DECEMBER 1983 - VOLUME 4 - NUMBER 12
The Corporate Santa
by Tim Shorrock
It's December, and once again consumers are wondering what to get their children, grandchildren, nieces, and nephews for Christmas or Hanukkah. For most people, the big choice has already been made: toys and games.
This year over $8 billion will be spent on video games, dolls, games and puzzles, stuffed animals, and toy cars, trucks, boats, and planes. Customers at toy supermarkets such as Toys R Us or the retail chain stores such as Sears or J.C. Penney face a dazzling array of goods - and a sizeable bill. In addition to the standards, these stores carry such items as dolls that can give milk or grow whiskers, stuffed cartoon characters like the Smurfs and Strawberry Shortcake, cats named Garfield that grin and say things like "I hate jogging" or "Never trust a smiling cat," and peppermint-scented hula hoops. There are also "male action figures" from popular movies and television shows like Star Wars or Masters of the Universe to choose from, as well as military toys so children can "help protect democracy" from an "evil enemy army," as the G.I. Joe packaging reads. There are books - many of them based on television characters. And there are the video games - hundreds of them - and even small home computers.
With all these ingenious and high tech toys, the simple days of teddy bears, baby dolls, and little red wagons seem far away. But toys still have the same important functions: entertaining children and teaching them the values and ways of their society. .
Toy companies claim their products reflect "the real world." But the most advertised toys (which, in this industry, means the most popular toys) carry a definite set of values. Barbie teaches that a woman should be fashionable, beautiful, and sexy - and pleasing to her "dream date" Ken. In the Smurf world, women are practically invisible: there are 99 male Smurf characters to one female Smurfette. Meanwhile, boys are sold toys that emphasize the use of force to solve problems, like G.I. Joe, He-Man, and video games where the objective is to blow up tanks and airplanes. Above all, the toymakers teach children the joys of materialism. Happiness, it seems, is a box chock-full of toys.
"Toys are a miniaturization of what the adults do so the children can handle it physically and mentally," says Doug Thomson, President of the Toy Manufacturers of America, a trade association based in New York that represents several hundred U.S. toy companies. "What the adults do is what the children want to do."
Thomson, who has been in the business for over 30 years, says that toys are a "tool of learning" for parents to teach their children adult values. "The manufacturer has to respond to that as a principle," he says. "He has to come up with things that are commercially saleable and also fulfill that educational role for both the child and the parent." But, he adds: "Of course he has to do this within the framework of economics."
Spurred by the growth in popularity of video games and home computers, the toy industry has grown into an $8 billion a year industry, divided into three tiers: manufacturers, wholesalers, and retailers.
There are over 800 toy manufacturers in the U.S., with plants in nearly every state that employ approximately 60,000 production workers. (Production is concentrated in California, New York, New Jersey, and New England.) Together, these companies produce an estimated 150,000 products, including 3,000 to 4,000 new items each year.
Like most other American industries, toy production is dominated by a few large corporations: the 20 largest firms account for nearly 80 percent of production, while the four largest companies account for 37 percent of the shipments of dolls and 34 percent of the shipments of toys and games. The biggest publicly held toy companies include Mattel Corporation, Milton Bradley, Coleco Industries, Tonka Toys, and Hasbro, Inc. A number of major toy companies are owned by larger corporations. These include Parker Brothers and Kenner Products (General Mills), Fisher-Price (Quaker Oats), Atari (Warner Communications), and Ideal Toys (CBS). According to a former toy company executive, breakfast cereal makers moved into the toy sector in the 1960s, figuring that the two sectors would share similar marketing strategies.
The manufacturers design and produce the toys, and then sell them to wholesalers or directly to retailers. The more than 140,000 retail outlets in the U.S. include department stores, variety and drug stores, and toy and game shops. In recent years, increasing numbers of toys have been sold directly to large retailers, which include K Mart, Zayre, Sears, J.C. Penney, Toys R Us, and Child World. The latter two companies, known as "toy supermarkets," are beginning to take up more and more of the market - and are trying to extend the buying season to cover the entire year.
It is the major manufacturers and retailers that are setting the pace in toy fashions and sales.
