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Summary

• The toy industry is mature and driven by fads. While some toy franchises have lasted for decades, others fade away after just 3-4 years. Toy companies need constant innovation to stay ahead of the game.

• A product begins with the creation and development of intellectual property, such as cartoon characters. These are then marketed through cinema, Netflix and video games. This intellectual property is then licensed to companies producing physical toys, such as action figures. Finally, the toys are sold through supermarkets, specialised stores or e-commerce.

• Right now, some of the hottest toy franchises are Funko Pop figures and toys based on Sanrio’s Kuromi and Bandai Namco’s One Piece.

• While toy production is commoditised, a few Asian OEMs have managed to earn a decent return on capital through penny-pinching. I’m thinking primarily of Dream International and Vtech.

1. Introduction to the toy industry

The toy industry is a sub-segment of the broader youth entertainment industry. But there’s increasingly an overlap between these categories, for example, with manga and anime that eventually become toy action figures.