Toy and sporting good manufacturing in australia industry report
Behind the eight ball: The industry is strugglingto remain competitive against importsIBISWorld Industry Report C2942Toy and Sporting GoodManufacturing in AustraliaMay 2011 Claudia Burgio-Ficca2 About this Industry 13 Major Markets 25 Revenue Volatility2 Industry Definition 14 International Trade 26 Regulation & Policy2 Main Activities 15 Business Locations 26 Industry Assistance2 Similar Industries2 Additional Resources 17 Competitive Landscape 28 Key Statistics 17 Market Share Concentration 28 Industry Data3 Industry at a Glance 17 Key Success Factors 28 Annual Change 17 Cost Structure Benchmarks 28 Key Ratios4 Industry Performance 18 Basis of Competition4 Executive Summary 19 Barriers to Entry 29 Jargon & Glossary4 Key External Drivers 20 Industry Globalisation5 Current Performance7 Industry Outlook 21 Major Companies9 Industry Life Cycle 21 Pacific Brands Limited 22 Rip Curl Group Pty Ltd11 Products & Markets11 Supply Chain 24 Operating Conditions11 Products & Services 24 Capital Intensity12 Demand Determinants 25 Technology & Systemswww.ibisworld.com.au | (03) 9655 3881 | firstname.lastname@example.org
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 2About this IndustryIndustry Definition Operators in this industry manufacture of and sporting good manufacturers buy sporting equipment (except vehicles, raw materials, design samples, undertake clothing or footwear) and toys made from production and then market the finished all materials except fur and leather. Toy goods to wholesalers and retailers.Main Activities The primary activities of this industry are Archery equipment manufacturing Canoe manufacturing Cricket set manufacturing Hang-glider manufacturing Fishing tackle manufacturing Rucksack manufacturing Skateboard manufacturing Surfboard manufacturing Toy manufacturing Tricycle manufacturing The major products and services in this industry are Sporting goods ToysSimilar Industries C2221 Textile Product Manufacturing in Australia Manufacturers in this industry produce sails, tents and sleeping bags. C2822 Boatbuilding in Australia Operators in this industry manufacture dinghies and small boats other than canoes and sailboards. C2260 Leather and Leather Substitute Product Manufacturing in Australia Businesses in this industry manufacture toys made of fur or leather.Additional Resources For additional information on this industry www.abs.gov.au Australian Bureau of Statistics www.aigroup.com.au Australian Industry Group www.pc.gov.au Productivity Commission
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 3Industry at a GlanceToy and Sporting Good Manufacturing in 2011Key Statistics Revenue Annual Growth 06-11 Annual Growth 11-16Snapshot $521.0m -3.7% -1.5% Profit Exports Businesses $36.5m $132.0m 1,100 Revenue vs. employment growth Sport participationMarket SharePacific Brands 5 3.4Limited 14.0% 0 3.0Rip Curl Group PtyLtd 9.5% % change Units −5 2.6 −10 2.2 −15 1.8 Year 03 05 07 09 11 13 15 17 Year 02 04 06 08 10 12 14 16 Revenue Employment SOURCE: WWW.IBISWORLD.COM.AU p. 21 Business locationsKey External Drivers 3% 1% 0.5%Sport participation 4.5% TAS ACT NT SANumber of primary 9%school students WA 40% NSWReal householddisposable incomeTrade-weighted index 17% VIC p. 4 25% SOURCE: WWW.IBISWORLD.COM.AU QLD SOURCE: WWW.IBISWORLD.COM.AUIndustry Structure Life Cycle Stage Decline Regulation Level Medium Revenue Volatility Low Technology Change Low Capital Intensity Medium Barriers to Entry Medium Industry Assistance Low Industry Globalisation High Concentration Level Low Competition Level High For additional statistics and time series see the appendix on page 28
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 4Industry PerformanceExecutive Summary | Key External Drivers | Current PerformanceIndustry Outlook | Life Cycle StageExecutive Toy and sporting good manufacturers this industry competed with homework,Summary encountered more snakes than ladders reading, outdoor play, movies, radio, TV over the past five years, with revenue and music. However, changing falling 3.7% per annum. Fuelling the technology and innovation resulted in contraction was an influx of imported increased competition and the industry goods, which affected the price now competes against electronic goods competitiveness of domestically like DVDs and MP3 players. produced merchandise, slashed product Industry revenue will decline 2.5% to margins and led to a decline in $521.0 million in 2010-11. The decline in profitability. Sales volumes were also sales will reflect the tough trading influenced by trends in real household landscape facing industry operators disposable income, sport participation during the year. A rise in the Australian rates, the number of primary school exchange rate will make imported goods students (the target market for industry more affordable for domestic operators, manufacturers) and exchange rate but new orders will suffer due to weak fluctuations. demand at the retail level. Demand will This industry is highly seasonal, with also be affected by a modest rise in the consumers making a large proportion of number of primary school students and toy purchases during the traditional sport participation. holiday season (i.e. Christmas). These The industry’s revenue is expected to seasonal purchasing patterns heighten fall 1.5% per annum over the five years the risk industry participants face through 2015-16 to reach $483.1 million. whereby an under or overproduction of Over the period, sales will continue to be products leads to production volumes not influenced by increasing import matching consumer demand. competition and fluctuating exchange Additionally, as retailers manage their rates. Revenue will also continue to be inventories, the industry receives cyclical affected by other factors like disposable ordering patterns for products and income levels, sport participation rates product lines that may lead to varied and trends in the number of primary sales from period to period. Traditionally, school students.Key External Drivers Sport participation sports). The number of primary school Sport participation affects demand for students will increase over 2010-11 due to specific types of sporting goods. For a rise in the birth rate. individuals, sport participation for many sports declines as people age. Sport Real household disposable income participation will increase over 2010-11 The level and growth in household due to the growing importance of general disposable income affects demand for fitness and health among Australian industry products. As income rises, consumers. This is a potential consumers are able to purchase more opportunity for manufacturers to boost expensive goods or increase the quantity their new orders following increased of purchases. Alternatively, a fall in demand at the retail level. income causes consumers to constrain discretionary spending. Real household Number of primary school students disposable income will increase over Toys are principally purchased for very 2010-11 due to falling unemployment and young children. Sport participation is a rise in wages. minimal among very young children and then is high up to early adult years. It Trade-weighted index then typically declines as people reach an Price is an important base of competition, older age (although this varies between and the value of the Australian dollar
