Cracking the Chinese toy market

Hong Kong — Like so much else here, the Chinese toy market is coming of age, but it already looks very different from the North American and European markets.

First, there's huge potential, something that was clearly on the minds of the 49,000 attendees and 2,100 companies at the Hong Kong Toys and Games Fair in early January.

Toy sales in China have leaped from 89.7 billion yuan ($13.9 billion) in 2011 to 232.2 billion yuan ($36 billion) in 2016, according to London-based Euromonitor International.

By 2022, China is expected to eclipse the United States as the world's biggest toy market, the market research firm predicts.

The growth is fueled by rising incomes up and down the economic ladder and middle-class parents seeking higher-priced, higher-quality items for their children, according to Fiducia Management Consultants.

"Buying habits are very different in China," said Director Ben Yam of Hong Kong's Dynamic Scientific Ltd., which makes binoculars and telescopes under the Kon Tiki brand, along with toys for other companies.

To meet this growing market, Hong Kong toymakers are being pushed to get out of their comfort zone.

From her bully pulpit as chair of the Hong Kong Toy Council, longtime toy executive Emily Cheung is at the forefront of an effort to get local companies to design and market their own brands for the Hong Kong and mainland markets.

"I tell our members, as Chinese, you have a good sense of the market," Cheung said, noting that "in America, homes are bigger, so they can have bigger toys. In China, parents want smaller, more multifunction toys."

Beijing is also upping its spending on early childhood and kindergarten education. According to Cheung, who is executive director of Hong Kong-based plastic toy maker Tsuen Lee Group (Holdings) Inc., that broadens potential markets.

"We can target the educational market as well as the consumer market," she said.

A few firms have taken up Cheung's challenge. For example, Rico (HK) International Trading Co. Ltd. makes B. Duck-brand rubber duck toys for infants and toddlers, while Shantou Jiabele Baby Products Co. Ltd. has launched a line of robotic dancing dinosaurs.

Still, in three days of interviews at the fair, held Jan. 8-11, one got the sense that most toymakers are sticking with their tried-and-true strategy as manufacturers for big Western brands.

Cheung said Tsuen Lee Group has developed in-house brands, including Zipes race-car systems and a series of coin banks and other items based on Hong Kong's iconic minibuses. But it also targets Chinese customers with licenses from Marvel, Barbie and Thomas the Tank Engine.

In a breakout session at the fair, industry veteran Richard Gottlieb, CEO of New York consultancy Global Toy Experts, told listeners that to target the Chinese market, designers "are going to have to think, not American, but global."

He said some Western firms have proven adept at that, arguing that Disney/Pixar is at the forefront, tapping both the China and global markets most recently with the movie "Coco," which was a big hit in China.

Online sales now make up 18 percent of all toy and game sales in China and is expected to grow by 20 percent annually through 2022, Fiducia predicts.

These sales are fueling a demand for lightning-fast delivery. In fact, speed-to-market will challenge price as a competitive edge, Gottlieb said. "We're seeing the globalization of the New York minute," he said.

Still, even though toy exports are up — Fiducia reports China's toy exports leaped 18 percent in 2016 — none of the Chinese companies interviewed evinced plans to move production across the Pacific or even to cheaper countries in southeast Asia.

Within the industry, buyers are relying more on online marketplaces.

"Potential customers are looking online at Alibaba rather than coming to our show," said Alex Wong, sales manager at Shantou-based Wange Educational Material Sci-Tech Co. Ltd., which sells educational toys under the Wange, Dr. Luck and Dubie brands.

Safety, a prime concern of parents everywhere, has special resonance in China. Ten years ago, milk and infant formula tainted with melamine sickened 300,000 babies and killed at least six.

It's hardly surprising that in a survey by fair sponsor Hong Kong Trade Development Council, mainland toy buyers listed the absence of hazardous chemicals and a high level of product safety as top concerns.

London-based Thinkplay Ltd. capitalizes on those concerns by making its Morphun-brand interlocking blocks and gears in Europe.

"We manufacture in Poland. It's close [to England] and they speak English, so I can be sure of good quality control," said Managing Director Colin Simonds.

Because the factory is highly automated, manufacturing there costs only slightly more than it would in China, he said, and shipping a container from Hamburg to Shanghai is much cheaper than from Shanghai to Hamburg.

"Americans very much have a value culture. In Europe and Asia, they have brand cultures. They want known brands," said Simonds, who in 2001 gave up a button-down career as an accountant to pursue a lifelong dream to "design things."

As well, the end of China's one-child policy in 2016 is also expected to start driving demand, producing 2 million extra births every year, Fiducia estimates.

One area in which China lags is in Star Wars collectibles and other toys for adults. It's a huge business in the United States, where toys for grown-up kids make up more than 40 percent of the market, and Japan, where more than four out of five adults have their own toys.

In sharp contrast, 99 percent of the Chinese toy market is geared to children, according to HKTDC.