Revival of the Middle East’s toy retail market

October 12, 2021 | By RetailME Bureau

After returning from World War 2, a man decided to go into business, so he rented his father’s former bicycle-repair shop on the ground floor of his house. However, instead of selling bikes, he decided to sell baby products, and the timing couldn’t have been better. As a result of the postwar baby boom, his business grew multifold. Soon he started getting demands for toys along with the baby products, and in the process realised that the customers who bought toys returned for more, compared to the ones who bought cribs, and baby chairs. And so he decided to venture into the toy business, expanding his shop into an empty supermarket at first and then eventually in 1957 opening a second supermarket with a brand name, which then became the first retailer to mass-merchandise toys at across-the-board discount prices, became a household name around the globe, and was one of the most successful retail businesses of all time.

The name of the man is Charles Lazarus and the company he birthed is, every child’s favourite, Toys R Us. The mighty retailer had managed to win hearts and a huge chunk of the retail vertical for many years, and then in the 2000s started witnessing a downfall fueled by piling debts, failure to adapt and innovate, and management myopia and eventually in 2018 filed for bankruptcy. Almost poetically, its founder Charles Lazarus also passed away a few days after it announced that it was going under, marking the end of an era that lasted 70 years.

While the demise of both Charles and Toys R Us was heartbreaking for many, it also made retailers (especially toy retailers) break out in a cold sweat. The need to rethink the traditional toy retail business model was evident and the increasing competition from pure-play e-tailers, hypermarkets and grocers, as well as new age toy retailers added more pressure on them.

A similar story played out in this region too, when Dubai-headquartered Gulf Greetings General Trading LLC – owner of The Toy Store – abruptly ceased its operations, closing stores across some of the biggest shopping malls in UAE earlier this. But why were toy retailers across the globe struggling and was this an indication of the failure of a pre-established business model?

According to a report by BusinessWire, the global toy market was valued at $93.63 billion in the year 2020. Looking across the 12 global markets (G12)* tracked by The NPD Group, toy industry sales increased by 15% to $22.45 billion in the first half (1H) of 2021 vs. the same time period in 2020. In 2020, e-commerce sales of toys were projected to grow 34.9% year-over-year, compared to 1.5.5% the year prior, with e-commerce projected to make up for 45.1% of total toy sales. While toy retail is seen to be a relatively resilient sector, owing to the fact that the business lays its foundation on sentiments – the desire of parents (and grandparents) to bring joy to their children and to aid their development – it is only the players that do it right, and do it well that will survive, as has been seen in the recent bankruptcies.

Rise and fall… and rise again

Lego is one such manufacturer and retailer that seems to be getting it right – although it hasn’t quite been a bed of roses for them all along. The Danish company was founded in 1932 by Ole Kirk Kristiansen and saw a meteoric rise up until the 90s. Mismanagement in controlling costs, volatility that arose from heavy dependence on external factors like movie franchising, and vulnerabilities in marketing and branding brought the brand on the verge of going bust in 2003. In 2004, the group took the decision of reinventing the brand and launching the ‘back to the brick’ drive, which meant that it was going back to its core product and value while embarking on a journey of constant and consistent innovation in its products and services, customer engagement and interaction, and intelligent cost management.

Cut to September 2021, Mall of the Emirates in Dubai, where Lego launched its latest store design in the Middle East, which is also one of the first globally. The new-look store format from the LEGO Group provides customers with a unique retail experience for the first time ever that is both playful and innovative.

“As a brand, we have taken the decisive step to say that we are going to be part of the retail landscape. In the past we were never retailers, but toy manufacturers, and we had a big franchise with movies, series and even games. We took the decision to take the retail route because we want to have some really nice brands lighthouses where we can bring the entire Lego experience come to life in the store. We have invested heavily in the concepts and have opened quite a few stores across the globe. We are over 700 stores now and aren’t planning on slowing down any time soon,” said Jeroen Beijer, General Manager of LEGO Middle East and Africa. 

The new store offers an elevated and interactive experience in retail. Integrated platforms provide customers with the opportunity to get hands-on engagement and become part of immersive experiences with the latest exclusive products and offerings from the LEGO Group.

Available for the first time in the UAE, the LEGO Mosaic Maker is an exclusive concept that allows customers to transform their picture into a unique LEGO mosaic through a photo booth. An entire area of the store is dedicated to the customisation of LEGO products to help shoppers create their own unique LEGO sets and find the ultimate gift.

“Consumers these days are much more demanding than they were before. They want to be surprised, engaged and have memorable experiences and one of the ways we are dialing up on that is by giving them more personalised Lego experiences. Every week I get a call from people who want their building or landmark turned into a Lego set. We are giving fans more opportunities to create portraits, mosaic etc. and we are making those experiences available to the consumers,” he said.

While Covid-19 presented massive problems for the retail industry, it wasn’t as catastrophic for the toy segment in particular as people had a lot of disposable income that they would otherwise spend on travel and leisure, and families were spending more time at home looking for ways to keep themselves (and their kids) entertained. However, the problems were mainly on the production, manufacturing and supply chain end, which continue to torment toy retailers.

The struggle is real

“The two challenges that are facing toy retailers and manufacturers are – firstly, shipping costs from the Far East and China have skyrocketed (about 5 to 10x) which has increased costs, and secondly, technology components are very expensive and scarce at the moment. (For example) If a Volkswagen plant had to shut down because they don’t have chips for the manufacturing line, and you are competing with that as a toy manufacturer, you know who is going to win that one. These are two things that will play out this holiday season,” he explained.

