summer seasonal spend, and the best way the industry can rely on the Great British summertime
One of the fundamental challenges of being in the toy business is the cashflow cycle. With the majority of toy sales coming in the back end of the year, that’s a lot of months where there is no money coming in and plenty of costs to pay in the meantime.
The stock market often presumes that toy companies will run a loss in the first quarter or even first half of the year.
There are of course a number of tools for dealing with the perennial cashflow challenge in the toy business, these tools can include: cash stockpiling (this is especially the case with the major corporate toy companies who tend to have a fair chunk of cash sat on their balance sheets typically where they can), invoice financing, bank credit facilities and negotiating longer payment terms with suppliers to better reflect the tough payment terms demanded by retail customers.
It can be a mistake, though, to fail to take account of Spring Summer season opportunities. Many companies look at the back end weighted cashflow cycle as a fait accompli, but in normal times there is a second sales spike for toys after Christmas when the Easter holidays roll around, when families congregate and give gifts (albeit to a lesser level versus Christmas). Some companies run a product portfolio approach which allows them to benefit from both the first half and back end, which diversifies product and category risk, as well as aiding cashflow.
Needless to say though, any business which relies on the British summertime and outdoor toy sales may see some variation in sales each year alongside the prevailing weather patterns of that British summer time(!), but they should see much more stable demand from warmer climates on the continent and in the USA. The selling points are normally clear with toy products which encourage active physical play outdoors, while so many kids are habitually screen locked and housebound.
One area of risk in normal times is licensing based on major events. Major sporting events may seem appealing in terms of offering out of peak season sales opportunities, but such events are so fleeting that after an initial sales boost the opportunity often dies away quickly leaving burnt fingers and inventory hangovers. Our analysis suggests the more reliable and sustainable opportunities are the perennial outdoor play patterns, as long as your company has an effective export sales operation to sunnier climes and some point of difference versus generic products in the market.
Steve Reece is the founder of the toy expert consultancy, Kids Brand Insight, leaders in supplying services to the toys and kids entertainment industries.