Industry Profiles: Toys and Sporting Goods

views updated

Industry Profiles: Toys and Sporting Goods

Overview

In the United States, toys and sporting goods manufacturing was worth an average of $15.0 billion each year in the late 1990s and early 2000s. At the same time, an additional $16.5 billion worth of industry products—mostly toys—was imported from other countries, whereas only $3.0 billion of U.S. production was exported. These figures indicate a net demand for toys and sporting goods in the United States in excess of $28.0 billion.

Sporting goods account for more than 70 percent of industry shipments by value, and the sporting goods sector as a whole has enjoyed faster sales growth than have domestically produced toys. Meanwhile, toys accounted for almost 80 percent of industry imports, which increased at a steady pace in the early 2000s.


History of the Industry

Toys The first U.S. toy manufacturer was established in the 1830s. Tower Toy Company produced doll furniture, toy tools, and toy boats. In 1860 Milton Bradley Co. established a publishing and lithography business, but as financial problems plagued the company, Bradley diversified by inventing and publishing The Checkered Game of Life, which was the precursor of The Game of Life. The Civil War slowed the toy industry somewhat, although toy guns were popular, as were Milton Bradley's portable editions of chess, checkers, and dominoes.

In 1883, 16-year-old George S. Parker started his own game company. When his brothers joined him, the company became Parker Brothers & Company Inc. It became the publisher of many games that remained popular into the twenty-first century, including the perennial number one-selling board game, Monopoly, as well as Sorry!, Risk, and Clue.

Around the turn of the century, the so-called golden age of toys brought walking and talking dolls, toy pianos, friction motorized vehicles, steam-powered toys, the Erector Set, the Flexible Flyer sled, Lionel toy trains, and Crayola crayons. In 1906 the Teddy bear craze began with the stuffed animals named for Teddy Roosevelt (because he had refused to shoot a trapped bear cub during a hunting trip). Between 1900 and 1910, American toy production doubled. During the next decade, it grew 500 percent, largely because World War I had halted the import of European toys. In 1923 Hasbro Inc. brought out its classic real estate game, Monopoly, and Milton Bradley introduced Easy Money—games that allowed players to imagine being rich by making deals with play dollars. In 1930 Herman G. Fisher and Irving R. Price established the very successful Fisher-Price, Inc., which in the 1990s was the biggest name in infant and preschool toys and merchandise.

World War II slowed the toy industry's growth because of labor and material shortages, but the postwar years brought prosperity to the entire country, and the toy industry reaped the benefits as well. Following World War II, the toy world was revolutionized with the introduction of plastic.

In 1955 an advertising move by Mattel, Inc. changed the way toys and games were marketed and also launched the promotional toy business. The American Broadcasting Company (ABC) television network approached Mattel about weekly national advertising on its new show, Walt Disney Co.'s "The Mickey Mouse Club," which started in November as the Christmas shopping season opened. To the surprise of many, Mattel took a big financial risk and paid half a million dollars to become a sponsor. Before this bold move, most advertising money was spent on catalogs and trade ads during the Christmas season and an occasional local TV ad to promote the most promising items. With this advertising agreement between Mattel and ABC, Mattel's famous slogan was born—"You can tell it's Mattel, it's swell"—and the power of weekly advertising to kids was launched. The product Mattel had advertised, the Burp Gun, sold out, and the promotional toy business had been established.

It was in the late 1950s that Mattel introduced the Barbie Doll, created by company co-founder Ruth Handler who named the doll after her teenage daughter. Barbie sales skyrocketed after the doll was introduced, surpassing the 350,000 mark in the first year alone and contributing significant sums to the company's revenues for decades. The doll evolved with the times and transcended the toy market. According to the Chicago Tribune, "Under pressure from feminists, Barbie evolved from fashion model to career woman, including doctor, astronaut, police officer, paramedic, athlete, veterinarian and teacher. Over the years, the toy inspired Barbie clubs, conventions, magazines and Web sites." After the introduction of Barbie, Handler named other dolls in the product line after her relatives including Ken, after her son, as well as grandchildren Cheryl, Todd, and Stacie. In 2002 Handler died at the age of 85, but her doll lives on as one of the most successful toys in history.

Promotional toys were products advertised on television directly to the consumers—the kids. Television became the number one advertising force in the toy industry. With the line between advertising and entertainment blurred in the late 1980s and early 1990s, entire shows became based on the exploits of a line of characters invented or promoted by a toy company. In 1969 Mattel underwrote a program based on its very successful Hot Wheels line. When a competitor complained, the Federal Communications Commission (FCC) banned it, calling it a "program-length commercial." In 1983 the FCC ruled that the marketplace should determine programming. This change of policy cleared the way for toy-based programming. By the 1986-1987 season, more than 40 toy-based programs were on the air.

