Hong Kong Toys & Games Fair 2007 Prepared for Hong Kong Trade Development Council January 2007
METHODOLOGY • Fieldwork period : January 7-9, 2007 • Target group : 402 exhibitors; 706 buyers • Data collection : Face-to-face interview at the Exhibition Venue
Composition of manufacturers’ business OBM: 54% ODM: 20% OEM: 25% Others: 1% EXHIBITORS’ PROFILE EQ A1-3, A5 Company Base Nature of Business Major Export Market % Others 7% Hong Kong 60% Europe Germany UK France Italy Spain Other Europe Americas US Canada Latin America Asia Pacific Chinese Mainland Japan Australia Hong Kong Other Asia Middle East Africa Wholesaler 6% Exporter/ Re-exporter 24% Manufacturer 63% Overseas 40% Respondents: 402 Exhibitors
BUYERS’ PROFILE BQ A1, A3 Nature of Business Company Base Independent Retailer 4% Importer 13% N. America 6% Europe 7% Hong Kong 42% Manufacturer 28% Asia Pacific (excl. PRC, Japan, HK) 19% Exporter/ Re-exporter 32% Others 4% Japan 2% Chinese Mainland 22% Wholesaler 13% Others 2% Commission Agent 3% Chain Store/ Department Store 3% Respondents: 706 Buyers
MAJOR MANUFACTURING/ TRADING & SOURCING ITEMS EQ A6/BQ A5 Buyers Exhibitors % % Baby toys & products Battery operated & electronic toys & games Educational toys & games Dolls & soft toys Outdoor & sporting items Hobby goods & collectible toys Paper toys (e.g. puzzle & board games, party items) Action figures Toys parts & accessories Die cast toys Candy toys Computer toys & games Others (each less than 1%) Respondents: 402 Exhibitors 706 Buyers
Exhibitors Buyers OUTLOOK OF OVERALL MARKET FOR 2007 EQ/BQ B1 % Better than 2006 Slightly better than 2006 Same as 2006 Slightly worse than 2006 Worse than 2006 Uncertain 67% [vs. 61% in 2006] 71% [vs. 60% in 2006] Respondents: 402 Exhibitors 706 Buyers * Denotes less than 0.5%
EXPECTED GROWTH IN OVERALL MARKET IN 2007 AS COMPARED WITH 2006 EQ/ BQ B2a,b Buyers Exhibitors % % More than 20% 16% - 20% 11% - 15% 6% - 10% 1% - 5% AVERAGE 12% 10% Respondents: Those who expect a better overall market prospect in 2007 270 498
REGIONS WITH BIGGEST GROWTH IN TOYS & GAMES RETAIL MARKET EQ B3 2005 % 40 52 58 14 Average Estimated Growth Rate in 2007 % 14 14 16 16 Exhibitors % Emerging markets (incl. Chinese Mainland, Southeast Asia, India, Russia, Central & Eastern Europe) US Western Europe Japan Others (each 6% or less) [ Chinese Mainland: 29% Eastern Europe (including Russia): 22% Central Europe: 12%] Respondents: 402 Exhibitors
Exhibitors Buyers FASTEST GROWING TOY CATEGORIES IN 2007 EQ/ BQ D1 Asia Pacific Chinese (excl. Chinese OverallN. AmericaEuropeJapanMainlandMainland, Japan, HK) % % % % % % Educational toys & games Computer toys & games Battery operated & electronic toys & games Baby toys & products Dolls & soft toys Outdoor & sporting items Hobby goods & collectible toys Action figures - - - - Respondents: 402 Exhibitors; 706 Buyers Exhibitors targeting respective markets (N. America: 138; Europe: 166; Japan: 19##; Chinese Mainland: 30#; Asia Pacific: 28##) Buyers targeting respective markets (N. America: 176; Europe: 189; Japan: 48#; Chinese Mainland : 70; Asia Pacific : 154) # Small base; ## Very small base
Exhibitors Buyers CONSUMER SEGMENT WITH HIGHEST GROWTH POTENTIAL IN TOYS MARKET EQ/ BQ D2 Asia Pacific Chinese (excl. Chinese OverallN. AmericaEuropeJapanMainlandMainland, Japan, HK) % % % % % % Birth to 3 years old Over 3 – 6 years old Over 6 – 10 years old Over 10 – 14 years old Over 14 – 17 years old Adults Seniors - - - - - - Respondents: 402 Exhibitors; 706 Buyers Exhibitors targeting respective markets (N. America: 138; Europe: 166; Japan: 19##; Chinese Mainland: 30#; Asia Pacific: 28##) Buyers targeting respective markets (N. America: 176; Europe: 189; Japan: 48#; Chinese Mainland : 70; Asia Pacific : 154) # Small base; ## Very small base * Denotes less than 0.5%
PERCEIVED MAJOR SELECTION CRITERIA OF CONSUMERS IN PURCHASING TOY PRODUCTS EQ/ BQ D3 Buyers Exhibitors % % Price Educational value Brand Safety Look and feel (e.g. colour, design, size) Excitement Durability Ease of use/ setting up Trend Products with professional recognition/ certification Respondents: 402 Exhibitors 706 Buyers
EDUCATIONAL TOYS – EXPECTED PERCENTAGE GROWTH IN 2007 EQ/ BQ D4 Asia Pacific Chinese (excl. Chinese OverallN. AmericaEuropeJapanMainlandMainland, Japan, HK) % % % % % % Respondents: 1,108 Exhibitors & Buyers Exhibitors & Buyers targeting respective markets (N. America: 314; Europe: 355; Japan: 67; Chinese Mainland: 100; Asia Pacific: 182)
