Category Report: Toy Merchandising

Whether trying to stand out on the crowded shelves of mass-market retailers or making the most out of scanty allotments of shelf space in specialty shops, packaging is one way to make an impact; indeed, for many toy makers, it's the only way. With mass merchants enforcing clean-store policies and limiting the scope of in-store marketing and merchandising, opportunities for toy manufacturers to develop traditional P-O-P have diminished, says Matthew Jonas, Los Angeles-based regional president of Catapult Marketing, which has worked with such toy-industry titans as Mattel and Bandai. "In big box stores, there's not a lot of off-shelf merchandising that's going on," he says. Coveted endcap locations get snatched up by the largest manufacturers, and compared with grocery aisles, in-aisle signage for toys tends to be sparse. Given the relative dearth of P-O-P opportunities, nowadays "there's more emphasis on price point and packaging," Jonas says. And the packaging itself is changing. "Putting innovation into packaging is the entry point for any P-O-P marketing strategy," says Christina DeRosa, president of Seattle-based game and toy manufacturer Cranium Inc. "The days of square cardboard packaging are gone. People are into window packaging. People are into try-me packaging. People want see-through packaging so they know what they're getting."A sharper focus on price point and packaging are just two among several established or emerging trends that are shaping the toy industry, in its effort to reverse several years of slumping sales. With video games, cell phones and MP3 players commanding kids' attention, U.S. retail sales of traditional toys declined 4% last year to $21.3 billion, according to the marketing research firm NPD Group, based in Port Washington, NY. Toy makers have responded in myriad ways: creating new categories, such as DVD games; adding sophisticated electronic features to toys; encouraging different types of play patterns, including immersive play and role-playing; and relying more and more on licensed characters to boost sales. Each of these trends has influenced in-store marketing in general and packaging in particular.The Whole PackageTo put the role of packaging in perspective, toy marketers point to NPD Group data showing that toy sales are becoming more concentrated in the mass market and discount channels, which last year accounted for 54% of all toy sales -- up from 51% in 2004. Mass market and discount stores wield tremendous power when it comes to setting prices and allocating shelf space. Among the toy industry's Big Three (Wal-Mart, Target and Toys "R" Us), the prevailing approach to P-O-P is "fewer, bigger, better," Jonas says. For example, Toys "R" Us occasionally sets up front-of-store feature shops showcasing blockbuster brands like Star Wars and Major League Baseball, but the sought-after space is off limits to all but a chosen few. Patrick Calello knew packaging was paramount when he launched Automoblox Co., Roseland, NJ, which makes a line of modular wooden cars and trucks that reassemble in different ways so children can design their own vehicles. His packaging has to communicate to parents what the premium toy does and why it warrants a $35 price tag. And since Automoblox cars are sold through specialty retailers, the packaging also needs to create a high-impact brand presence on a small allotment of shelf space. "We wanted the packaging to create a unified look, a block of branding like you see in the toothpaste aisle with Colgate's sea of red," says Calello, formerly an industrial designer for Colgate-Palmolive.The see-through packaging acts as a showcase for the premium materials it contains, including beechwood auto bodies with polycarbonate roofs in bold colors. "First, it catches your eye and compels you to pick up the product," Calello says. With the product in hand, the parent or child will flip to the reverse side, where graphics convey in a glance that the car comes apart.Ernie Speranza, chief marketing officer for KB Toys, Pittsfield, MA, says MGA Entertainment has done a "spectacular job" of packaging its Bratz brand of fashion dolls. The see-through packaging "is not just rectangular or square," he says. "It's off-centered and angled, trapezoidal, colorful and chock-full of product," including doll accessories and extras like stickers and posters. Bratz packages also come equipped with clever handles, perhaps increasing their likelihood of being carried to the cash register.Consumer Reports' March report on hard-to-open packaging complains that try-me packaging "has led to the creation, for instance, of what might be called Prisoner Barbie -- a doll with shackled accessories" that are easy to see but hard to liberate from the box. Jonas says he feels for parents who struggle to untie "all those little twisty things" as an eager child looks on, and he says consumer convenience is one area where toy packaging could use some improvement. Ricardo Solar, senior director of strategic sales planning for Mattel USA, based in El Segundo, CA, says the twist-ties safeguard product during transit. "The magic of Barbie is how she smiles at girls from her box on the shelf," he says. "To ensure that she doesn't get jostled in shipping and get into some awkward positions, we have to carefully create some points of restriction."Aside from a consumer-led push for easier access, Jonas expects to see a retailer-led push for more environmentally friendly packaging that is recyclable. Toys With Character"Licensing plays a key role in the toys and games industry, accounting for 25 to 35% of all toy dollars in any given year," says Reyne Rice, toy trends specialist for the Toy Industry Association (TIA). "The decision to license a property is a key strategy that can be very lucrative to all three partners -- licensor, manufacturer and retailer -- if the goals are clear and everyone is on board with the strategy."Speranza of KB Toys says "anything Dora" flies off the shelves, as kids can't seem to get enough of the pint-sized heroine of Nickelodeon's Dora the Explorer cartoon. But