Nearly 30 percent of the toys in the U.S. are imported, making the U.S. the world's largest market for toys. In 1982, imports reached $1.2 billion, with two-thirds of the total coming from three countries: Hong Kong, Taiwan, and South Korea.
These three Asian producers, along with Japan, Macau, Haiti, and Mexico are the leading sites for overseas toy manufacturing. Hong Kong and Taiwan are major producers of electronic games, computers, and other mechanical toys, while South Korea is the biggest producer of stuffed animals and toy parts and components. Mexico and Haiti are used as assembly sites for many American companies manufacturing mechanically powered toys and plastic animals. Larger items, such as frames for computer games and metal trucks, are made in the U.S., while more sophisticated products, especially in the electronics area, are made in Japan.
A quick check in any toy store will illustrate the high volume of toys produced abroad. Mattel's "Masters of the Universe" dolls are made in Mexico; the Buddy L "Brute Force Special Forces Jeep" is made in Japan, Macau, and Hong Kong; Hasbro's G.I. Joe - billed as "A Real American Hero" - is made in Hong Kong; and many of Milton Bradley's "Playskool" items are made in Taiwan. The only items that consistently carry "Made in the U.S.A." labels are plastic molded toys intended for preschool children. According to the industry magazine Playthings, the percentage of imports carried by toy stores and department stores ranges from 10 to 75 percent. Many retailers buy direct from foreign sources.
For the manufacturers, producing in the countries where labor costs are low saves money - an important factor in this highly competitive business. "Toy companies are trying to find places where their toys can be produced most efficiently, expertly, safely, and for the lowest possible costs," says Stewart Sims, a former vice president of Ideal Toys. Sims also argues that the toy industry helps Third World countries "build an industrial base."
But since the low cost of labor is the determining factor inducing investments to these countries, the long-term benefits from the toy industry are questionable. Women are usually hired to perform the tedious assembly work, and are often forced to accept long work hours. Labor conditions in at least three of the big producers - South Korea, Taiwan, and Haiti - are cited by trade unionists as among the worst in the world. In South Korea, for example, independent trade unions and strikes have been banned since 1980, and wages are kept artificially low by an authoritarian government. Similar conditions exist in Haiti (see review, p. 22).
Another drawback for Third World countries is the industry's mobility.
"Generally what happens," says Sims, "is that as countries like Taiwan develop a more expert industrial base, the cost of labor will go up, and fewer items will be produced there and more will go to Haiti. Taiwan, which used to do a lot of sewing and assembly, now won't do much of that. On the other hand, Haiti will do that. And so I think there's a natural evolution."
But the "natural evolution" from one country to another is often politically determined. In the late 1970s, Mattel - which at the time was producing its Barbie line of dolls in South Korea - closed down because of a strike by women production workers, and then moved to the Philippines. This action came after the company had already moved from California and then to Mexico to avoid unionization, and made the company the object of a shareholder resolution sponsored by Church Women United, a leading religious organization.
Third, the sudden changes in toy fashion mean that employment and production fluctuate wildly. When E.T. dolls were popular last year, its U.S. manufacturer, Kamar Inc. of Torrance, California, had more than 100 South Korean factories making the dolls; but "that's way down now," says a company spokeswoman.
From the industry standpoint, one of the biggest problems in overseas production is imitations. American companies - which are the major developers of toys in the world - guard their brands jealously. But in Taiwan and Korea, small scale manufacturers often duplicate the brands, and even the labels. Several years ago, Kamar went to court to force the closure of a number of factories in Korea, Taiwan, and Singapore that were producing imitations of one of its toys. "They really need help in their trademark and copyright laws," says a Kamar spokeswoman.
The most important influence on the toy industry in the last several years has been the rise in video games. Of the $8 billion in retail toy sales last year, $3 billion was due to the sales of video games, both hardware and software. This represents a huge increase from the 1980 sales of $275 million or 1981 sales of $1.2 billion.
Introduction of computer technology into the industry has brought major changes in the manner in which toys are sold. According to the Toy Manufacturers of America, "These products have broadened the consumer age base so that industry products are even more attractive to consumers of all ages, preschool through senior citizen." By appealing to older consumers, who do not necessarily confine their spending to the Christmas season, computer games have also contributed to year-round sales - an important goal of toy companies - and carried the toy industry through the recession.