Most popular types of educational toys in 2007 % Creativity related Logic & IQ related Language related Personality shaping & EQ related Music related Numbers & Mathematics related Science related Others (each less than 10%) Buyers Exhibitors MOST POPULAR TYPES AND RETAIL PRICE OF EDUCATIONAL TOYS IN 2007 EQ/ BQ D5-6 Most popular retail price range of education toys Exhibitors Buyers % % ≧US$ 31 US$ 21 – 30 US$ 11 – 20 ≦US$ 10 AVERAGE US$17 US$18 Respondents: 402 Exhibitors 706 Buyers
GROWTH POTENTIAL OF TOYS & GAMES MARKET FOR ADULTS IN 2007 EQ/ BQ D10 Buyers Exhibitors % % High growth potential Moderate growth potential The same Decline Respondents: 402 Exhibitors 706 Buyers
MOST POPULAR TOYS & GAMES PRODUCTS FOR ADULTS IN 2007 EQ/ BQ D11 Portable video games (e.g. PSP, NDS) (39%) TV/ computer/ internet games (37%) Electronic toys (e.g. remote control helicopters) (25%) Artificial intelligence/ robotic pets (e.g. AIBO, I-Pony) (21%) Hobbies and Collectibles (19%) Respondents: 1,108 Exhibitors & Buyers
PLACE WHERE CONSUMERS PURCHASE TOYS AND GAMES FOR ADULTS BQ D12 Buyers % Department stores Shopping malls Internet Retailers Toys outlets Auction sites on internet Superstores Others (each 3% or less) Respondents: 706 Buyers
4 5 MOST POPULAR LICENSED CHARACTERS IN 2007 EQ/ BQ D8 Disney characters (43%) (excluding Winnie the Pooh & Disney Princess) Winnie the Pooh (23%) Disney Princess (19%) Spiderman (16%) Hello Kitty (13%) Respondents: 1,108 Exhibitors & Buyers
PREMIUM CHARGED TO RETAIL PRICE OF LICENSED CHARACTER TOYS EQ/ BQ D9 Buyers Exhibitors % More than 40% 21 – 40% 11 – 20% 6 – 10% 1 - 5% No premium charged AVERAGE 29% 26% Respondents: 402 Exhibitors 706 Buyers
EXPECTED SHARE OF TOYS & GAMES WITH LICENSED CHARACTERS IN MAJOR MARKETS EQ/ BQ D7 Asia Pacific Chinese (excl. Chinese OverallN. AmericaEuropeJapanMainlandMainland, Japan, HK) % % % % % % 2005 (%) 15 13 13 23 19 19 Respondents: 1,108 Exhibitors & Buyers Exhibitors & Buyers targeting respective markets (N. America: 314; Europe: 355; Japan: 67; Chinese Mainland: 100; Asia Pacific: 182)
Change of production cost due to the increase in price of main production material % Production cost increased Production cost has not changed MAIN PRODUCTION MATERIALS EQ C1-2 Exhibitors Cloth 3% Paper 3% Others 10% Metal Alloy 8% Plastic 76% Respondents: 255 Manufacturers
Measures taken to comply with new regulations and practices % Used environmental friendly packaging Adopted green product design Applied green labels to the products Changed the product design to ensure product safety Improved factory safety condition Replaced chemical substance to ensure product safety Better managed/ selected suppliers to ensure compliance with the regulations Provided staff training and education Highlighted the green attributes of the product in marketing Improved labour condition Adopted green manufacturing processes/ facilities Respondents: 313 Exhibitors who complied with new regulations and practices MEASURES TAKEN TO COMPLY WITH NEW REGULATIONS AND PRACTICES EQ C3-4 Exhibitors New regulations and practices complied with % • Taken measures to comply with new regulations and practices • RoHS • EN71 – Part 9 • WEEE • The CARE Process • Did not comply with new regulations and practices • Not aware of the new regulations and practices Respondents: 402 Exhibitors
Strategies to offset the effects of increased production cost % Discuss with buyers the possibility of sharing the increased cost Modify the design of existing product lines to lower production cost Develop new product lines with lower production cost Sell more products with lower production cost to offset the loss from the high cost items Discontinue partnerships with buyers who are not willing to absorb some of the cost Discontinue product lines with negative margin Others (each 5% or less) No strategies currently undertaken EFFECT OF THE NEW REGULATIONS AND PRACTICES ON PRODUCTION COST EQ C5-6 Exhibitors Change of production cost due to the new regulations and practices % Average increase in production cost: 14% Production cost increased Production cost has not changed Respondents: 313 Exhibitors who complied with new regulations and practices
REACTION OF BUYERS ON THE NEW REGULATIONS AND PRACTICES BQ E1-2 Buyers % willing to pay more for products complying with new regulations & practices Strategies to deal with the increased prices of products % Share part of the cost with manufacturers for better quality products Transfer the cost to consumers Source new product lines with lower sourcing prices Source from different suppliers who can offer lower sourcing prices Source more products with lower sourcing prices to offset loss from the high cost items Target higher-end markets with higher purchasing power Others (each less than 1%) Company has not been affected/ Not aware of the new regulations and practices No specific actions currently taken % Average % willing to pay: 8.7% More than 10% 6-10% 1-5% Not willing to pay a premium Respondents: 706 Buyers
