After two years of record breaking, pandemic fueled toy sales, the market has chilled from red-hot to cool-blue. According to NPD, for the first six-months of 2022, the market grew by just 2 percent to $11.4 billion between January and June. NPD concluded that customers are making fewer trips to the stores for toys and buying less because of price increases. No doubt retailers are bracing for a less than stellar holiday season.

There are, however, category outliers that are performing very well. Those of us whose kids were possessed by the Beanie Baby craze of the early 1990s will have a déjà vu experience with 2022’s hottest plush, “Squishmallows.” This quirky, squishy, toy family boasts seven of the fifteen best-selling toys of the year, pushing the entire category to a 43 percent gain ahead of last year.

As has been the case in recent years, key retailers are distinguishing themselves by partnering with compatible, often stand-alone brands. This has led to many “pop-up” and store-in-store concepts to build traffic and sales volume. This year several of the toy names are playing with the idea.

Industry Play Date

In late September toy industry representatives met at the Dallas Market Center for The Toy Association’s Preview and Holiday Market meeting. The feature event was Toy of The Year (TOTY) Awards which recognized the top toys for 2022, in seventeen different categories. Naturally, the attendees all hoped that the winners matched the inventories that were on order or already occupying shelf and warehouse space back home.

Perhaps not surprisingly, the LEGO brand captured five of the seventeen categories including Collectable of The Year, Construction Toy of The Year, Grown Up Toy of The Year, Playset of The Year, and Vehicle of The Year. The latter, LEGO’s Technic McLaren Formula 1 Race Car, priced at $199.99 happens to also be described as a “rewarding project for adults.” So, LEGO’s sees the passions of us older kids as fertile territory for growth. One need only visit Target or Walmart to see how LEGO, the world’s highest valued toy brand, dominates the entire toy selection.

Outdoor Segment Growing

Meanwhile, as the overall toy segment may be “chill,” the outdoor and sports segments remain hot. This should bode well for sporting goods retailers like Dick’s this holiday season. NPD reported that outdoor and sports continued to be the largest “supercategory” with $2.7 billion in annual sales.

The category was helped by the work-from-home movement that employees are struggling to retain, despite employers’ efforts to wind the calendar back to pre-Covid days. The growth of the sports categories is also a response to parents’ justifiable concerns about their kids’ health. It seems that their thumbs have become the focus of their keyboard workouts. Both factors are fueling the demand for outdoor products such as pools, play tents, airplanes, as well as gear for hiking, touring, camping, as well as team sports.

Toying With TikTok

There has been a sea change in where toy ad dollars are being spent. As the media world has turned its back on TV and print, advertisers have focused their attention to social media, where much of the toy industry’s ad-spending is happening. And as TikTok and YouTube have become the go-to search engine for young people, toy manufactures are moving marketing money there, and to other influencer centered media.

Canal Toys president and CEO Bill Uzell told Forbes in 2021.”My budget for TV this year is zero.” Uzell doubled down on the whole influencer culture when he created a hit toy, Studio Creator 2, for kids who want to be influencers, and make their own social media videos. His Tagline “Become the next BIG influencer” flaunts his brand’s aim to help kids make “professional-looking digital content.” It is as if kids aren’t already fixated enough by internet stardom.

Even the metaverse is spawning toy tie-ins as kids devote VR headset time immersed in Roblox and Nintendo Switch. Even a popular collectable doll set “Twilight Daycare” comes with a code redeemable for goods in the metaverse’s Roblox. This virtual merchandise is commonly referred to as “Verch.”

FAO Schwarz Goes to Target

As has been the case in recent years, key retailers are distinguishing themselves by partnering with compatible, often stand-alone brands. This has led to many “pop-up” and store-in-store concepts to build traffic and sales volume. This year several of the toy names are playing with the idea.