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 5Industry PerformanceKey External Drivers affects the cost of imported goods. decrease the interest rate differentialcontinued Manufacturers in this industry purchase with Australian and hence reduce many input materials from overseas, demand for the Australian dollar. This is thus, a rise in the index makes inputs a potential threat to the industry, as it more affordable. The trade-weighted will increase the cost of imported inputs index will decrease over 2010-11, as a for manufacturers. recovery across global markets will Sport participation Number of primary school students 4.00 2200 2150 3.50 2100 3.00 2050 Units 000 2.50 2000 1950 2.00 1900 1.50 1850 Year 02 04 06 08 10 12 14 16 Year 01 03 05 07 09 11 13 15 SOURCE: WWW.IBISWORLD.COM.AUCurrent Toy and sporting good manufacturers played a tough game over the past five resulting impact is an expected 3.7% per annum decline over the five yearsPerformance years. Increasing competition from through 2010-11. Consumer demand for imported goods, particularly from toy and sporting merchandise has also China, has affected the competitiveness been affected by trends in real of domestically produced merchandise, household disposable income, sport slashed product margins, reduced participation rates, the number of profitability and altered the quality of primary school students and exchange products available to consumers. The rate fluctuations.Import competition This industry has come under mounting of products available to consumers.grows pressure from imports over the past five Faced with such competition, many years. An influx of goods from Asian smaller operators were forced out of the countries has largely been fuelled by industry over the past five years, leading mounting consumer demand for lower- to a decline in enterprise numbers priced merchandise that is often (especially within the non-employing produced to resemble original goods. segment of the industry). Import Growth in import volumes has also been volumes for this industry were also affected by a shift in domestic affected by fluctuations in the trade- manufacturing facilities to overseas weighted index. Rising from 63.1 in locations, particularly China due to the 2005-06 to 72.9 in 2010-11, growth in lower cost of production. The rise in the trade-weighted index has made imports has effectively reduced product overseas goods more affordable for margins for operators, cut profitability Australian buyers. Further, domestic and altered the overall mix and quality merchandise became more expensive for
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 6Industry PerformanceImport competition foreign buyers, leading to a 4.0% per resulting shift from traditional toys at angrows annum decline in industry exports. earlier age towards technologically Along with rising import competition, interactive games like Nintendo orcontinued industry manufacturers faced changing PlayStation initially created supply issues consumer trends and preferences for toy for manufacturers who were slow to and sporting goods. Within the toy respond with replacement goods. segment, the industry experienced a shift Manufacturers also realised that simply in the type of toys demanded. Age introducing a new product was not compression within society has led to enough to secure sales; instead, they were children demanding more adult-like toys required to continue making advances in at a younger age and effectively product design and technology to ensure outgrowing the target age market. The the survival of the product.Slippery sales Industry sales are expected to fall 2.5% to trade volumes were influenced by the rate $521.0 million in 2010-11. Industry of recovery across global markets performance for the year will benefit following their collapse in 2008-09. Sales from a rise in the Australian dollar and fell 4.1% in 2008-09 due to stronger income growth. Growth in sport unprecedented market conditions participation and an increase in the following the collapse of global financial number of primary school students will markets and mounting uncertainty also aid new orders. However, despite the surrounding the stability of domestic positive flow-on effects of these factors, conditions. While disposable income overall trading conditions across the levels rose 6.0% for the year following the industry will remain volatile due to release of government stimulus continuing import competition. payments, much of the extra income was Industry revenue declined 2.9% over allocated to debt reduction as opposed to 2009-10. Weak income growth and a rise retail spending. Manufacturing orders in unemployment created challenging were also hindered by continued retail conditions that affected the number imported-based competition. Trading of new orders placed at the conditions remained volatile between manufacturing level. While the staging of 2005-06 and 2007-08. Over this period, the World Cup Soccer in South Africa the industry experienced successive years during June 2010 renewed interest in of declining sales due largely to strong sport participation among consumers, import competition and age compression.Consumers get fit Despite the gloom caused by rising which enabled consumers to join import competition and age sporting associations or gyms. Rising compression, consumer demand for 3.8% per annum, the steady increase in sporting goods was boosted over the disposable incomes over the past five past five years by changing attitudes years was reflected through increased towards exercise and fitness. Increasing consumer demand for different types of consumer awareness about the health toys and sporting goods. Demand for benefits associated with regular exercise toy and sporting goods was also fuelled and the importance of a healthy diet by the number of primary school boded well for sporting good students, which are regarded the key manufacturers. In addition, changing market for this industry. From babies to consumer trends and preferences for tweens, the toy segment relies on young different types of sporting activities was consumers to drive sales and support supported by rising income levels, continued demand for new products.
