Toys and Games - Germany

Abstract

EXECUTIVE SUMMARY

Consumers increasing spending but still far from spendthrift

Recent improvements in the German economic climate in have been mainly due to an extended export boom. A variety of sources such as Postbank, the leading market research organisation Ifo-Institut, and the BDI (Association of German Industrialists), have been issuing optimistic predictions, but consumer behaviour remains hesitant. In April 2006, the GfK consumer climate index reported a more optimistic outlook among German consumers, although they remain sceptical about their earning prospects because of uncertainty about pensions, the reform of the health system, higher energy prices and imminent tax increases. The recent increase in consumer spending may be attributed to the bringing forward of major purchases before the expected rise in VAT in 2007. In fact, the employment situation is improving, as the unemployment rate declined by 0.7 percentage points in April to 11.5%. Increased employment is putting more money into people' s pockets, thus motivating a more positive outlook beyond 2007.

Video games and consoles stimulate the market

The market for traditional toys and games has been in decline for several years, and the overall health of the market has been maintained by the increasing sales of video games and related products. In 2005, the market for video games was merely approaching its potential and not even close to fully exploiting it. About 10% of German households owned video consoles, while close to 90% of children owned mobile phones. According to the annual review of the market for children' s products, KidsVerbraucherAnalyse (KVA) 2005, more than 60% of boys and about 25% of girls played video and computer games, and 12% of girls who did not play were interested in doing so. In addition, as older generations are gradually becoming more computer literate, their interest in playing video games is also growing. Video games and traditional toys and games continue to develop independently, since the two sectors address different needs and groups within their consumer base. Video games traditionally attract an older, male consumer base but producers are seeking to extend this market as they seek to exploit their products' full potential. Suppliers of traditional toys and games increasingly emphasise their educational, health and social benefits. The educational factor is now becoming more of a force in the video games market, with the development of "edutainment software", as video games and consoles are sold to children as young as ten.

2006: King Football to save the day

The long-awaited 2006 Football World Cup held in Germany is widely expected to stimulate consumer spending beyond 2006. Football was the one impulse that drove all market sectors in 2005 and which many Germans expected to deliver a mini-economic miracle. More than 5,000 different products were launched to mark the event on the toys and games market alone. There was hardly a manufacturer that did not launch a football-themed toy or game, which ranged from Hasbro' s Monopoly FIFA WM 2006 to Lego' s Grose Fusball Arena to Mattel' s Scene It? DVD game. In the toys and games market, the football factor is expected to add growth of more than 3% across all sectors.

The Far East: promise and threat

Traditional German manufacturers, such as Steiff and Schleich, dominate the stuffed toy categories, while Playmobil has created a category of indigenously produced toy figurines. US and Asian producers have captured specific market areas like dolls, pre-school toys and video games hardware and software. China has become the biggest manufacturer of toys; however, and about two-thirds of all toys sold in Germany in 2005 were manufactured in China. In 2004, imports from China stood at 51% in Germany, according to the Federal Statistical Office. Piracy is a problem that hits the video games sector particularly hard. Half of all pirated products come from China, and the materials used are frequently described as unsafe by the EU' s Health and Safety Commission, which counted 700 such products - mostly toys and electrical goods - in 2005, of which half were imported from China. In Germany, health and safety are particularly important at the top end of the market, because of the strong influence of powerful consumer testing organisations such as Stiftung Warentest and Okotest. Due to the desire for low-price goods, however, Germany still imports more toys and games from non-EU countries than any other EU country. The fight against product piracy has been intensified over the past few years, with increases of one-third in the number of prosecutions for software theft and 12% in the number of convictions in 2005 relative to 2003.

Games for the older generation

In response to demographic developments, the toys and games industry is looking to strengthen its customer base within the older generations, which hold the purse strings in Germany. It is estimated in the toys and games industry that 20% of its revenue is derived from adult consumers who operate model railways, collect dolls or play traditional games. As the Baby Boomer generation reaches retirement age, the last bastion of hedonism is getting ready to play. "Best Agers" are now becoming more computer literate each year and are very interested in the possibilities afforded by the Internet. As console manufacturers are increasingly making their products Internet compatible, the demand for online and multi-player games will grow. Widespread fears about Alzheimer' s Disease are leading to growth in the demand for mental workouts. The games manufacturer Ravensburger is meeting this demand with Think, its new "mental training range", and it has sold more than 30,000 units of its six titles since the range' s launch at the 2005 Frankfurt Book Fair, which was followed by a relaunch for the Christmas period 2005.