Li & Fung

Behind the toy story

PUBLISHED : Friday, 02 March, 2007, 12:00am
UPDATED : Friday, 02 March, 2007, 12:00am

ANYONE STEPPING INTO a toy store enters a world of imagination and excitement, but also an environment which has been planned down to the smallest detail by sales and marketing experts.

They come up with unique strategies to attract customers and get them to spend.

Members of the same team will have been involved throughout the product cycle of every toy, visiting factories, meeting vendors and using their market knowledge and instincts to determine what will sell best.

According to Pieter Schats, chief executive of Toys LiFung (Asia), which operates the Toys 'R' Us franchise in Asia, the product cycle usually begins at a toy fair more than a year before the actual product launch. There, manufacturers and vendors show prototypes and take pre-orders.

In the next few months they make the moulds, while completing their market research and cost analyses. Once orders are confirmed, they then gear up production and work towards specific shipment dates.

Throughout all this, seasonality and timing are constant considerations. Retailers and manufacturers have to co-operate closely to ensure that toys tie in with the release of a blockbuster movie or for the Christmas shopping season. Sales, profits and advertising campaigns all depend on this.

Some smaller stores with limited budgets rely more on staff training and customer loyalty to generate sales.

'We provide good service, good products and rely on word of mouth,' said Irene Tsui, owner of Little Beetles, which specialises in educational toys.

Overall, the most successful strategies for reaching parents and their children tend to be more hands-on. One sure-fire winner is laying on photo opportunities with popular costumed characters.

'It's about bringing the product to life,' said Arga Sen, head of marketing and customer relationship management at Toys LiFung (Asia), which saw a 10 per cent increase in same store sales last Christmas. Creative marketers also invent contests and plan product demonstrations that allow children to try out the latest toys. Some retailers have also introduced loyalty card programmes, which help to track purchases and create customer profiles.

With this information, a store can implement targeted direct mail or e-mail promotional offers. 'Our database is of enormous value to us,' said Mr Sen, whose Toys 'R' Us card programme has 600,000 members in five countries.

'It records pretty much everything that we can slice and dice any way we may need. It drives half our sales in any market we're in.'

Having the exclusive rights to certain products can also give a significant boost to sales. It is an important factor in attracting customers and, therefore, many retailers demand exclusivity from their vendors.

'We try to find vendors that no one has seen or heard of,' said Mr Schats, who noted that such a strategy was necessary when many types of toys were available in local street markets.

As for any retail operation, location is important in driving sales. In the case of Little Beetles, the only toy store in Times Square, traffic increased 20 to 30 per cent when other children's stores on their floor moved out, and customers had only one choice for toys when they were in the building.

Having an upmarket location obviously has a bearing on pricing and profitability.

Although Ms Tsui holds the exclusive franchise for German educational toy vendor Haba, she said she realised that lower-priced items were also needed to drive business growth.

'To survive in the retail industry, I need more for the mass market,' said Ms Tsui, whose gross profit margin is between 50 and 55 per cent.

Toys 'R' Us also sees a need for more products priced in the HK$10 to HK$50 range. They call these 'impulse buys' or, seen through the eyes of parents with children, 'shut up' or 'pick me up' toys, said Mr Schats.

Of course, retailers don't always get it right, although sometimes the problems are beyond their control. For example, there was a lot of hype and anticipation before the latest Batman movie was released, but related sales failed to meet expectations, mainly because the movie was unsuitable for children.

'Kids couldn't relate to it. We could do nothing,' Mr Schats said.

Left with Batmobiles he couldn't sell, the only way out was to negotiate discounts with the vendor to shift the merchandise.

At other times, movies have created more interest than expected, catching suppliers off guard.

'It's all about taking advantage of the cycle and not being caught short,' Mr Sen said, adding that this year's hopes for a surge in sales were heavily dependent on the upcoming Spiderman III and Transformers movies.




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