With sluggish sales on several movie-licensed toys, as well as a somewhat lighter schedule of toyetic films slated for release this year, retailers are said to be taking a more conservative approach for 2018 and planning to stock their shelves with fewer brands, but deeper assortments within those brands, say industry executives.

And while retail toy buyers have adopted this strategy in the past, most notably following the 2008 U.S. financial crisis, the current trend may have staying power, say the executives. That’s due to some bets on new non-theatrical properties not paying off in 2017 and more-established IP failing to meet the success of previous years. There also were more than 20 major films released last year with toy licensing programs, nearly double the amount of decade earlier, they say.

The (somewhat) ratcheting back of big movie-based programs should give an industry that suffered from license fatigue – sales slowed in late 2017, according to Stifel Nicolaus & Co.’s analyst Drew Crum – a breather. It’s been reported that even sales of toys related to Star Wars: The Last Jedi didn’t perform as well as those licensed from Rogue One a year earlier.

The hangover from 2017 and new the strategy being adopted for this year “isn’t a cycle we are going to come out of and it might have more staying power this time” given the restructuring underway at retail, says American Greetings’ Janice Ross. “But retailers’ response isn’t something we didn’t expect.” So many in the industry are looking for alternatives. For example, faced with the ever-increasing competition for space in the toy aisle, American Greetings licensee Kidrobot has been able to secure space at the front of Target stores for its Madballs products, says Ross.

Yet many of major retailers have told licensees they will carry narrower assortment this year. And Toys R Us is restructuring in the aftermath its bankruptcy last September. Many of the licensees we polled said Toys R Us largely has been restored to standard buying terms. But the retailer announced last week that it plans to close at least 175 stores (a mixture of Toys R Us, Babies R Us and combo locations). That came after it posted a 9% decline in U.S. brick-and-mortar sales last year and a 20% drop in online sales reported the news site Northjersey.com, citing numbers it said were released at a staff meeting. Overall, total U.S. toy retail sales increased 1% in 2017 to $20.7 billion, while global revenue also rose 1% to $43.7 billion, reports The NPD Group. That final result was off significantly from NPD’s mid-year projection that U.S. toy sales would grow 4.5%. (Inside Licensing Jan. 25).

“I do not believe that holiday 2017 is the new normal for our business,” Toys R Us CEO Dave Brandon wrote in a memo to employees obtained by Northjersey.com. “However, it is clear that we must take aggressive action to emerge from bankruptcy before the next holiday season.” A Toys R Us spokesman declined to comment.

In dealing with the tighter shelf space at many retailers, licensees and licensors are considering, in some cases, looking more toward direct-to-consumer sales and bolstering their e-commerce business to offset any loss of brick-and-mortar shelf space and revenue.

Licensees also have been using ecommerce to help bolster their case for having a new property carried on retail shelves. Some licensees we spoke with say they’re willing to take on a new property that hasn’t yet proven itself strictly for online distribution channels (with a resulting lower guarantee) to gather sales data that would make a case for broader brick-and-mortar distribution.

TCG Toys will launch 4-6 puzzles and 2-3 games based on author Dick Bruno’s Miffy that was re-launched in 2016 as part of “Miffy’s Adventures Big and Small” on Nick Jr. “Miffy is one of those properties that will live in the world of dot com,” says TCG’s Jessica Gavin. “Retailers are being more conservative and narrowing their focus to things they know and have seen work. Miffy isn’t part of that world for them yet, and there has been less of an appetite” to test the property in brick-and-mortar. “We will test the waters with some basic products and roll out from there.”

In a hedge against the ever-changing market, licensees also are also deploying properties into new distribution channels. And licensees are trying their hand at developing programming based on toy lines for which they control licensing rights:

• Make It Real is readying 3-5 Juicy Couture-licensed jewelry kits that can be assembled into lockets, bracelets and chains using charm packaged with them. That license is aimed at pre-teen girls (and millennial parents), whereas the other licenses in the line – Disney and Nickelodeon – target age groups from preschool – 8. It also has helped move the line into new distribution, such as department stores in the UK (Harrods and Beales), and big box specialists in the U.S. such as Toys R Us, HomeGoods and Joanne Fabric and Crafts Stores in the U.S. will add the line, the latter two in 100-store tests, says Make it Real’s Isaac Wolman.

• TCG Toys is developing a line of games and puzzles as part of licensing agreement with romance novelist Deborah Macomber that the company hoped will gain shelf space in the grocery and drug store chains that have been a staple of the novelist’s book sales, says Gavin. It will introduce a 1,000-piece “inspired-by” puzzle later this year and several puzzles will be packaged with Macomber’s books as part of seasonal promotions, says Gavin.

• Funrise is co-producing its first animation series with Saban Brands based on its “Rainbow Butterfly Unicorn Kitty” brand. The series – 52, 11-minute episodes –is being developed for TV and is expected to air this fall. Funrise will field playsets, plush, figures and dress-up and Saban will seek to license out the brand for other categories. “We are still focused on the toy business and selling them to kids, but we look at content as a way to engage kids in the brands,” says Funrise’s Randy Shoemaker. Funrise also is the master toy licensee for Belarus-based Digital Light Studio’s “Sunny Bunnies,” which got its start on YouTube as a series of three minute episodes before Disney it picked up on Disney Junior for U.S. distribution. “We have to look more now than ever at how we can be different and focus on where kids are consuming content” rather than relying solely on TV and film properties, says Shoemaker.

• American Greetings’ “Buddy Thunderstruck” launched on Netflix last March, but there’s minimal licensing. Funko introduced vinyl figures last summer, but American Greetings is holding off on additional licensing until the series gets approval for a second season, says Ross. “We won’t license additional products until we see where we are going with additional content,” says Ross.

“Those kinds of kids shows are taking longer to catch fire and I don’t want to over-license the brand and do anything that wouldn’t work well out of the gate,” says Ross. “Given the environment, you have to let your products seed a little longer in the market before you make your pitch to retailers and licensees.”

Contacts:

American Greetings, Janice Ross, Head of Global Licensing, 310-426-8608, jross@ag.com

Funrise, Randy Shoemaker, SVP Global Brand Marketing, 818- 883-2400, randyShoemaker@funrise.com

Kid Robot, Margot Stern, Marketing and Product Dir., 303-217-9400, mstern@kidrobot.com

Make It Real, Isaac Wolman, CEO, 410-980-5463, jwolman@makeitrealtoys

Saban Entertainment, Jennifer Wexler, SVP Global Brand Strategy and Marketing, 310-557-5230, jwexler@sabanbrands.com

TCG Toys, Jessica Gavin, VP Marketing and Licensing, 416-746-3388 x360, jgavin@tcgtoys.com

Toys R Us, David Brandon, CEO, 973-917-5900, dave.brandon@toyrus.com