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 7Industry PerformanceConsumers get fit Alternatively, the teenage and young 0.9% per annum, the contraction incontinued adult market is regarded as key category enterprise numbers has stemmed from for the sporting good segment, with mounting import-based competition. many consumers turning to sport While employing operators remained a participation at a young age. viable option for manufacturers, smaller Structurally, toy and sporting good non-employing businesses faced a tough manufacturing has resembled a shrinking market and as a result, numbers market over the past five years. Falling contracted by about 3.0% per annum.Industry Toy and sporting good manufacturers will run a tough race over the five decline in revenue from $510.1 million in 2011-12 to $483.1 millionOutlook years through 2015-16. With revenue in 2015-16 will also be affected by expected to fall 1.5% per annum, sales other factors such as disposable will continue to be influenced by income levels, sport participation increasing import competition and rates and trends in the number of fluctuating exchange rates. The primary school students.Imports remains high Continued shifts in manufacturing facilities overseas and the lower costs of Industry revenue production of these external 5 manufacturers will heighten import competition. Demand will also be driven 0 by consumers seeking cost-effective goods to match domestically produced % change merchandise. To this end, an anticipated −5 decline in the trade-weighted index from 72.9 in 2010-11 to 69.0 in 2011-12 will −10 make imports of input materials more expensive for toy and sporting good −15 manufacturers. However, over the Year 03 05 07 09 11 13 15 17 remaining four years, the trade-weighted index is expected to post a solid recovery, SOURCE: WWW.IBISWORLD.COM.AU rising to about 72.5 by 2015-16. This rise will make overseas goods more four years through 2015-16. The gradual affordable to Australian buyers, meaning rise in incomes will enable consumers to manufacturers will have access to more demand a broader selection of toy and affordable material inputs, which will sporting goods, which will bode well for affect the final price paid by consumers. both new and replacement purchases. At the retail level, manufacturing The performance of toy and sporting orders for toy and sporting goods will good manufacturers over the five years benefit from anticipated growth in real through 2015-16 is also set to be affected household disposable income of 3.6% per by trends in sport participation. Despite annum. The rise in income will stem increased awareness within the from stronger economic growth as the community and particularly across domestic economy starts to emerge from schools about the importance of the recessionary conditions that plagued maintaining a healthy lifestyle and it during 2008 and 2009. Following a exercising regularly, recreational solid recovery in 2010-11, income will activities, such as playing computer post steady growth over the remaining games, will continue to affect the
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 8Industry PerformanceImports remains high demand for some toys and sporting electronic and interactive toys will becontinued goods. The modest fall in participation boosted by the availability of advanced will also be attributed to annual technology, making such goods cheaper employment levels and income and hence more affordable to consumers. fluctuations. However, the increasing The resulting shift in leisure time demand for computer and video games activities from sports to indoor games by teenagers and young adults is will have a detrimental impact on the expected to have the greatest impact on number of consumers choosing to sport participation. Demand for participate in physical activity.Age compression Due to ‘kids are getting older younger’ (a sporting goods have been able to commonly used term to denote the successfully leverage their sporting growing trend of children that are equipment brand names by diversifying becoming increasingly sophisticated in into clothing fashion items (Rip Curl and their consumption of complex Mambo from surfboards to surf fashion entertainment and technology at younger clothing) and have successfully marketed ages), manufacturers will ultimately shift these fashion products internationally. the industry’s product structure over the By targeting a similar market segment coming decades as they attempt to meet (teenage or young adult males), the the changing needs of the major customer sporting goods and clothing businesses demographic. Furthermore, the impact of can leverage marketing opportunities off toys and games on society has been the same brand name (the careful debated over the past decades, as the expansion of products under the same complexity of toys and games, particularly brand name can also reduce marketing video games, increased, including criminal costs as a percentage of sales revenue). and sexual content. Some have argued This industry is the decline phase of its that the toys and games have been life cycle and this is expected to continue affecting the children in a negative way by over the next five years. Continued strong contributing to violence in society. import-based competition will restrict However, the sociologists are generally the number of players this industry can opposed to this view. Sociologists argue sustain, leading to a contraction in that it has not been the toys but the enterprises of 0.7% per annum and a fall environment at home, the way the family in establishments of 0.6% per annum and caregivers relate to children that over the five years through 2015-16. shape the children’s nature and Employment will suffer as a result, falling determines children’s partialities. by about 1.4% per annum, while wage Some Australian manufacturers of costs will contract 0.8% over the period.
