Injection molded toys: a rough playing field.

* Making toys is not child's play. Overseas competition has squeezed out many U.S. toy manufacturers over the last 10 years. However, the improving economy offers some hope. U.S. toy molders anticipate a continuing economic turnaround throughout 2005. Still overall poundage is expected to grow only 2.1% per year on average from 2004 to 2007. Resin consumption is expected to increase from 180.9 million to 192.5 million lb.

A wave of imports

Injection molded toys are a relatively small manufacturing market in the U.S. and Canada, yet it continues to offer some growth for molders that provide fast production cycles, automation, help in design and testing, and assembly skills. The main problem in toy manufacturing is that most growth is occurring overseas, not domestically. An unforgiving retail environment is dominated by mega-merchants, like Wal-Mart, Target, and Kmart. They dictate pricing and are said to have driven the shift of toy manufacturing to low-wage areas like China and Mexico.

Another trend is that retailers are devoting less shelf space to traditional toys and more to highly profitable video games. Larger, higher-priced toys such as ride-on toys and playground equipment (typically rotomolded) are feeling the crunch because they offer lower sales for the amount of aisle space they consume. Smaller injection molded toys are taking up the slack from slumping rotomolded toys.

Many small companies participate in this market, but four major injection molders dominate. They are FisherPrice (part of Mattel), Mega Bloks, Little Tikes Co. (part of Newell Rubbermaid), and American Plastic Toys. Together they represent 77% of the injection molded toy business in North America.

Toy trends

Children are said to "grow up faster," losing interest in traditional toys at an earlier age. The toy industry describes this trend as "age compression." So-called "smart toys"--high-tech, interactive toys and games based on computer technology and the internet--are the new rage. There has always been an interest in high-tech toys among boys, but the surprise is the strong response from girls.

Demographic trends reveal that families are getting smaller, and people are having fewer children, but they are spending more money on each child. That is partly because parents are having children later in life, which gives them more disposable income to spend on their children. And with a growing divorce rate, many children are a part of two or more families and receive toys from each family unit. Besides children and their parents, the third important factor in the toy market is grandparents. Americans are living longer and playing a more active role in their grandchildren's lives. There are 65 to 70 million grandparents in the U.S., and by 2010 the grandparent population will reach 117 million.

PP and HDPE on top

Polypropylene is the most common material utilized in this market, representing approximately 38% of injection molded toys. Second biggest is HDPE at 25% of the market. Polystyrene, ABS, polycarbonate, and LDPE resins are also utilized in considerable amounts, but each constitutes less than 10% of the business. Fastest growth (3.8%/yr) is forecast for PS; next are PP at 3.2%/yr and HDPE at 2.3%/yr. All the other resins are expected to decline in poundage from 2004 to 2007.

Mastio & Company, based in St. Joseph, Mo., is a consulting firm specializing in industrial-consumer opinion research and market trends in the plastics industry. For more information, call [phone] or visit www.mastio.com/pt/outlook.html.