In early September, Target announced it had entered into a multi-year agreement with FAO Schwarz. David Niggli, chief FAO Schwarz merchandising officer announced, “There truly is no better way to kick off FAO Schwarz’s 160th anniversary than to announce this partnership.” The two companies worked together for the 2020 holiday season and this new deal suggests that the previous arrangement met the expectations of both parties.

Jill Sando, Target’s executive vice president and chief merchandising officer said in a statement. “One of the reasons families love shopping at Target is because of our incredible assortment of toys, and that selection is only getting better with our new exclusive agreement with the beloved FAO Schwarz brand.”

Target is expecting to receive more than 120 toys from Schwarz. The chain plans product drops from FAO Schwarz throughout the holiday season. The new collection will include “the FAO Schwarz Style Runway 4-Sided Fashion Show Playset, FAO Schwarz Ride on Train, FAO Schwarz Makeup Vanity Mirror Set, legacy Dance on Piano Mat and over 50 new plush toys.”

Toys R Back?

The other new “playmates” this holiday season involves Macy’s and Toys R Us. By October 15, about 500 Macy’s stores are slated to have Toys R Us store-in-store shops open. They will run between 1,000 to 10,000 square-feet.

Toys R Us, which filed for bankruptcy in 2017 amid crushing debt, has had a tortured resurrection. Initially Tru Kids acquired the brand and intellectual rights in 2018. That led to the opening of two stores, just as the pandemic hit. The stores shut down in early 2021. Shortly thereafter WHP Global, a company that acquires consumer brands to help turn them around, bought the brand and began working to reinvigorate it both online and off. In August of last year, a deal was struck with Macy’s.

WHP is backed by a $350 million equity commitment from Oaktree Capital Management. Macy’s has stated that its Toys R Us in-store shops will eventually be a bonanza, generating $1 billion in annual sales for the department store chain. That remains to be seen.

Melissa Minkow, director of retail strategy at ecommerce technology vendor CI&T, says the Macy’s and Toys R Us partnership “strategically leverages consumers’ desires for experiential in-store retail,” but is skeptical about whether it will produce long-term results. I tend to agree with Ms. Minkow.

Geoffrey, Lost and Found

I trekked to my local suburban Minneapolis Macy’s store to get a firsthand look at the Macy’s/TRU mashup. I was “greeted” by a fiberglass “Geoffrey the Giraffe” sitting on a bench. It appears the once prominent Toys R Us mascot awaits becoming a selfie subject. But, based on some rudimentary YouTube and TikTok prospecting, it hasn’t happened, yet. Perhaps, tots have no memory of the iconic giant giraffe that once resided in the defunct superstores. He looked very lonely.

I cannot fault the execution of the tidy shop-within-shop that I visited. The 1,000 square foot department does a decent job of distilling down a cross section of the major toy brands you would find at Target or Walmart. The difference is that at Target the shopper would find about ten times the inventory selection, in at least six times the floor space.

On a positive note, the Toys’ shop was well organized, and very shoppable. Each brand had a clear representation, and for customers that become overwhelmed by too much choice, the shop-in-shop fits the bill. However, the likelihood that Macy’s will become a holiday toy-selling destination is questionable. There just is not enough depth in any of the major categories or brands.

Then there is the issue of shopping carts, or in this case the lack thereof. Today’s shoppers are making fewer trips, and for many consumers holiday toy shopping becomes a “search-and-destroy” mission. And given the large scale of today’s toys, the idea of holiday toy buying sans shopping cart seems counterintuitive, at best.

Checking Out

Before leaving Macy’s, I was curious to see an example of the super-hot “Squishmallows” in the flesh. My search was in vain. I asked the sales associate if they were getting the super-hot plush brand in? She looked puzzled and said she had never heard of them. Oh well.

Ultimately, Macy’s can probably expect the Toys R Us shop to become a good, last-minute impulse area for stocking stuffers. How that equates to $1 billion in added revenue eludes me. However, to Macy’s credit they did place a checkout counter in the toy shop in shop, and for Macy’s that was an accomplishment!