THE ART OF TOY CLEARANCE
The single biggest cost for toy companies is manufacturing costs. Depending on the business model, toy manufacturing companies tend to spend between 25% (if you’re very lucky/very good!) and 35% more commonly on product manufacturing costs. This represents a huge amount of money invested on an ongoing basis by toy companies.
As an industry we have a tendency/bad habit of churning out new product releases with often little due diligence beyond asking a retailer if they will list it! This completely misses one major factor in the sales process – the end consumer. While we may TV advertise the heck out of a product, and the target consumer may therefore be aware of it, that doesn’t mean they want it or desire it. For once I won’t do a major plug for consumer research/playtesting as a way to reduce product launch risk (!), because this article instead will look at how to handle toy overstocks.
If you ask any toy expert “who makes the most money in toys?”, the answer could well be clearance dealers! There is a whole shadow infrastructure set up around dealing with those products that just didn’t work. Toy companies can’t afford to have 25% to 35% of their turnover sat around in warehouses tying up essential cash. So those companies which enjoy long term success are typically very efficient at cutting off the gangrenous limb of excess toy inventory. In fact, the major toy companies tend to have monthly, quarterly & year end stock targets identifying maximum allowed percentage of sales value to be held in stock at any one time, which sometimes lead to even good selling toys being closed out in order to hit stock holding targets. The bonus formula for senior management often includes stock holding targets. For those less corporate companies the program may be more ad hoc, as will the product selection criteria, so a good clearance program is perhaps even more essential.
There is as much of an art though in effective toy clearance as there is in good toy sales. There are plenty of ways to really screw up your good business by clearing out stock to the wrong channels or to the kind of people who will sell it without discretion often to the wrong markets or wrong customers. The past decade or so has seen much change in terms of retail, and the global financial crisis has to a degree by default restructured the market & encouraged discount/clearance channels in retail. Some companies now have full time account managers managing the clearance channels for incremental revenue & to ensure maximum return/lack of disruption from toy clearance activities.
The trick, or the art, in making toy closeouts work effectively is selling to the right people/companies. Reputation is everything in this space, so selling to any old tom, dick or harry is risky, even if there’s an extra 5 cents per unit in it.
We’ve carefully vetted toy clearance companies and have an approved list. If you need help with your clearance program, please feel free to get in touch.
by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com, a leading Consultancy to toy companies and entertainment brands around the world.