TOY INDUSTRY

Playing the Long Game

  • Why it matters

    Why it matters

    Although large multinational toymakers have seen falling revenues, smaller, more traditional firms with local production are booming.

  • Facts

    Facts

    • On average, Germans spend $363 per year, per child, on toys, around $100 less than American and British consumers.
    • Lego, Mattel and Hasbro are the largest toy producers worldwide. The biggest German producers are Simba-Dickie, Playmobil and Ravensburger.
    • The Nuremberg International Toy Fair, the most important toy trade fair in the world, begins this week.
  • Audio

    Audio

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Chain building blocks of the Simba Dickie Group
German toymakers such as Simba-Dickie are increasingly producing their products in Germany rather than Asia. Source: DPA

Kurt Hesse has never shied away from a challenge. In 1970, the Bavarian engineer founded his first company at the age of 26. A couple of years later, his Nuremburg-based engineering business employed 360 people and had contracts from large car manufacturers.

In 1985, Mr. Hesse changed course, buying up Carrera, a bankrupt toy car-racing manufacturer located in the nearby city of Fürth. He built up the company over ten years, before selling the Carrera brand in order to start up a new toy car manufacturer, Cartronic, which operated in direct competition to his old firm. Ever since, Cartronic has offered a similar product to Carrera, only cheaper.

This year Mr. Hesse turns 73, but he remains as restless as ever, and as willing to break with norms. His newest project will come to fruition in the next couple of months: he is bringing toy racetrack production back from China to Nuremburg, where his company Autec is currently building a highly automated factory.

Autec promises better quality, shorter delivery times and less hassle from suppliers. On top of that, it will be cheaper, too. Mr. Hesse sees only upsides to the new factory, at a time when almost his entire competition has outsourced production to East Asia.

Companies manufacturing in Germany or neighboring countries can deliver quickly and guarantee quality.

It is a brave move. But Mr. Hesse is far from the only manufacturer to make this choice. Many mid-size German toy manufacturers are growing and thriving by leaving their industry’s well-trodden path. In this way, smaller firms can survive, even when faced with competition from the likes of Lego, Mattel and Hasbro.

Michael Sieber is another entrepreneur who delights in going against perceived wisdom in the toy business. He has proved highly successful in doing so. In the 1980s, when everyone else was producing in Germany, with skyrocketing costs, Mr. Sieber was among the first to begin importing toys from China.

When all his competitors had switched over to Chinese production, he took his Simba-Dickie group in the other direction, buying up factories in Europe. Again, he was a trend-setter. Mr. Sieber, 60, is now the largest owner of toy factories in Germany, and produces more than half his toys in his own plants.

“We have flat hierarchies, we are flexible and can adapt quickly,” is how Mr. Sieber explains his path to success. Last year, Simba-Dickie had revenues of €640 million, around $690 million, up 4 percent on 2015. Add to that another €97 million in turnover from railway brand Märklin, another of his brands, which Mr. Sieber and his son Florian took over four years ago.

German toy manufacturers have been building factories in their homeland for quite some time. Companies manufacturing in Germany or neighboring countries can deliver quickly and guarantee quality, they argue.

This is reflected in the numbers. According to the market research company npd Group, medium-sized firms such as puzzle-maker Ravensburger and plastic-figure producer Playmobil, which add much of their value through domestic production, achieved double-figure growth rates in their German business last year.

Figures from npd Group show that the Germany toy market grew 5 percent last year. Worldwide, consumers spent around $90 billion on toys in 2016, up around 3.5 percent on the previous year, say experts.

It is notable that it is not always new technologies or revolutionary processes that make the difference for manufacturers. Sometimes it is enough to just stick doggedly to a business model.

For years, people have been predicting the death of the traditional board game, for example. But some games are more popular than ever, including Memory and the perennial German favorite “Mensch ärgere Dich nicht,” a game like Ludo. “There is a renaissance of board games. In times of crisis, people like to stick within their own four walls and play games,” said Hermann Otten, managing director at Ravensburger.

Ravensburger, a family-owned business based in Germany’s far south-west, will present its latest figures before the Nuremberg International Toy Fair, which begins on Wednesday. The event is the largest and most important of its kind in the world.

Last fall, Karsten Schmidt, Ravensburger’s chief executive, was already talking about excellent business conditions. A spokesperson for the firm confirmed that business has been booming this year. Mr. Schmidt is stepping down in April, to be replaced by Clemens Maier, another member of the executive board.

Even today Ravensburger’s main business is board games, jigsaw puzzles and books. Similarly, Berlin toy manufacturer Schmidt concentrates on board games, cuddly toys and puzzles: last year, its revenues were up almost 7 percent. Sales of adult puzzles shot up by almost a third.

By contrast, the enormous U.S. mega-manufacturers are having a grim time. Mattel, which, among other things, makes Barbie dolls, saw its turnover fall more than 8 percent to $1.8 billion in the last quarter of 2016. Profits were down by around 20 percent. No wonder that the listed company has hired a new chief executive, bringing in Margaret Georgiadis from Google in the hope that 52 year-old executive can bring some digital know-how.

Still, it seems that for now at least, the advantage lies with the non-digital, traditional manufacturers.

 

Joachim Hofer covers the sports, leisure and IT sectors for Handelsblatt. To contact the author: hofer@handelsblatt.com

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