though perennial favorites like Dora stand the test of time, manufacturers and retailers alike look to film releases to provide successive shots in the arm. "I wouldn't necessarily say we're reliant on them, but our ability to play off of key licenses that are movie-driven is pretty crucial," Speranza says. The three major licenses for 2006 will be Superman Returns, Disney's Pirates of the Caribbean: Dead Man's Chest and Pixar's Cars, he adds. The Superman license has already spawned one Mattel toy that Speranza says he'd like to try out -- an inflatable muscle suit appropriately dubbed the Inflato-Suit.Speranza says it's critical that TV commercials and other advertising correspond with what's in the store. "All of those things have to work together," he says. "When kids go to the store, if your P-O-P doesn't match the movie theater's P-O-P, you haven't connected the dots."With movie-driven P-O-P, the exit strategy might be just as important to retailers as the launch, Rice says. "If a licensing strategy is to capitalize on a shorter-term, movie-based entertainment property, other strategies must be used to ensure sell-in and clean sell-through to make way for the next movie blockbuster property," she explains. "If a license is slated for a long-term, evergreen type of program, all partners have to be willing to build the brand for long-term value and multiple seasons of on-shelf presence." Educated GuessingFiguring out which toys will be the hottest sellers for stocking and P-O-P investment purposes is "like playing the stock market," says Mattel's Solar. "It's very difficult. We start with consumer research -- mainly focus groups -- and then make educated guesses." If retailers feel just as strongly about Mattel's picks, 'then we feel confident that we'll get good support in terms of volume and placement," Solar continues, "and we start putting all our marketing muscle behind those select key drivers."Mattel starts planning P-O-P campaigns as much as 14 months in advance. For key drivers, a marketing blitz centered on TV ads positions the toys at the forefront of children's minds; in-store marketing is designed to highlight and reinforce the broader campaign, with messaging for parents as well as kids, Solar says.Cranium starts with "rigorous play testing" to gauge the potential success of a game or toy, DeRosa says. The company stocks products that it hopes will perform during holiday season by summer so Cranium can get early reads on its sales and then market and stock accordingly for the Christmas rush. The company's current P-O-P strategy is aimed at building "a brand destination" in stores where people can find the full line of Cranium games and toys grouped together, perhaps on an endcap or pallet, DeRosa says. Securing endcap space is important to capitalize on impulse buying, which accounts for as much as 40 to 50% of out-of-season sales, Solar says, adding that Mattel and its subsidiary, Fisher-Price, have so many key drivers that premium placement is almost a given.Jonas of Catapult Marketing says that securing endcaps at Wal-Mart, Target and Toys "R" Us is nearly impossible for all but the largest brands, some of which have virtually claimed permanent residency in these desired locations. "At Wal-Mart, Hot Wheels and Barbie secure space for up to two years, rotating the display elements and products on a monthly basis," he says.Offering exclusive products, promotions or displays to retailers in exchange for premium placement is a tried-and-true tactic, although it may be falling out of favor, Jonas says. Exclusives attract retailers because "at the end of the day, a Power Ranger is a Power Ranger is a Power Ranger -- it's the same toy," he says. 'So if I'm Target, how do I get people to buy a Power Ranger from me instead of Wal-Mart? I know Wal-Mart will beat me on price, so I have to offer something unique, something distinctive that you can't find at Wal-Mart."Minimally, manufacturers can get away with "something as simple as throwing in one little extra accessory," Jonas says, so exclusives traditionally have been seen as a relatively easy means of securing placement. However, "some manufacturers have stopped doing it because if the product's not successful, you've got the store's logo on the package, and guess what? You're stuck with that inventory." Beyond the Big Three"As a result of consolidation in the retail industry, there are a few key players that drive sales in every category, including toys," says Jonas of Catapult Marketing. "If you are not playing big at Wal-Mart, Target and Toys "R" Us, you are not even in the game."But some manufacturers are broadening the playing field beyond the Big Three. Cranium, for example, tries to "home in on who's most likely to be our consumers for a particular product, and then we get that product to where the consumer is likely to be." To that end, Cranium games are sold at Starbucks coffee shops and Linens 'n Things stores, as well as through mass merchants, department stores, grocery stores, drugstores, wholesale clubs and specialty retailers."Savvy marketers look at where their consumers are spending their time and target ways to try to reach them," says Rice, TIA's trend specialist. "The success with Cranium at Starbucks, Think Fun at Barnes & Noble and Wild Planet at the Gap have presented viable new options for multiple and diverse new channels of distribution." Newcomers like Automoblox and Kenilworth, NJ-based Pretty Ugly LLC, which makes the wildly popular plush creatures called Uglydolls, eschew mass merchants altogether. Having built the Uglydoll brand exclusively in the specialty market, Pretty Ugly is now being approached by apparel manufacturers, snack food companies and fast food restaurants looking to enter into licensing agreements. In contradistinction to mass merchants, 'specialty retailers offer a different kind of in-store level of advice and guidance" in regards to P-O-P, Rice says. Indeed, many of the mom-and-pop toy stores that Pretty Ugly works with have developed creative Uglydoll promotions and merchandising solutions on their own, including a make-your-own