But the growth in video game sales has cut into other parts of the industry. In 1982, sales of traditional toys, such as trucks and games, decreased seven percent, hurting companies relying on these products for their sales. And as the growth in video games has leveled off, companies that overextended their video lines have absorbed big losses and cut back on their production - or moved overseas. Last February's plant closure in California by Atari reflected this trend. Other computer companies have been slashing prices or are getting out of the business altogether.
Video, like other fashionable toys and games, says Doug Thomson, is "very much like the record industry. You have to keep coming out with something new, interesting, and exciting on a very regular basis." For this reason, he says, most of the new developments will be in software, or in adapting video games to computers.
Licensing characters has become the second largest influence on toy sales next to the video craze. This technique involves licensing a character from a movie, cartoon strip, or video arcade game, or even a toy itself and selling dolls, "male action figures," or books, board games, junk food, and a range of other products based on that character. Kenner Industries of Cincinnati, Ohio (now owned by General Mills), for example, spent $12 million on an advertising and promotion campaign for its Star Wars line of toys licensed from the makers of the popular motion picture. But characters are not always fantasy figures. One of the popular dolls being sold in 1983 is the Brooke Shields doll, manufactured by LJN Toys of New York.
The licensing trend and the growing ties between cereal makers and toy companies is leading to a greater degree of centralization in the industry than in the past. In addition, consumers charge that the creation of TV series based on commercial toy products has caused a blurring of commercials and television programs, leading to controversies over the direction of children's television (see accompanying article).
The increasing competition for new products and the growing use of advertising and other promotion strategies are making it difficult for small and medium companies to stay in the business. "The costs of toy development and advertising are very high," says Stewart Sims, former vice president of Ideal Toy company. "Unless a company has the resources to support this kind of activity, the medium-sized companies find it very difficult to compete."
Doug Thomson of the Toy Manufacturers of America says that "it's relatively easy to enter the marketplace." But he adds that "the more difficult situation is in gaining the support of the retailers, especially the major retailers, the toy supermarkets and the big discount houses who have come to depend on the reliable manufacturer who has been in business for some time, and looks to him for a certain line of toys." .
These factors, plus the inevitable risks in developing a line of toys that might not sell, and the short buying season (60 percent of toy sales are made during the six weeks prior to Christmas) make toys a "volatile industry," says Sims. "It's a difficult industry for anyone to make a lot of money at." Currently, he says, the industry is "not generally favored" by investors. "Most investors can't invest in toy companies anyway because they're part of large corporations," he adds.
For the companies themselves, the most difficult problem is the concentration of the market in the last six months of the year. To remedy the situation, manufacturers are trying two things: creating markets in different times of the year, and appealing to older consumers for the sale of "adult toys," primarily 'computer games.
Leading the drive for year-round markets has been the Toy Manufacturers of America. One idea is to promote a national "Children's Day" sometime in the spring, or holidays such as Easter or Valentine's Day as times for toy-giving. Computer game companies, such as Coleco and Mattel (which produces "Intellivision") are also advertising year-round, and have been joined by traditional toy companies such as Fisher-Price Toys.
But unlike other industries, toy products always sell. "This industry is recession proof," says Thomson of the Toy Manufacturers. "Most people are not willing to disappoint their children at Christmas or their birthday, so they're willing to give up a purchase of clothing, going out, or whatever, in order to get their children what they want."
But it is the industry's claim of determining what children "want" that causes controversy for the toy industry, and makes an "extremely emotional and inflammatory subject," in the words of Stewart Sims.
Toy manufacturers claim that their toys, including controversial items like military toys, reflect the desires of their customers. They "have to come up with something that will sell, build a brand that the mother and father and the grandparents will perceive to be a good buy and that the children are going to like. If they don't do it, they're not in business very long," says Doug Thomson.
Adds Sims: "If people didn't like the toys or they didn't appeal to children, they wouldn't be purchased. There's such a wide variety of toys available that clearly if they were not right for kids, if kids weren't interested, they wouldn't buy them."
Both Thomson and Sims chafe at the criticism toy companies receive about military toys (see box), the practice of licensing, and toy safety. The toy industry is a "good corporate citizen," says Sims. "But it is not a toy company's role to create an artificial society, one that doesn't exist. Because if we did that, we would be superimposing our own values on the world."