Apart from that the element of competition from hypermarkets and grocery chains that are biting into the business of toy retailers also played a part globally. Each year, Walmart, Amazon and Target attempt to gain an edge over competitors by trying to get as many exclusives as possible from top companies like Disney and Mattel, and then touting those exclusives in “top toy lists” that they promote online and through catalogs. According to a study by Criteo, 34% of former Toys “R” Us shoppers said they’ll likely use Amazon as a replacement, 31% said Walmart, and 18% designated Target, leaving only 17% to all other retailers. 

Jeroen, however, isn’t quite worried about the competition from hypermarkets and groceries from this region, as it is fairly underdeveloped in the toy segment compared to the rest of the world.

However, a challenge that region and retailer-agnostic i.e one that even Walmart and Target faced was when movies stopped launching last year. Traditionally, it has been noted that when kid’s movies do well at the box office and there are more than the average number of movies released, the toy retailers inadvertently do well that year. The toy industry has become increasingly tethered to films and pre-existing entertainment properties. According to Goldman Sachs, toys based on these properties are growing faster than non-licensed toys. From 2008 to 2015, these licensed toys made up 21% of toy sales, but contributed 41% of the growth. However, with the theatres shutting and movies not being released during the pandemic, the pinch of it was clearly felt by the toy retailers too.

“If you don’t have movies releasing, there isn’t much merchandise you can push. Since toys aren’t the biggest industry, the hype from movies creates a lot of consumer demand. Toy is one of the segments that capitalises on it by franchising and licensing products linked to a movie IP. When that didn’t happen during Covid-19, we didn’t see big picks anymore,” he said.

While these are some of the uncontrollable, external challenges that the industry is reeling with, there are also some internal problems that are completely within the control of retailers.

Digitisation and innovation: If you can’t beat it, join it 

“One of the biggest challenges for retailers is the shift in channel, where people have become increasingly more digital. One of the ways that retailers have been slow to adopt is that they’ve not realised that they are now part of a global marketplace where price transparency and product availability are globalised. That is, I can now order a product from the UK, US or Asia from my couch, get it delivered to me and the retailer might not even be present in the market today. So retailers would have to adjust their game as well,” he said.

The element of adaptability is also extremely important in today’s retail landscape where understanding the customer and abiding by their changing needs, demands and behaviours instead of fighting it will make or break it for retailers. Digitisation, which was seen to be the enemy by many traditional retailers is the norm today and something no industry can do without.

“Kids are spending more time online, we are looking at physical and digital play as a spectrum. We think there should be more of a fluid play between the physical and digital worlds. One of our recent collaborations with Nintendo (Lego X Supermario) is an example of that,” he said.

“If you are a retailer with high traffic, able to position your products in the right way, and price products in a competitive way, you will be fine. If you are a retailer offering high engagement, fun shopping experience and strong shopper-centricity by means of CRM programs, you will be fine as well. But if you are stuck in the middle, where you stack them up high and discount the prices then you won’t be in a good place. And we have seen some retailers struggling with that,” he added. 

The key is to have a clear strategy and grind on it decisively so the customers know that they will get exactly what they are looking for. For off-price retailer Brands For Less, which also operates Toys For Less, it is all about value and assortment. As a result of its robust strategies and strong market positioning, the toys vertical witnessed a 26% growth last year.

What’s the value?

“Being an off-price retailer, we offer customers leverage over other retailing choices. Today a customer would explore prices (before shopping) and when we offer a 70-80% discount on the items, considering that they might be on salary cuts and tight budgets but still want to buy toys, they would choose the discounted rate,” said Ayman Beydoun, COO of Brands For Less Group.

“Assortment of products was another factor too. Many retailers weren’t able to sell in-season products for their actual retail prices during Covid-19, which we would then end up with us. So we started offering these in-season products at great prices,” he added. 

Ayman believes that customers are no longer just looking for products. Value and experience that retailers are able to provide are paramount and the retailers that have gone bust are the ones who have failed to do that. 

The tech trap: It’s an Omni world  

For Saudi-based retailer, Kamal Osman Jamjoom, which operates the Early Learning Centre stores across the region, the main challenge is from the competition posed by pureplay e-commerce players.

“The main pressure for toy retailers have been from pure players like Amazon and in this region, Mumzworld. For a physical retailer, that puts a lot of pressure on the competition. So then we need to leverage on what they don’t have. In our case, we have 120 Early Learning Centre stores. That’s a huge asset,” said Phillip Smith, Group Head of Digital at Kamal Osman Jamjoom.

The company integrated technology within its stores after carefully evaluating its use-cases and estimating the value it would bring, instead of using technology for the sake of it. 

“An example of that can be click-and-collect in our early learning centres, where you can select the toy online, have them gift wrapped and collected on the same day. That is something that Amazon and Mumzworld can’t do. We also have endless aisles in our stores that defend us from our competition. So if a product isn’t available in the store, our staff can check it on our POS systems to have it picked, packed and shipped so the customer doesn’t leave empty-handed. So it is about implementing technologies for a good reason,” he added.

“We have also launched a loyalty-based subscription, where parents can subscribe for the year for a very small amount and get huge benefits that far outweigh the (subscription) cost. So it’s about using technology not just for the sake of it. And also about being conscious about the competition to be able to fight back,” he concluded.



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