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 9Industry PerformanceLife Cycle Stage Competition from imports has affected the viability of domestic operators and led to the demise of many players Weaker growth in industry value added than overall Australian GDP is indicative of an industry in decline The industry’s product market is stable and clearly segmented Technological processes and systems have been subject to slight cosmetic changes 30 Maturity Quality Growth% Growth of profit/GdP Key Features of a decline Industry Company High growth in economic consolidation; importance; weaker companies Revenue grows slower than economy level of economic close down; developed Falling company numbers; large firms dominate importance stable technology and markets Little technology process change 25 Declining per capita consumption of good Stable clearly segmented products brands 20 15 Quantity Growth Many new companies; minor growth in economic importance; substantial 10 technology change 5 Sponge, Hoses, Belts and Other Toy and Sporting rubber Product Good wholesaling 0 Manufacturing Sport and Camping Equipment retailing Shake-out Toy and Sporting Good Manufacturing Leather and Leather Substitute Product Manufacturing Shake-out –5 decline Potential Hidden Gems Time wasters Textile Product Crash or Grow? Future Industries Manufacturing Hobby Industries –10 –10 –5 0 5 10 15 20 25 30 % Growth of establishments SOURCE: WWW.IBISWORLD.COM.AU
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 10Industry PerformanceIndustry Life Cycle Increasing competition from imported contributing to an overall fall in goods has affected the manufacture of enterprise numbers and a loss of toy and sporting goods over the past market share by dominant products.T his industry decade. Once regarded as a key Total enterprise numbers haveis Declining manufacturing industry for Australia, declined by 0.9% in the five years the gradual shift in production facilities through 2010-11 and are set to fall 0.7% by industry players to overseas location per annum over the five years through has altered the domestic market and its 2015-16. While employing operators have level of competitiveness on the global continued to remain viable, non- field. Value added contracted by 2.5% employing operators have contracted by in the five years through 2010-11 and is 3.0% per annum, due to an increase in poised to fall a further 1.2% over the cost pressures and a squeeze on market five years through 2015-16. The shares. Technological applications for contraction, compared with stable this industry have appeared to stabilise growth in overall Australian GDP, can following resurgence in the industry due be attributed to an erosion of product to the development of electronic and margins in the face of strong interactive toys. While such products and competition from imports. technology required continued Manufactured at a lower overall cost investment and upgrading, the resulting compared with domestic goods, impact on the industry is not sufficient to imported merchandise has spur another growth phase.
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 11Products MarketsSupply Chain | Products Services | Demand DeterminantsMajor Markets | International Trade | Business LocationsSupply Chain Key buying industries F4793 Toy and Sporting Good Wholesaling in Australia Wholesalers are a major distribution channel for toy and sporting good manufacturers. G5241 Sport and Camping Equipment Retailing in Australia Retailers are a major distribution channel for sporting equipment. G5242 Toy and Game Retailing in Australia Retailers are a major distribution channel for toys and games. N Education Education providers purchase toys and sporting equipment. O8710 Child Care Services in Australia Child care centres purchase toys for use at their establishments. P9210 Libraries in Australia Libraries purchase toys and games for their library collections. P9312 Gyms, Sports Grounds, and Other Facilities in Australia Organisations like gyms, sporting ground facilities and other centres demand a range of sporting equipment for use by members and the general public. P9319 Sport Organisations and Other Sports Services in Australia Sport organisations demand a range of sporting equipment. Key selling industries C2260 Leather and Leather Substitute Product Manufacturing in Australia Items of leather or substitute leather used in toy and sporting goods are sourced from this industry. C2559 Sponge, Hoses, Belts and Other Rubber Product Manufacturing in Australia A variety of rubber products are used in the production of toy and sporting goods. C2565 Plastic Foam Product Manufacturing in Australia Plastic foam is used in helmets, protective equipment and some water-sport equipment. C2566 Plastic Injection Moulded Product Manufacturing in Australia Operators in this industry supply a range of moulded goods to toy and sporting good manufacturers.Products Services The two primary categories of technology and functionality. products manufactured by this Consumers have largely been the industry are toys and sporting goods. driving force behind such changes due Of these, the toy segment experienced to their changing tastes and the largest change in product mix over preferences. In comparison, the past decade. This change stemmed production of sporting equipment has from a number of factors, including been relatively stable over the past 10 age compression, whereby children years. While technology continued to outgrow traditional toys at a younger result in the implementation of modest age; the development and introduction product enhancements, the overall of electronic and interactive toys; and product mix for this segment remained continued advances in product design, virtually unchanged.
