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As in many industries, the vote for Britain to leave the European Union caused some degree of consternation amongst toy industry officials. In an industry already facing pressures – a shrinking under-10 population in developed countries, the rise of e-commerce and digital giants such as Amazon, and shifting retail business rates, to name a few – what kind of challenges lie ahead as the domestic market will have to adapt to new regulations?
A survey of British Toy & Hobby Association (BTHA) members showed that the most pressing issue for many is the exchange rate, which 66% of UK toymakers ranked their ‘greatest concern’. Immediately following the Brexit vote, and steadily ever since, the valuation of the British pound (GBP) fell against the Euro and dollar (USD). This meant less buying power for British businesses. Since the vast majority of toy manufacturing tends to be paid in US dollars, this effectively ensured they would be paying more for their supply – and these price hikes have had to be passed onto consumers. Indeed, Frederique Tutt, a toy industry analyst for the NPD Group, has cautioned that post-Brexit price increases of up to 10% would be possible – although consumers would not face this steepest hike until after Christmas this year.
With two years (at least!) of further negotiations ahead of us, toy companies will have to get used to the current exchange rate, and perhaps even brace themselves for further drops, weakening their purchasing power. Industry efforts have been focused on finding lower cost manufacturing, looking towards regions such as India as alternatives to regular suppliers. Sometimes the change to cheaper alternatives can lead to drops in quality of production, and so tweaks to the supply chain will need to be verified for quality
However, one positive side of currency devaluation might be the fact it will prove cheaper for foreign companies looking to set up subsidiaries in the UK. For these businesses, everything from salaries to office costs will be reduced by a weaker pound, making it a good time to consider expanding in Britain. This is particularly so considering the likelihood that British imports of European goods are likely to fall, with any additional bureaucracy and legislative barriers set to reduce trade opportunity.
And, unlike many other domestic sectors, good news hasn’t been difficult to come by for the UK toy market. Last year saw the market report a 6.3% rise in sales, breaching the £3.5bn valuation for the first time as the fourth largest toy sector in the world. Parents are allocating an increasing budget to the joyful learning of their little ones, with an average of £350 being spent on each British child aged up to nine.
The recent fall of Toys R Us provides a stark reminder to toy businesses who don’t proactively look to prepare for changing market conditions. By resting on their laurels while competitors were developing e-commerce offerings, the retail giant has experienced a consistent decline in market share and – more fundamentally - its profits for years now, leading it ultimately to declare bankruptcy in the US and Canada last month.
The best way to ensure a positive future for toy businesses is to have a strong leadership and mid-management team in place – one which has a proven track record of succeeding within the sector in difficult conditions. Indeed, the best performing businesses will be those with leadership with the ability to adapt quickly and effectively to change, given the legislative differences Brexit may yet bring about.
CSG’s specialist consumer recruitment team work as partners of their client businesses, taking the time to understand their unique culture and then offering full access to the toy industry’s talent market in its entirety with a headhunt approach. If you’d like to find out more about our search and selection services, or if you’d simply like to get a stronger idea of how the market is shaping up presently, please contact us.