Toyland... wonderful girl and boy land
By : Dolores Cruz
Growing up in the 1970s, Robert Podles dreamt of LEGO and Matchbox cars. Back then, they were prohibitively expensive, "and only the children of rich families could afford them," Podles said.
But times have changed and Podles, 38, owns so many toys he's building a warehouse on the outskirts of Warsaw for them.
Podles is the manager and founder of Cobi manufacturer of plastic building bricks and one of Poland's more successful toymakers.
He started the business in 1993 after seeing cheap Asian products flood Poland to feed the country's new appetite for colorful Western toys. "In a few years, I thought that would change," Podles said. "I knew Poland couldn't keep importing. So I decided we needed good Polish products with good quality. LEGO had no competition, so I decided on plastic bricks."
Seven years later, there are more than 100 different Cobi toys. Priced 40% cheaper than LEGO, sales are growing by a robust 30% each year, helped along in part by a high-profile TV advertising campaign.
The company employs 220 people at two factories, one in Warsaw where they make most of the molds, the other in the special economic zone in Mielec. Together, the factories churn out about 30 new products each year.
For Podles, the hardest part of business is government inconsistencies: "Every year the government changes something. They change the rules; they change the taxes. It makes it difficult to adjust and plan. We haven't been able to plan for the next three years because we don't know what will happen."
And this industry's cyclical nature makes planning crucial. Almost 50% of Cobi's yearly sales are made during the two months before Christmas. Added to the equation, Podles said, are hypermarkets that stock Cobi products.
"We have worked with the hypermarkets for about five years and each year they ask for more discounts and longer terms of payment, which means maybe in 2010 we will be giving them our product for free," Podles said. "But the hypermarkets are so strong, without these customers we don't have a chance to exist."
To expand business, Podles has found an export market in Germany, where he sells 80% of Cobi's "baby-friendly" range of giant Bobi bricks.
"This range of Bobi bricks is a little bit too expensive for the Polish market," Podles said. "We could make them cheaper but we invest so much in molds, in new designs and new shapes, that we sell them at a higher price. I think in 2002 we may be ready to explore other markets and start in Western Europe."
The expert
But it's not all good news for toymakers. According to Olejniczuk-Merta, the future is going to be tough for toys in Poland.
At the Domestic Market and Consumption Institute where she specializes in child and youth markets, Olejniczuk-Merta estimates parents spend up to zl. 6,000 on their children (18 years old and under) each year. This includes food, clothing, education, and, of course, toys and leisure. The latter two account for about zl. 400 a year, plus an extra zl. 100 from generous friends and relatives.
Meanwhile, over in North America average annual spending on traditional toys is zl. 1,674, according to the International Council of Toy Industries. The average figure for Eastern and Western Europe is zl. 576.
Between 1994-98, Olejniczuk-Merta said the amount spent on toys in Poland increased marginally and any future growth will be modest. Instead, parents are spending more on education for each child, with personal expenditures rising from 15% to 25%.
But today when parents do buy toys, they are prepared to pay more for quality, Olejniczuk-Merta said.
"The more expensive, imported toys are what the public wants," she said, adding that final figures will be published in her February 2001 report.
Of course, Olejniczuk-Merta said, this spells bad news for Polish toy producers, who are battling to get their products on toy shelves. "After 1990, when we opened the economy, the Polish toy industry collapsed. There used to be small producers but they could not defend themselves against big companies that entered the market such as Matchbox and Mattel.
"The increases (Polish producers) are now experiencing are minuscule. They are best suited to exploiting niche markets such as soft toys, or nationally related toys such as soldiers and Polish dolls."
Olejniczuk-Merta said demographics are also having an impact on toys. According to the Central Statistical Office (GUS), in 1998 Poland recorded a negative birthrate and will continue to do so for at least the next five years. As in other Western countries, Polish couples are also getting married later, starting families later and are more likely to have smaller families.
"Which means for toy sales, global spending on children will not grow per family, although spending on individual children will grow," Olejniczuk-Merta said. "Children are traditionally very important in Poland. Polish families are always prepared to spend a lot of money on children."
