NOTE: This article was written in August for Kidscreen‘s October/November 2022 magazine issue. Today is Black Friday in the US and Canada, and by most accounts, the outlook remains the same—with toys expected to be the most resilient retail category of the holiday season. Sales are expected to be down over last year, but analysts continue to note that 2021 sales were unusually high, making 2022’s outlook within the realm of normal. 

With inflation at a 40-year high and US toy sales growth slowing in 2022, one might expect the category to be heading into choppy waters for the holiday season and beyond.

At first glance, the data doesn’t look promising. The first six months of the year saw US toy sales increase by only 2%, while unit sales declined by 6%. But that’s not the whole story, says Juli Lennett, SVP and industry advisor for toys at the NPD Group.

“We’ve had two record-breaking years of US toy sales,” says Lennett, citing back-to-back increases of 18% in 2020 and 20% in 2021. “When you factor that in, we’re still well ahead of pre-pandemic times.”

Toys are a particularly resilient category, notes Steve Pasierb, president and CEO of The Toy Association. “The average spend per child in North America doesn’t really change much, inflation- or recession-wise. What changes is what parents buy for their kids.”

NPD found that while there have been some declines so far this year in the 11 toy “super-categories” it tracks, six of these have posted double-digit growth rates since 2019, with explorative & other toys (26%), plush (25%) and games & puzzles (20%) leading the way.

Behind the numbers, the 26% bump in explorative & other toys was fuelled by sports trading card launches; building sets were up 8%, thanks to LEGO; and the return of summer blockbusters such as Jurassic World: Dominion and Sonic the Hedgehog 2 fuelled action figure sales. Meanwhile, Jazwares juggernaut Squishmallows continues to keep the plush category fluffy, contributing seven of the top 15 best-selling toys for the period and playing a significant role in the category’s growth (along with Disney and Moose Toys’ Magic Mixies line).

The number of growth categories is notable because prices have increased year over year since 2019. The average price of a toy currently sits at US$11.30—representing an 8% annual increase (which pales in comparison to a 19% price jump in 2020) due to higher supply chain costs. And this year’s unit decline is likely related to the higher average price per toy, notes NPD’s Lennett.

Market leaders Mattel and Hasbro both raised toy prices in 2022 to combat higher costs, but each posted a strong first-half nonetheless. Mattel went so far as to announce more planned price increases to counter rising raw material, freight and labor costs, and Lennett says prices will undoubtedly keep rising as long as inflation is in play.

“If inflation continues, I suspect that manufacturers are going to have to pass on those increases to their customers, and retailers are going to pass them on to consumers,” she says.

However, that doesn’t concern Pasierb, who reiterates that what parents buy may change, but how much they spend remains relatively stable. He says the average toy spend per child in the US was US$366 in 2021—the highest in the world—followed by Europe at US$222 and Asia at US$35. And he expects household toy spend to remain status quo.

“Inflation is softening. The pricing gap is coming down. Those are all good signs,” he says. “Supply isn’t an issue with the ports, [and] as long as gas prices keep coming down and inflation doesn’t take off again, families are probably going to spend on their kids.”

That said, price sensitivity is a concern. In the Q2 report it released in mid-August, Walmart pointed to consumers leaning more heavily on sales and clearance racks outside of the grocery aisle—a trend that affected its quarterly consolidated gross profits.

Three weeks later, the retailer announced a new category of “under US$25” toys in its annual toy list and an increase in the number of its branded “Rollbacks” on holiday toys.

It’s a change in consumer spending habits that is likely to put pressure on both man- ufacturers and retailers, notes Lennett. ”I imagine they’ll be looking to figure out how to cut costs as much as they can, because we do have psychological purchase price-points of toys at US$9.99.”

The pricing pressure is a trend Walmart CFO John Rainey pointed to in the retailer’s Q2 investors call, saying the company has seen an increase in consumer interest in lower-priced items. “We’ll continue to manage pricing for customers in a way that preserves our price gaps and allows us to earn market share profitably,” said Rainey.

The pressures are also likely to continue on the supply side. It’s an issue The Toy Association is working on with its members, specifically to diversify the supply chain and reduce China’s dominance in the sector, says Pasierb.

“Companies around the world are looking to get their manufacturing closer to the customer,” he says. “Mexico is actually growing in importance, [and] some companies are manufacturing in Europe.”

Pasierb sees speed to market and supply chain diversification as probably the biggest issues the toy industry will face over the next couple of years, along with environmental sustainability. “Consumers don’t want as much packaging, and they want to make sure that things are recyclable.”

As for the holiday season ahead, NPD’s US toy industry report highlighted one other key insight—how place influences spend.

“Consumers are making fewer trips to buy toys, and buying fewer toys per trip, but [they] are spending more money,” Lennett notes. “Whereas, in the online channel, consumers are making more trips and buying more toys per trip—resulting in stronger growth in the online channel.”

It’s a trend with the potential to influence toy rollouts: Will higher-priced premium items command more shelf space, leaving competitively priced items to duke it out online in an algorithm-fuelled battle for SEO dominance?

Only time—and more data—will tell.