One of the underlying core factors which drives the toy business is constant consumer renewal. Whereas those companies operating in businesses which primarily target adults can sell the same product to the same adult for multiple decades, our core consumer in the toy business moves through our product categories comparatively quickly. For example, a child may be in the core target age for infant/preschool for two to three years maximum before moving up and on into other product categories. As a result then, the potential number of children who we can supply with toys is constantly in flux based on birth rates. An increase in birth rates can reasonably be expected to grow the toy market overall, and a decrease would risk a decline in market size.
One of the underlying core factors which drives the toy business is constant consumer renewal.
The key measure we need to understand is the average number of births per woman, because in effect this shows us whether the birth rate is above, below or at population replacement rate. A birth rate of 2.0 children per woman is considered to be the replacement rate.
Global birth rate trends
The global population has grown significantly in the time most of us working in the toy business today have been alive. (figure 1) Global population growth is currently predicted to continue for the next 30 to 40 years, albeit with a slowing down in population growth towards the end of that period.
This global population growth is all well and good, but to some degree is driven by increases in life expectancy, especially in developing countries as medical advances and health drives are delivered across the world. It is also driven by higher birth rates in poorer countries which don’t sell high volumes of Toys.
The key consideration for the Toy business is the demographic profile by age group. (figure 2) In fact, the Global picture illustrated in the chart below shows a very healthy population structure whereby the number of children under 9 years of age is higher than older generations. This chart shows a growing population without a massive burden of older people. The challenge here though is that toy sales are not equal to population of countries, some countries are far more significant players than their population alone would suggest – first and foremost would be the USA, which with just over 4% of the world’s population has somewhere between one quarter and one third of the world’s toy sales. Next then we should look at population data for countries which are most significant to the toy business.
Figure 1 & 2
USA: Birth rate & population structure trends
Figure 3 shows the population structure of the U.S.A. This clearly shows a less healthy population structure versus the global average, with fewer children between the ages of 5-9 than the previous few generations. While this looks like a negative trend, it is actually a better situation versus many other developed countries and corresponds with a period of time where toy sales have still grown, partly due to the impact of Covid 19 lockdowns and partly due to an increase in spend per child.
Figure 4 shows that the US position in 2040 is expected to be similar, which again is unusual for a developed economy such as the USA.
The fertility rate of the USA is actually under the replacement rate of 2.0. (figure 5) The USA is experiencing considerable migration from Central and South America though, as people seek better standards of living and future prospects by migrating to the USA. Migrants tend to be younger, most commonly are of childbearing age and this explains to some degree why the 0–9-year-old segments are broadly expected to stay the same, despite a birth rate below replacement levels.
Figure 3, 4 & 5
Germany: A Demographic challenge for the toy business
Germany is historically one of the strongest and most robust toy markets in the world and has been in the Top 6 toy markets globally for decades. However, Germany’s birth rate is below replacement rate, and there is a significant challenge in terms of the demographic structure of the population with significantly fewer children in the 0–9-year age groups than older generations. (figure 6)
Looking forward to 2040, it is apparent that there will be fewer children in the 0-9 years age group in Germany (figure 7) despite a slight improvement in birth rate projected (figure 8) and as such this suggests a negative trend for the Toy business in Germany over the next time period unfortunately. Toy companies will have to seek to increase spend per child over this period of time, or to access other demographics such as the ‘Kiddult’ market in order to continue to grow the overall industry in Germany.
Figure 6, 7 & 8
China’s looming demographic crisis
China is the world’s 2nd largest toy market and also manufactures the vast majority of Toys today. China as a key player in our industry faces an impending demographic crisis which is a considerable challenge and risk to manage for the global Toy business. China’s One Child policy was originally introduced to reduce the number of new hungry mouths to feed at a time when China’s population were starving back in the 1970’s. Over time though this has led to a significant decrease in birth rate as figure 9 show. Figure 10 shows a forecast of the population pyramid for the year 2040. China recently reported the lowest birth rate for over 60 years. (figure 11) This is a twofold problem for the Toy industry as a whole – firstly fewer children being born offers a short-term sales challenge and secondly, there are already 20million too few workers in China, and looking forward that situation is only likely to get worse, with a massive looming worker shortfall in China ahead.
Figure 9, 10 & 11
Conclusion: The toy business must adapt to demographic change going forward
Going forward, the Toy business clearly needs to make two adaptations to continue to thrive as we have in previous decades. Firstly, we must address the reduction in birth rates in key developed markets by:
- Seeking to boost spend per child in developed markets
- Increasing Toy sales to currently insignificant regions i. e. Africa
- Selling Toys to new demographics. If our industry continues to grow Toy sales to adults, we have the opportunity to considerably grow sales, but we also then have to adapt our businesses and perhaps our product offerings towards this demographic.
The second key challenge is we need to seriously plan for disruptive change in terms of Toy manufacturing capacity, because fewer children being born in China over time is likely to lead to permanent worker shortage in China, leading the Toy business to need significant uplift in available capacity in alternative manufacturing hubs sooner rather than later.