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 12Products MarketsProducts Services Products and services segmentation (2011)continued 40% 60% Toys Sporting goods Total $521.0m SOURCE: WWW.IBISWORLD.COM.AUDemand Demand for toy and sporting good purchase new and more expensive toysDeterminants manufacturers depends on the level of for their children. Linked to this is activity from downstream retailers and consumer preference, which plays a wholesalers. Demand for toys and major role in determining the demand sporting goods at the retail level is linked for the industry’s products. For instance, to trends in consumer preferences, the greatest impact on toy sales is global changes in disposable income levels, the ‘fads’, which are usually linked to popular growth and age structure of the cartoons or films. Older children are population, seasonal factors and leisure turning away from general toys, and are time availability. seeking electronic and video games. Income is the key determinant of Trends in the growth and age structure demand, as it influences consumer of the population affect the demand for spending on industry merchandise and toys. The youth market is the major hence has the capacity to affect market for toys. As adults grow older, production levels. Trends in real they are less likely to participate in household disposable income determine sporting activities. Any slowdown of the quantity, quality and frequency of toy growth in the younger population would and sporting good purchases. As the level have an adverse effect on demand for of real household disposable income toys and sporting goods. increases, the purchases of toys and Seasonal factors affect demand for sporting goods will rise, as consumers products in this industry. Over 45% of toy have greater discretionary power. retail sales occur in the fourth quarter, in Further, the purchase of substitute goods the build up to Christmas. Furthermore, like arts and crafts may actually increase seasonality for toys can be summarised as household disposable income by product types such as outdoor games decreases, as consumers become more in spring and summer, travel games for price conscious and engage in cheaper summer holidays and indoor games in do-it-yourself activities rather than toys winter. The amount of leisure time and sports that require equipment. When available to people also influences the household income increases, expenditure time available to participate in sporting by households with young children tends activities. Participation rates in the range to increase, with parents more likely to of sports affect relative demand for
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 13Products MarketsDemand equipment available for specific sports. sports like basketball and baseball.Determinants For example, industry sources report a Participation is influenced by the level of decline in the popularity of ‘traditional promotion of sport (as a fun and healthycontinued Australian’ sports like tennis and cricket activity). The level of school-based and an increase in interest in ‘American’ sporting activities also influences it.Major Markets Local manufacturers of toy and sporting are in their teenage and early adult goods sell mainly to wholesalers, and years and who live in households with general and specialist retailers. In the above average income are a major sporting goods segment other customers market for many sporting goods. include sporting associations and clubs. However, the characteristics of In the toy goods segment other customers consumers vary from product to include schools, child care centres, play product (and sport to sport). The groups and libraries. demand for some sporting goods is The final purchasers of toys and significantly influenced by geographic sporting equipment could be segmented area. For example, demand for rugby by gender, ethnic background, age, sporting goods is strongest in New geographic area of residence, household South Wales and Queensland where the size and household income. Males who sport is most popular. Major market segmentation (2011) 2% 2% 1% 5% Libraries Schools Child care centres Sporting associations 40% Wholesalers 50% Retailers Total $521.0m SOURCE: WWW.IBISWORLD.COM.AU
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 14Products MarketsInternational Trade International trade in toy and sporting goods has remained high Industry Trade BalanceLevel Trend over the past five years. Driven by a 800 shift in production facilities to AsianExports in the countries (due to their lower cost ofindustry are High production), China has dominated 0and Increasing import volumes, often accounting for $ million over 65% of total annual imports. −800I mports in the The majority of imported goodsindustry are High include stuffed toys, plastic toys, −1600and Increasing articles and equipment for sport and outdoor games, and articles of fun −2400 fair, table or parlour games and Year 03 05 07 09 11 13 15 17 casino games. Albeit from a lower Exports Imports Balance base, export volumes for toy and SOURCE: WWW.IBISWORLD.COM.AU sporting goods have also been high over the past five years. Major export gymnastics equipment, fishing items during this time have included equipment, golf equipment water-skis, surfboards, sailboards (including golf heads), and coin or and other water-sport equipment, disc-operated games. Exports To... Imports From... 4% 2% Denmark 8% Taiwan United States of America 69% 4% 55% China 4% United Kingdom Japan New Zealand 7% United States of America 17% Other 30% Other Year: 2011 Total $132.0m Total $1.7bn SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: ABS
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 15Products MarketsBusiness Locations 2011 NT 0.5 QLd 25.0 wA 9.0 SA 4.5 NSw 40.0 ACT 1.0 VIC 17.0 Establishments (%) Cold Zone (10) TAS 3.0 25 50 Hot Zone (100) Not applicable SOURCE: WWW.IBISWORLD.COM.AU
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 16Products MarketsBusiness Locations Driven by their proximity to global export Distribution of establishments vs. population markets, New South Wales and Queensland account for the majority of 50 toy and sporting good operators, at 40% and 25%, respectively. In particular, the 40 concentration of players in Queensland Percentage may be attributed to its proximity to 30 transportation harbours, with almost half of the industry’s manufactured goods 20 being exported overseas. Queensland’s 10 main exports and niche industries are surfboards, water skis and water-sports 0 equipment. The concentration of ACT NSW NT QLD SA TAS VIC WA operators in these two states, along with Victoria, may also be linked to the fact Establishments that they are the largest states in Population Australia, with growing populations. SOURCE: WWW.IBISWORLD.COM.AU
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 17Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure BenchmarksBasis of Competition | Barriers to Entry | Industry GlobalisationMarket Share Concentration in this industry is low. The awareness. Demand for locallyConcentration industry’s two largest players, Pacific manufactured goods have also suffered Brands and Rip Curl, together hold less due to the influx of Asian-made products than 30% market share. The level of into the domestic market. Due to theLevel concentration in the industry has been dominance of international products inConcentration in held down by significant international the domestic market, Australian industrythis industry is Low competition. Despite being regarded players have been unable to expand their wholesalers within the Australian market shares. As a result, IBISWorld market, Mattel and Hasbro control estimates industry concentration has numerous branded merchandise and experienced little change over the past they have developed strong consumer five years.Key Success Factors Having contracts that are Production of premium goods favourable to purchaser Product quality or patented technology Access to low-cost materials, either can be important when competing withI BISWorld identifies locally or through imports, is important. imported products.250 Key SuccessFactors for a Establishment of brand names Level of competitionbusiness. The most Brand name and image are important or existing in the market agreements to supply major companies It is beneficial to produce goods that areimportant for this