The retailers
Smyk Managing Director Marek Maciejko poses with Minnie Mouse
Smyk is Poland's oldest toy retailer. Owned by the Eastbridge Group the company behind Galeria Centrum and EMPiK Smyk launched an expansion program last year, including the opening of Smyk stores within the new Galeria Centrum locations in Lodz, Wroclaw and Lublin. They have a stand-alone store in Galeria Mokotow and will open another in Opole next year. By 2003 there will be 12 locations.
Their 4,700 square-meter flagship store on Aleje Jerozolimskie was redesigned and unveiled in April this year. Since then, according to Smyk's managing director, Marek Maciejko, the store's sales have increased by 30%. He estimated that 2 million customers visit the Jerozolimskie store each year, making one purchase per family and earning Smyk about 15% of the retail toy market.
Maciejko said he had initially been concerned about the growth of hypermarkets but added that they have had no impact on Smyk's business. "Our range is quite different from theirs," Maciejko said. "Their range is very narrow and the prices look low, but we have a wider range. We want to have everything for kids under one roof."
While he agreed parents are prepared to pay more for top brands these days, there are limits. In 1998, EMPiK opened four Mickey & Friends franchise stores. Stocking only Disney products, the range of goods proved to be too narrow and the prices too high to provide a suitable turnover. By September 1999, all the stores were closed.
But Disney still has a profile in Warsaw, thanks to Manoj Madnani. He is the president of toy wholesaler Fareast and the creator of the new retail store, Cartoon Planet, in Galeria Mokotow, which is in the niche business.
Ninety-five percent of his stock is licensed, featuring characters whose copyrights are owned by companies such as Disney, Warner Bros., and Marvel. And rather than focus on toys, he classifies his stock as "gifts" small, plush toys, figurines, photo frames and bubble bath.
For mass-market appeal, 80% of Cartoon Planet's products are priced between zl. 20-zl. 25. His No. 1 seller is a Winnie-the-Pooh "computer dangler" for zl. 15.
"I think we are surviving because we are such a niche store. We sell gifts. If we were a run-of-the-mill toy company that only trades once a year for Christmas, I don't think we'd be here today," said Madnani, whose TV ad budget is in the "seven-figure zloty" range.
Like other retailers, Madnani said hypermarkets had taken over much of the toy trade. "I think it would be nice if the hypermarkets were a little bit more sensitive," he said. "We've had situations this year with one of the largest chains. The buyer made a serious mistake and ordered very large amounts of stock (from Fareast). Three months later, the buyer told us to take our stock back or they wouldn't order any new product from us."
As for the future of Cartoon Planet, Madnani believes it's bright. "I find that Poland is a very nice culture, it's a very gift-oriented culture," he said. "And I think based on that, and based on what families spend on their kids here, this is the right business to be in."
The wholesaler
As the general manager of toy wholesaler Brio-Galtex, Tadeusz Galant supplies a range of branded and licensed products in Poland. But in the late 1990s, the growing presence of hypermarkets also started to take its toll on his trade. Although they continued to buy his licensed products, when it came to big brand toys, Galant was losing out. Hypermarkets were dealing directly with the toy companies.
He was also worried that hypermarkets would push smaller toy retailers the backbone of Brio-Galtex's business out of the market.
So in 1998, Galant made changes. A year earlier, he sold the majority of shares in Galtex, the company he and his wife Urszula founded in 1989, to Swedish toy giant Brio. Armed with fresh blood and more money, Brio-Galtex established a network of partner shops a loose term for toyshops that joined his merchandising group. They contribute to the cost of two catalogs Christmas and spring/summer offering competitive prices on toys in the Brio-Galtex stable.
Some of these toys include Disney products, LEGO, Pokemon and Teletubbies.
"We were worried that if the traditional toy shops collapsed, the hypermarkets would take over and we would lose half of our sales," Galant said. "That's why our program to support these shops to help the best ones to be good and survive ... is now our main business."
At the moment, the business has 300 partners. And while Galant said trade is going well, he also said he would prefer to reduce partner numbers to 200 mainly because of payment problems.
"Toyshops in the old days were all state owned. There were very few private shops, so in the early 1990s, shop managers became shop owners, in many cases with no capital. They had empty shelves, and in many cases that's how they work today," Galant said. "They are barely surviving. They are barely earning a living. They are always being given credit by us and other suppliers."
The big toy guns
Recipe for success: Marta Oziemska, director of LEGO Polska, shows off her LEGO range.