Uglydoll contest and an Uglydoll tree for a window display, says Alita Friedman, director of operations and sales. Supermarkets and drugstores are growing markets for toy sales, says Solar of Mattel, but succeeding in those markets depends on a tailored merchandising and P-O-P approach. "What we sell in supermarkets is a different mix than the products we sell through mass merchants," he says. "Mom's on a mission to get in and out, so we need to facilitate her decision to make a purchase through lower price points. it's also important to secure incremental merchandising locations throughout the store. This is a food place. it's hard to entice people to the toy aisles." Timing is EverythingDeRosa says the pre-holiday toy season is the time when P-O-P investments are most likely to pay off, because that's when retailers draw the most traffic. Speranza of KB Toys offers a different perspective. "In October, November and December, we need to accommodate double the inventory that we carry throughout the year. Our main focus is making the shopping experience as clean and simple as possible. Shoppers are on a mission. They don't come to be entertained. From January through October, we want to be theater.... But from November through December, we need to be a factory." Speranza suggests that January might be the best time for a P-O-P push because stores are less cluttered and competition isn't as fierce. Plus, "Coming out of Christmas, kids have gift cards to redeem," he points out. Batteries IncludedAlthough sales of youth electronics and communications toys suddenly declined 8% to $600 million last year after a period of steady growth, toys with electronic features continue to proliferate across all age groups, especially for the preschool market. Kids clamor for operational electronics and personal media at earlier ages, and toy makers have responded with intermediate devices that put the "fun" in functional. "Youth versions of MP3 players, digital and video cameras, and personal media continue to be popular with kids six to 14 years old," says Rice of TIA.The need to demonstrate what these types of products can do has led to the ubiquity of "try-me" packaging. "When you push a button and see Elmo singing, that's what gets Elmo off the shelf and up to the cash register," Speranza says. "The more interactive a product can be in the packaging, the easier it is to sell that product."Try-me packaging is highly effective for certain kinds of toys, but other products need to come out of the box to be appreciated. "Especially with expensive toys, like LeapFrog and other preschool learning toys, the consumer has to be able to put their hands on it," Speranza says. In April, KB Toys started rolling out completely remodeled stores with special sections showcasing electronic learning toys in such a way that parents and children have full access to them. Calello of Automoblox developed a partnership with toy retailer FAO Schwarz whereby he trained store employees to demonstrate the cars" capabilities and deliver a sales pitch. For other channels, he hopes to install "a simple play table as an extension of the shelf" as part of a P-O-P push. In addition to implementing employee demos, KB Toys is offering manufacturers opportunities to air product demos or ads on TVs situated throughout the newly remodeled stores. For the February launch of Mattel's Fairytopia Mermaidia -- an extension of the Barbie product line featuring a DVD movie, dolls, accessories and other merchandise -- KB Toys and Mattel used a 6-foot mermaid cutout to entice children into the store, where a continuous-loop video played part of the movie as well as ads for the corresponding products. "We actually had kids sitting down in the store and watching," Speranza says, adding that KB Toys sold 25% of its Mermaidia inventory in a single day. Story TimeThe Fairytopia Mermaidia concept plays off another toy industry trend toward role-playing and immersive play. When Speranza gets done playing with his Superman Inflato-Suit, he might like to check out the GiggleGear MegaMask, slated for a fall release from Cranium. Kids design their own robot, bug, alien or princess mask, and a morphing tool in the lips of the mask distorts the sound of their voice. "Play used to be simple -- you had a car, you had a doll. Now, it's more immersive, and toys are associated with storylines to ensure longitudinal interest," says DeRosa.Rice says it's common now for manufacturers to include on-pack or in-pack DVDs or CDs with toys, such as a TV show episode for a licensed property or background plots for key brands. These are meant to "provide kids with rich imaginative experiences to extend or enhance the play pattern of the products," she says. Indeed, value-added packaging of all kinds -- like those Bratz boxes with the free posters and stickers inside -- is cropping up more and more. Industry experts are also tracking the emergence of a new category that Ken Fong believes will lead to the creation "of a new little section of the store." Three years ago, "there was no such thing as a DVD game," says Fong, vice president of marketing for SBG/b Equal, Palo Alto, CA. "Now, it's a competitive category, and many people believe there actually will be a DVD game section in the next couple of years in many of the major retailers."Back to BasicsCoinciding with the trend toward increasingly high-tech toys is a back-to-basics, retro-toy movement fueled by a "consumer backlash" against the toy industry, says Calello of Automoblox. "There's too much cheap garbage out there. Parents want higher-quality toys, but they hardly have a choice because Wal-Mart, Target and Toys "R" Us control the industry, and it's all driven by price points."Calello -- a devoted dad in addition to a toy designer -- says parents worry, too, that today's toys require too little of kids: "If all the imagination is executed by the designer or the engineer, if kids just push a button and the toy basically performs for them, that's disastrous for their development."

Category Report: Toy Merchandising

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