with these attributes. not subject to significant importindustry are: competition. Management of seasonal production Many goods manufactured have a short Development of new products selling season (e.g. Christmas or winter) Some toys and sporting goods cater to and require strategies to manage fads and therefore have short life cycles, resources in on- and off-season necessitating new product development.Cost Structure Increasing competition from domestic and imported merchandise.Benchmarks imported goods affected profit for industry Industry wages costs have fallen at an operators over the past five years. While average annual rate of 4.3% over the past returns vary between players depending five years, largely due to a reduction in on the size of the distribution facility in employment along with continued operation, most operators have faced implementation of automated processes, declining product margins due to the which has reduced the demand for labour influx of cheaper imported goods into the input in production. Wage costs for this domestic market. Profit has also been industry are derived through the need to affected by the cost of inputs purchased employ staff to manufacture toys and from vendors (domestic or international) sporting goods. In addition, labour is along with change in exchange rates, required to unload stock from which have affected the overall cost of manufacturers and pack orders for production for manufacturers and affected customers in addition to providing the final sale price to wholesalers. Growth customer service. IBISWorld estimates in the relative cost of inputs over the past that in 2010-11, wage costs will account five years along with fluctuating exchange for 15.9% of industry revenue. rates have effectively made domestically Superannuation and leave entitlements produced goods more expensive and provided to workers are mandatory hence less price competitive than additional labour costs. These costs vary
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 18Competitive LandscapeCost Structure with the number of workers employed automated processes by operators.Benchmarks and their employment status, whether Despite offering greater efficiency and part-time, casual or full-time. an increase in production volumes,continued Rent expenditure for operators in automation has also increased this this industry has been associated with industry’s reliance on equipment and the cost of leasing premises, machinery that required continued production facilities and equipment maintenance and replacement. The rise required for the manufacture of toy in production automation in the and sporting equipment. While industry has also affected depreciation operators who have moved production costs over the past five years. A rise in facilities to overseas locations have the number of plant, equipment and experienced a decline in rent costs due machinery purchased by operators for to lower costs of production, these use in production lines has resulted in manufacturers have faced increased higher depreciation costs. transportation costs in re-importing Advertising expenditure has merchandise back into Australia for remained a small cost for this industry. sale to wholesalers. Overall, rent costs The established brand awareness and for this industry are estimated to have reputation of operators has largely posted a modest rise over the past five reduced the focus on advertising by years due to a gradual increase in the operators. As a result, advertising cost of production. Utility costs, costs have remained relatively stable including gas, water and electricity over the past five years. Other costs for used in the production process are this industry include selling and estimated to have risen over the five general administrative expenses such years through 2010-11, owing to the as insurance, freight, legal and continued implementation of security expenses. ■ Profit Industry Costs and Average Sector Costs ■ rent Industry 0 3.0 100% ■ utilities 7.0 3.0 8.1 15.9 60.0 Costs ■ depreciation Profit (2011) ■ Other 3.0 ■ wages 0.5 ■ Purchases Average Costs of all Industries 13.3 1.6 9.3 12.8 58.4 Profit in sector (2011) 4.0 SOURCE: WWW.IBISWORLD.COM.AUBasis of Competition This industry is subject to both Internal internal and external competition. Competition between players in this Internally, players in this industry industry is intense and primarily basedLevel Trend compete with other industry players, on quality, play value and price.Competition in whether domestic or international. Additionally, product range, promotion,this industry is Local manufacturers compete against service, advice and location are importantH igh and the trend imports based on price and brand competitive factors in the industry. name. In addition, players are subject At the retail level, price is a key basis foris Increasing to external competition from operators competition. At peak shopping times, such outside the industry, such as mass as Christmas, retailers often engage in merchandisers and discount retailers. vigorous price promotions to attract customers and build traffic. Price and
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 19Competitive LandscapeBasis of Competition product differentiation (such as product Externalcontinued quality and marketing) are important, This industry competes with several with the relative importance of these large toy companies and smaller toy factors varying between market segments. companies, and to a lesser extent, with Product quality factors can be real and children’s book publishers. Industry perceived and include durability, safety, operators also compete with computer performance enhancing attributes (for and computer equipment sporting equipment) and educational manufacturers; telecommunications, attributes in toys. Brand marketing is broadcasting and transceiving more important in some market segments, equipment manufacturing; electric particularly for higher-priced goods. Price equipment manufacturing; book and is a more important competitive factor other publishing; and recorded media when selling to lower-income families. manufacturing and publishing.Barriers to Entry The single largest barrier to face new entrants over the past five years has been Barriers to entry checklist LevelLevel Trend the capital investment required to Competition High establish operations in this industry. Concentration LowBarriers to Entry Such expenditure includes the cost of Life cycle stage Declinein this industry are purchasing or constructing Capital intensity MediumM edium and Steady manufacturing facilities and the cost of Technology change Low equipment and machinery. Other Regulation policy Medium expenditure, such as raw material and Industry assistance Low labour costs, may hinder the successful entry of new players. SOURCE: WWW.IBISWORLD.COM.AU Prospective operators planning to enter this industry have also been new players face strong competition due hindered by the lack of product to the level of market dominance held by differentiation among players. Despite key players in this industry. Industry often choosing to operate in a niche players have posed as a barrier to entry in market, players have faced a well- terms of the breadth of locations in which developed and often saturated product they operate and the range of products market across both the toy and sporting they offer. In addition, new players have good segment. New players have also also been exposed to strong competition been hindered by the cost of establishing from imports. brand names and product image in the Over the past five years, obtaining the marketplace, which is particularly copyrights and licences of movie or important in this industry. Local cartoon characters (often toys emerge manufacturers are generally out of children’s film and TV disadvantaged by other difficulties like productions, with the intellectual capital obtaining international exposure retained by the film producer) has been associated with establishing a brand an increasing trend giving very name. Some sporting equipment brands successful results financially to industry have entrenched positions through players. Therefore, obtaining new longstanding historical ties with licences (they are usually very costly) sporting bodies. could well pose a barrier to entry to Although not a formal barrier to entry, potential entrants to the industry.