Sporting Goods Albert G. Spalding, the man often misidentified as the inventor of baseball, was actually one of the pioneers of the sporting goods industry. After pitching his team, the Boston Red Stockings, to victory in three consecutive National Professional Association pennant races in the early 1870s, Spalding helped found the National League in 1876. In 1878 he opened a sporting goods store with his brother in Chicago. The company expanded from 2 to 14 stores within two years and soon afterwards began selling products it manufactured directly to other retail dealers. Spalding is given much of the credit for introducing gloves to baseball; after developing a sore arm from pitching, he switched to first base in 1877 and started wearing highly visible black gloves. (Cynics have suggested, however, that Spalding's interest in wearing gloves was not unrelated to his desire to sell them.)

Spalding also figures prominently in the history of basketball. James Naismith, the inventor of the game, commissioned him to create the world's first basketball in 1892. In 2002 Spalding balls were still the official ball of the National Basketball Association (NBA).

Another important sporting goods company with a colorful history is Wilson. The firm was originally known as the Ashland Manufacturing Company and was a subsidiary of a meat-packing firm. It sold violin strings, surgical sutures, and strings for tennis products, all by-products of animal gut. In 1914 the company was forced into receivership and was taken over by New York bankers. They picked Thomas Wilson to manage the company, partly because of his name—President Woodrow Wilson was then at the height of his popularity, and the owners hoped to capitalize on the association in the consumer's mind. The new firm became Wilson & Company. The firm soon expanded into tennis rackets, hunting and camping equipment, and fishing tackle. With a full line of sporting equipment, it continued to be one of the top manufacturers in the 1990s.

A more modern, but already legendary, figure in the history of sports equipment is Scott Olson. Olson was a 19-year-old goaltender with a minor-league hockey team in 1980 when he found a pair of roller skates on which the wheels were arranged in a single row. While the skates felt slow and clumsy, they gave him the sense of skating on ice that traditional roller skates did not. Olson contacted the manufacturer, who had stopped making the line, and bought up the back stock. He put the blades on good skate boots and began selling them out of his house. In 1983 he quit pro hockey, bought up the existing patents, and started the company that would eventually become Rollerblade. While Olson was forced out of the business in 1985, he continued to design and develop new products, including a lightweight golf bag with wheels and a built-in pull handle.


Significant Events Affecting the Industry

The gradual ascent of video games into daily life created an important new category of toys. In 1972 Nolan Bushnell and a friend invested $250 each to found Atari Corp. and produce Pong, a simple video table tennis game. It became a coin-operated hit in bars and arcades, and in 1975 Bushnell began marketing a home version to compete with Odyssey, a video game system being produced by Magnavox Co. Atari was sold to Warner Communications Inc. in 1976. Mattel followed with Intellivision in late 1979, and Coleco Industries Inc. brought out ColecoVision in 1983.

Soon, the industry was licensing the most popular arcade games for home video systems. Video games were bringing in hundreds of millions of dollars. Many new companies formed just to manufacture and sell cartridges for Atari and other game systems, thus taking valuable profits from the systems' developers. Large and small toy companies rushed to produce their own video systems. In a few short years, however, the video game and cartridge fad ran out of steam. Warner lost $539 million on its consumer electronics segment in 1983, and it ended up burying truckloads of game cartridges. Warner, Mattel, and Coleco sold their video game businesses during the next two years.

Nintendo Co., Ltd., a Japanese electronics company, learned from the mistakes of its predecessors. In the late 1980s, Nintendo was generating sales of more than $1 billion in the United States alone. It was making this money at the expense of other traditional toys and games, taking market share from industry leaders Hasbro Inc. and Mattel. Nintendo controlled licensing and sales of all game cartridges so that it would not meet the same fate as Atari.

Sega Enterprises Co., Ltd., another Japanese company, challenged Nintendo in the United States during the early 1990s. In 1991 Sega introduced its Genesis system, and Nintendo responded with Super Nintendo. The battle continued throughout the 1990s with Sega launching a major market offensive with its high-performance, CD-based Saturn game system. During this period, a number of other companies entered the fray—most notably a U.S. company, 3DO Co., and the Japanese electronic giant Sony Corp. While Sony's PlayStation managed to establish itself in the market, 3DO's game player eventually fell by the wayside, largely as a result of being priced too high for the average consumer. In 1996 Nintendo struck back with the 64-bit Nintendo 64. Boasting high-resolution 3D graphics, Nintendo 64 delivered processing power exceeding that of many personal computers, and its eagerly awaited introduction led to long waiting lists, high-priced black marketing, and even theft. By the early 2000s, Nintendo was marketing its latest system, the powerful Nintendo GAMECUBE, which incorporated a 485 MHz processor and 40 megabytes of system memory. Sony's latest product, PlayStation 2, operated on a 294.912 MHz processor and 32 megabytes of memory.

Key Competitors

In the latter half of the 1990s, Mattel Inc. reigned as the world's largest toy maker, reaching $4.8 billion in sales in 2001. After Mattel built a strong alliance with Walt Disney Co., Mattel's president called its Disney-related products "the second cornerstone of our company"—its primary "cornerstone" was Barbie and Barbie-related products. Mattel also made an exclusive licensing agreement to produce toys based on Hanna-Barbera characters, such as Flintstones, Scooby Doo, Jet-sons, and Yogi Bear, as well as Harry Potter and Barney. Other principal Mattel brands include Fisher-Price, Hot Wheels, and Cabbage Patch Kids. Convinced that children everywhere like the same toys, the company has traditionally made little effort to modify its products for different markets. Instead, it attempts to design products with universal appeal and market them globally; this policy is succeeding since the company sells its toys in more than 150 countries with about half of its revenues coming from outside the United States.