COMPLYING WITH NEW REGULATIONS & PRACTICES WOULD ENHANCE COMPETITIVENESS EQ C7 Exhibitors Yes 79% No 21% Respondents: 381 Exhibitors who are aware of the new regulations and practices
SOURCING PATTERN (2006 VS. 2005) BQ C2a-d Buyers Number of Quantity Orderof Each OrderUnit PriceLead Time % [Mean: 18%] [Mean: 15%] [Mean: 14%] [Mean: 11%] INCREASED DECREASED Respondents: 706 Buyers
DISTRIBUTION OF BUYERS’ PROCUREMENT FROM RESPECTIVE MANUFACTURERS BQ C1a Buyers OBM 34% ODM 28% OEM 33% Others 5% Respondents: 706 Buyers
PREMIUM FOR BRANDED TOYS EQ A4/ BQ C1b Buyers Exhibitors % More than 30% 21-30% 11-20% 6-10% 1-5% Not willing to pay a premium Average: 28% 31% Respondents: 402 Exhibitors 706 Buyers
PREFERRED REGIONS/ COUNTRIES FOR NEW SUPPLIERS EQ E3/ BQ C3 Buyers % Southern China & Hong Kong Shanghai and its neighboring provinces Rest of the Chinese Mainland Southeast Asia Taiwan Japan and South Korea US and Canada Western Europe Russia, Central & Eastern Europe Latin America Others (each less than 2%) Respondents: 706 Buyers
SUMMARY - I MARKET OUTLOOK • Both exhibitors and buyers are very optimistic about the market prospect. • About 70% of them expect a better market outlook in 2007 (vs. around 60% in 2006). • Among those who anticipate a positive market growth in 2007, majority expect an increase of 6% or above. • Exhibitors anticipate that the highest growth would be in emerging markets (65%), particularly the Chinese Mainland (29%) and Eastern Europe (22%). Growth in mature markets like US (35%) and Western Europe (25%) is less prominent.
SUMMARY - II PRODUCT & MARKET TRENDS • “Computer Toys & Games”, “Battery Operated & Electronic Toys & Games” and “Educational Toys & Games” are regarded as the three categories with the fastest growth in 2007. • Consumers aged 6 to 10 are the key segment driving the growth across different markets. The adult segment would also contribute to the growth in Japan, the Chinese Mainland and other Asia Pacific countries. • Besides price, educational value, brand and safety are the other major selection criteria for purchasing toy products. • Educational Toys • Positive growth potential is expected for educational toys, as traders are anticipating a growth rate of over 10% across different markets. • Creativity, logic & IQ and language related educational toys are seen as more popular.
SUMMARY - III PRODUCT & MARKET TRENDS • Toys and Games for Adults • Over 70% of the traders anticipate a moderate to high growth potential in the adult toys and games market. • Portable video games and TV/computer/internet games are the most popular for adults. • Consumers usually purchase toys and games for adults from department stores and shopping malls. • Licensed Characters • Characters from the Disney family are still the most popular, followed by Spiderman and Hello Kitty. • Both exhibitors and buyers think that around 25% premium can be charged to the retail price of licensed character toys. • Traders expect that licensed characters would represent over 20% of their export/import in major markets.
SUMMARY - IV INDUSTRY TREND • 95% of the manufacturers experienced an increase in production cost due to the increase in price of the main production material used. • Most exhibitors (78%) are complying with new regulations & practices (e.g. RoHS, EN71-Part 9) in their production process. They think that this would enhance their competitiveness. Measures commonly taken include using environmental friendly packaging, green product design and labeling. • Exhibitors who complied with these regulations generally agree that production cost would increase as a result. Besides modifying the design of current product lines to lower the cost, they would also discuss with buyers the possibility of sharing the increased cost. • Majority (90%) of the buyers are willing to pay more for products complying with these regulations & practices. Buyers would take various actions to deal with the increased prices, including sharing the cost with manufacturers, transferring the cost to consumers, and sourcing new product lines with lower sourcing prices.
SUMMARY - V SOURCING PRACTICES • It is encouraging to learn from buyers that the number of orders and quantity per order are substantially higher in 2006 as compared with 2005, yet allowing an increase in sourcing price and lead time. • Almost all traders believe that a premium can be charged to branded toys. Most think that a premium of at least 11% can be imposed. • Buyers prefer sourcing products from Hong Kong/ Southern China, followed by other regions in the Chinese Mainland.