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 20Competitive LandscapeIndustry The level of globalisation in the industry plastic raw materials.Globalisation grew strongly over the past decade. This Globalisation has also been supported largely stemmed from the volume of by the dominance of foreign-owned goods imported into Australia from players in the domestic market. MattelLevel Trend overseas, particularly China. In 2010-11, and Hasbro are both foreign owned.Globalisation in exports will account for 25.3% of total Mattel Pty Ltd, based in Melbourne, is athis industry is industry revenue, compared with 25.7% subsidiary of the USA-based Mattel Inc.,H igh and the trend in 2005-06. Overall, the decline suggests a worldwide leader in the design, domestic production has decreased in manufacture and marketing of toys, whileis Increasing importance for the industry and is Hasbro Australia Limited is a subsidiary increasingly being replaced by imported of Hasbro Inc., the second-largest products. This is supported by data toymaker in the world behind Mattel. At indicating imports as a share of domestic the domestic level, analysis indicates that demand have increased from 79.0% in there is little foreign market operation 2005-06 to 81.2% in 2010-11. These undertaken by domestic players within factors are strong evidence suggesting the industry. However, Rip Curl does domestic manufacturing in this industry operate licences that enable foreign is declining. Imports are mainly from the operators to purchase a licence from Rip low-cost, mass-producing Asian Curl, which enables them to manufacture manufacturing centres, as well as from and sell products in the United States, countries that have developed strong France, South Africa, Japan, Indonesia, brand names and access to low-cost Brazil, Argentina, Peru and Chile. International trade is a Trade Globalisation Going Global: Toy and Sporting Good major determinant of Manufacturing 2000-2011 an industry’s level of 200 Export Global 200 Export Global globalisation. Exports offer growth opportunities for firms. 150 150 Exports/revenue Exports/revenue However there are legal, economic and political risks associated with dealing in 100 Toy and 100 foreign countries. Sporting Good Import competition can 50 Manufacturing 50 2011 bring a greater risk for companies as foreign 0 Local Import 0 Local 2000 Import producers satisfy domestic 0 40 80 120 160 0 40 80 120 160 demand that local firms Imports/domestic demand Imports/domestic demand would otherwise supply. SOURCE: WWW.IBISWORLD.COM.AU
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 21Major CompaniesPacific Brands Limited | Rip Curl Group Pty Ltd | Other Major players Rip Curl Group Pty Ltd 9.5% (Market share) 76.5% Other Pacific Brands Limited 14.0% SOURCE: WWW.IBISWORLD.COM.AUPlayer Performance Established in 1893, Pacific Brands 11.1% to $1.7 billion due to structural Limited operates as a manufacturer and changes which led to lost revenue from wholesaler of ‘everyday essential divested businesses and discontinuedPacific Brands brands’. Company operations are brands. The difficult and changing retailLimited segmented into underwear and hosiery, environment also affected Pacific arket share: 14.0%M workwear, homewares and footwear, Brands’ performance. The footwear, outerwear and sports. outerwear and sport segment’s sales Considered the largest operating group declined 18.7% for the year due to the for the company, the underwear and exit of clothing and footwear operations hosiery segment’s key brands include in the United Kingdom and China. Sales Bonds, Berlei, Holeproof, Rio and were also affected by a downturn in Razzamatazz. Products are available discretionary spending. across Australasia and selected Pacific Brands experienced international markets. The footwear, unprecedented market conditions over outerwear and sports segment’s key 2008-09, leading to a fall in sales of 5.5% brands include Volleys, Clarks to $2.0 billion. Revenue was affected by a (footwear), Mosimmo, Superdry fall in stock keeping units (SKUs), the (streetwear), Slazenger (sportswear) and closure of four factories and a reduction Malvern Star, (bicycles, parts and in the company’s workforce of 800 accessories). Workwear brands include people. Additionally, a sharp increase in Hard Yakka, KingGee, Can’t Tear ‘Em, the unit cost of imported products (due Dowd, NNT, Stylecorp and Stubbies. The largely to the collapse of the Australian homewares business is a manufacturer dollar) further affected company and marketer of beds, pillows, quilts, performance throughout the year. Sales bedlinen, towels, carpet underlay and by the outerwear and sports segment fell foam. Brands in this segment include 2.3% to $641.3 million. Sheridan, Tontine, Sleepmaker, Pacific Brands posted steady sales Dunlopillo, Simmons, Dunlop. growth for 2007-08, with revenue up Company sales over 2009-10 fell 16.3%. Australian operations posted Pacific Brands Limited – financial performance revenue NPAT year ($ million) (% change) ($ million) (% change) 2005-06 1,624.9 6.8 101.2 0.3 2006-07 1,820.7 12.0 106.0 4.7 2007-08 2,116.6 16.3 116.6 10.0 2008-09 1,959.8 -7.4 -234.5 n/C 2009-10 1,742.4 -11.1 52.7 n/C SOURCE: IBISWORLD