The No. 1 toy brand in Poland is LEGO, according to LEGO Polska's director Marta Oziemska, who estimated they have a healthy 15% of the toy market.
The reasons for this success, she said, are because Lego has been available in Poland for more than 30 years. She said it is an "educational" toy that appeals to parents and they push their products all year not just at Christmas with point-of-sale materials, competitions and advertising.
They also distribute widely. LEGO Polska distributes directly to hypermarkets and about 600 traditional toyshops, as well as to four distributors including Brio-Galtex. LEGO now even sells small "impulse purchase" products in alternative places such as gas stations and kiosks.
Like most toy businesses, Oziemska said trading has been difficult. "But taking into consideration that it has been going downhill for a lot of companies this year, we can still say we will finish at the same level as last year," she said.
The company also had a tough time in 1998, which prompted a change in LEGO's corporate structure. It was slimmed down for greater flexibility to accommodate children's insatiable appetites for new products. These are referred to as "craze" toys and LEGO's new one, which will be released in the near future, is a computer game for 2-year-olds.
For another toy giant, Hasbro, craze products are vital. Last year, the company's annual sales grew by 60-70% because of an interactive pet called Furby, said Hasbro sales manager Tomasz Micek. The Furby was 1999's hit Christmas gift. This year, Hasbro has Poo-Chi, an interactive pet dog that is proving to be the hottest toy around the world, and a large variety of Pokemon products Nintendo's hit computer game that has turned into a merchandizing gold mine.
And, of course, the hottest toys always sell in hypermarkets Hasbro's preferred distribution channel. "This year, we think our (sales growth) will be smaller because last year was amazing with Furby," Micek said. "But we anticipate Poo-Chi and Pokemon will boost sales."
But crazes can backfire. Last year, Hasbro distributed "Star Wars" figures from the new prequel, "Phantom Menace." The film was lackluster, and so was the demand for merchandise. With an oversupply of goods, Hasbro discounted stock early this year.
Hasbro does supply traditional toy retailers, but due to the higher risks involved, and the huge distribution network, a chain of regional distributors looks after that side of the business.
"We prefer to invest in hypermarkets because it's a safe channel," Micek said. "They have money and they give us our money back. The second point is the prices: the prices are very low in hypermarkets and in small specialized stores, the margins are very high. They cannot compete with hypermarkets.
"In the future, I think small stores will have more problems. I'd say in Poland, about 50-100 small stores are in good condition. The rest are terrible."
The hypermarket
Small retailers are finding it hard to compete against the well-stocked hypermarkets
In all Smyk stores, Poo-Chi sells for zl. 169, but in hypermarket chain Carrefour it's selling for zl. 123.
"It's the lowest price on the market," said Carrefour's national director of non-food goods, Guillaume de Colonges. "I think we had the smallest price from the beginning (of the Christmas season)," he said. "We're usually less expensive than our competitors."
Days after the interview for this article, Carrefour's competition, Geant, which had Poo-Chi advertised in its catalog for zl. 129, was selling it for zl. 119. The company declined requests for an interview.
When it comes to toy pricing, de Colonges is the first to admit that hypermarkets have an edge on the competition and, he added, it is only natural that this is having an effect on the specialist toy retailers.
During the past six years, more than 100 hypermarkets have opened in Poland. De Colonges said they have 30% of the toy retailing market and their presence will continue to grow at the expense of smaller specialist toy retailers.
"I think some smaller retailers could be squeezed out, but I don't think it's just because of the presence of hypermarkets," he said. "The toy industry is very dispersed. There are about 8,000 retailers in Poland without good organization, so it's very difficult for a manufacturer to distribute its product. I think out of that 8,000 about 3,000 are doing so well."
The remaining 5,000 are the ones that will be squeezed out.
Another key to the hypermarkets' strength is their ability to change focus. Throughout the year, Carrefour devotes 30-40 "elements" for 1,200 different toys; one element is one square meter of shelf space. At Christmas, they expand to 2,000 different toys displayed over 120 elements. Good pricing deals are always negotiated with suppliers on specific items, and then advertised in its bumper Christmas catalog, which is distributed to homes within a 10-minute radius of every Carrefour hypermarket.
It's enough to help Carrefour grow its toy sales by an estimated 20% each year.