Hasbro Inc., a small company in the early 1980s, became the largest U.S. toy manufacturer in 1985 by eschewing the video market and benefiting from widely popular products such as G.I. Joe, Transformers, and My Little Pony. In 1984, Hasbro bought the Milton Bradley company, the fourth largest company in the toy industry. With Milton Bradley came the rights to The Game of Life, Twister, and other solid-selling games. By 1988 Milton Bradley accounted for 20 percent of Hasbro's sales. Hasbro also acquired Coleco and Tonka just as each was headed for bankruptcy. Tonka had owned Kenner Products and Parker Brothers, so the acquisition of Tonka also brought a second most-famous game company into the Hasbro empire. Hasbro decided to leave the two separate divisions with their own identities. In the 1990s, Hasbro's position as the leading U.S. toy-maker was eclipsed by Mattel. Nevertheless, Hasbro finished a strong second with 2001 sales of $2.9 billion.

The sporting goods operations of Amer Group Plc of Finland encompass Wilson Sporting Goods Co., Atomic Austria GmbH, and Suunto Oy. Wilson is a leading producer of golf, racquet, and team sports equipment; the Atomic Group produces skiing equipment and in-line skates (under the Oxygen brand); and Suunto makes sports instruments. In February 1997, Amer completed the sale of its MacGregor Golf division. Amer's Wilson, based in Chicago, was founded in 1914 and is one of the oldest names in American sporting goods. In 2001 Amer's sporting goods operations generated an estimated $885 million. The rest of the company's $974 million in total sales came from cigarettes—Amer is Finland's largest cigarette company.

Spalding Sports Worldwide Inc. is one of the most famous names in sporting equipment. The company makes a complete line of golf and team sports equipment. Founded in the 1870s by Boston Red Stockings pitcher Albert Goodwill Spalding, the company grew from a small sporting goods store to a global manufacturer of sporting goods. The company claims a long list of firsts, including first Major League baseball (1876); first American-made football (1887); first official basketball (1894); and first American-made golf club (1894). In 2000 Spalding posted earnings of $20 million on sales of $409 million.


Industry Projections

Within the toy industry, the overall value of manufacturer shipments was declining in the late 1990s and early 2000s. Shipment values fell from $4.8 billion in 1997 to $3.9 billion in 2000. As the domestic market for toys becomes saturated, companies are looking to international markets for growth opportunities. The Toy Industry Association indicated that an increasing percentage of toy manufacturers' revenues will come from international markets throughout the 2000s.

During the 1990s, the sporting goods industry enjoyed a 4 percent annual growth rate. However, in 2001 the industry was affected by weak economic conditions, as well as the terrorist attacks against the United States that occurred in September. Because of this, industry sales declined for the first time in 10 years, dipping almost three percent. However, conditions were expected to improve in 2002.


Global Presence

International trade has been a major part of the toy industry and a significant influence on the sporting goods segment as well. By value, the United States imports more than twice the amount of toys that it manufactures, with an average of almost $13 billion in goods imported each year in the late 1990s and early 2000s. China is the leading source of U.S. imports—supplying more than half—followed by Japan and Mexico. Important external markets for U.S. toys and sporting goods include Canada, Japan, the United Kingdom, and Mexico. According to the Toy Industry Association, nearly 45 percent of global retail sales took place in North America in the early 2000s.


Employment in the Industry

The toys and sporting goods business is a moderatesized employer in the United States, with approximately 97,089 employees in 2000. Aggregate employment in the industry rose during the early 1990s. After peaking in 1995 at 117,600, the industry experienced modest declines. Production workers in the industry earned an average of just $10.30 per hour, which is lower than a typical U.S. manufacturing wage.


Sources for Further Study

2001-2002 toy industry fact book. new york: toy industry association inc, 2001. available at http://www.toy-tia.org.

annual survey of manufactures. washington, dc: u.s. department of commerce, economics and statistics administration, u.s. census bureau. february 2002.

levy, richard, and ronald o. weingartner. inside santa's workshop. new york: henry holt and company, 1990.

"recreational equipment." u.s. industry and trade outlook. new york: mcgraw-hill and u.s. department of commerce, 1998.

riddle, john. "state of the industry report." sporting goods manufacturers association, august 1998. available at http://www.sportlink.com.

stern, sydney ladensohn, and ted schoenhaus. toyland, the high-stakes game of the toy industry. chicago: contemporary books, 1990.

"u.s. sporting goods market outlook for 2002." sporting goods manufacturers association, 11 april 2002. available at http://www.sgma.com.

woo, elaine. "marketing genius created cultural icon in barbie." chicago tribune, 28 april 2002.

About this article

Industry Profiles: Toys and Sporting Goods

Updated About encyclopedia.com content Print Article Share Article

NEARBY TERMS

Industry Profiles: Toys and Sporting Goods