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 22Major CompaniesPlayer Performance growth of 2.5%, while operations in New the outerwear and sport segmentcontinued Zealand experienced a difficult year. generated revenue of $363.2 million, Sales by the outerwear and sport segment representing an increase of 45.8% rose 80.7%, owing to the first full year of compared with 2005-06. Strong brand operations by the Yakka and Brand positioning across the lifestyle category, Collective businesses. the implementation of structural Pacific Brands posted a solid changes, a strategic review of the performance during 2006-07, with sales business and strong sales growth across up 15.3%, growth in gross margin of the King Gee and Everlast brands aided 13.5% and a rise in company the performance of the outerwear and profitability of 6.0%. During 2006-07, sport segment.Player Performance Established in Victoria in 1969, Rip goods in Australia and export them Curl Group operates as a manufacturer overseas. This led to the establishment of wetsuits and a wholesaler and of the company’s first corporate licensee,Rip Curl Group Pty retailer of surf and snow apparel, Lowers, in Southern California in 1981.Ltd wetsuits, watches, footwear and This was followed by the establishment arket share: 9.5%M accessories. In its early days, the of Frogs, a new company that began company manufactured surfboards, making Rip Curl products in Hossegor,Industry Brand Names which did well in a highly competitive France in 1985. Since that time, theRip Curl market. In 1970, the company ventured company has expanded to nine into wetsuit manufacturing, which at corporate licences that manufacture and the time was serviced by only two sell products in the United States, companies. By the mid-1970s, the France, South Africa, Japan, Indonesia, company’s involvement in competitive Brazil, Argentina, Peru and Chile. surfing was clearly evident and by 1977 Rip Curl’s sales averaged a decline of the company was producing wetsuits 1.3% per annum in nominal terms over for windsurfers, sailors and water the five years through 2009-10. This skiers as well as surfers. compares with weak growth of just 0.5% Global demand for the company’s per annum in total industry sales over products led to the establishment of Rip the same period. IBISWorld estimates Curl International. The company sales growth over this period was decided to establish license agreements affected by fluctuations in real whereby it would sell its technology, household disposable income, consumer designs and ideas to various countries, sentiment, retail spending patterns and rather than trying to manufacture the international imports. rip Curl Group Pty Ltd – financial performance revenue NPAT year ($ million) (% change) ($ million) (% change) 2005-06 356.7 13.2 12.1 n/C 2006-07 387.5 8.6 22.8 88.4 2007-08 415.5 7.2 14.4 -36.8 2008-09 439.1 5.7 33.9 135.4 2009-10 395.0 -10.0 n/C n/C SOURCE: IBISWORLD
www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 23Major CompaniesOther Companies This industry comprises operators that Brite. Mattel also wholesales action are mainly engaged in the manufacture of figures and toys based on Walt Disney toys and sporting goods. However, a movies and the Harry Potter children’s number of other players have a books. Barbie Dolls account for significant impact on Australia’s approximately 30% of Mattel’s business manufacturing industry, even though each year. these players are not directly involved in manufacturing activities. Mattel and Hasbro Australia Limited Hasbro are primarily engaged in the Hasbro is a subsidiary of Hasbro Inc. importation and wholesale of goods from and is regarded the second-largest foreign suppliers. In doing so, they affect toymaker in the world behind Mattel. the competitiveness of the local Globally, Hasbro Inc. generated sales of manufacturing market via the entry of about $3.8 billion in 2007 and employed cheaper imported goods. 5,900 people. In early 1991, Hasbro Inc. acquired Tonka Corporation in the Mattel Pty Limited United States (Hasbro was represented Mattel Pty Limited is a subsidiary of the by Milton Bradley in Australia), US-based Mattel Inc., a worldwide leader resulting in Hasbro Australia becoming in the design, manufacture and one of the largest toy companies in marketing of toys. On a global scale, Australia. Hasbro Australia’s brands Mattel posted revenue of almost $6.0 include Kenner Parker games, Tonka billion in 2007 and employed about trucks, Cabbage Patch Dolls, Play Doh, 31,000 people. Mattel is believed to GI Joe, Playskool, and Milton Bradley supply about 20% of the Australian toy games and puzzles. In early 1995, market. Company brands wholesaled Hasbro Inc. purchased the games within Australia include Barbie Dolls, division of Waddington PLC whose Fisher Price, Masters of the Universe, brands included Monopoly, Cluedo Hot Wheels, Matchbox cars and Rainbow and Subbuteo.