Trouble in toyland
Children are unquestionably the most eager consumers on the planet, an angel's gift to the market. They knock out everyone else with their breathtaking spending power. But, as every parent knows, they are wise enough not to spend their own money.
This is a story about Polish toy producers. Health warning! The majority of domestically produced toys will be wiped out by ones offered by foreign competitors. The process is far advanced and largely, it is local manufacturers' own fault.
The exact value of the toy market is unknown, but industry watchers estimate it at €230 million, based on the number of children in the under-10 age group at just 4.76 million and the fact that the market is 90% controlled by importers. There are around 2,000 domestic companies involved in the production or distribution of toys, remarkable compared with the whole of the European Union, where the number is exactly the same. But this means a domestic market composed of numerous, fragmented producers. Only last year did toy producers organise themselves into an industry association. The process of market consolidation has not even started yet, and already it may be too late, because as Jolanta Sitek, owner of toy producer Plastsit, puts it: "When we join the EU, the Germans and Italians will walk over us."
The numerous operators on the market display all the usual deficiencies of too many SMEs.
"I reinvest slowly from my profits, and I am afraid to take on large credits," Sitek said. In the battle with the big foreign names, it means there will be many more casualties. Home producers have virtually abandoned the market for children under three on account of the approval certificate required by the Institute of Mother and Child (IMiD) or the Polish Institute of Hygiene (PZH). To avoid the costs involved, they apply a warning: "Not suitable for children under 3." This leaves a growing number of parents who are sensitive to the safety needs of their children with no choice other than to buy imported toys. "The Polish producers are lying on their backs," said Anna Pietrusiewicz, manager of the wiat Dziecka shop in Warsaw.
Most are totally unprepared for accession, and the government provides little assistance to them. EU Directive 88/379, which governs toy safety on very strict terms everywhere in the common market, mandates that nothing can be sold without the sign of approval, namely the easily recognised CE kitemark. Only toys bearing this sign can be sold on the EU market, and therefore, from the moment of accession, on our domestic market as well. There is no institution which presently has the power to grant the kitemark since the country is not in the EU yet, so producers have a choice: either to wait for enhanced competition plus tight EU regulation to push them out of the market, or to apply to the Polish Centre for Testing and Certification (PCBC), which conducts safety tests in their own laboratories and sends the results to an approval laboratory in Paris to be granted a certificate, a protracted and expensive procedure, or they can arrange compliance via a selected partner in Germany or the Czech Republic. And yes, the Czech Republic has, unsurprisingly, had the foresight to sign an enabling agreement with Brussels. Another black mark for the Polish government.
VAT on toys, which was increased to 22% this month, is another blow. The government insisted that the increase was made to comply with EU regulations concerning VAT levels. Indeed, there is a statutory minimum, but it's 15%, and beyond that, member states can select their own applications. So VAT rates range from 15% in Luxembourg to 17.5% in the UK to 25% in Sweden, placing Poland's 22% almost at the top.
Jolanta Sitek said: "We are not miners or steelworkers. We will not go to protest in front of the Sejm, so no-one takes any notice of our problems. I feel helpless when I look at the 15 women I employ, most of them breadwinners for their families." Because of the VAT increase, Sitek will be sending some of her workers to the ranks of the unemployed.
The majority of toys on global markets originate in the Far East, mainly China - Hong Kong especially - with Thailand, Taiwan and the Philippines as big exporters, too. Low wages are not entirely responsible. Asian companies, encouraged by prestige western brand names, invest in increasingly complex machinery, especially those which enable children to engage in interactive enjoyment. They have no difficulty complying with safety requirements. The majority of toys imported by the EU are from Asia, and only 3.1% from all Eastern European countries combined. EU exports of toys to Eastern Europe amount to 19% - 3.7% of which come to Poland.
Only 10%-15% of the toys sold in Poland are produced domestically, with imports amounting to €200 million, increasing by €5 million-€10 million annually. There are two significant factors for the near-total dominance of importers. Asian-made toys are popular because they are safe and increasingly well-made. Large factories in China filled with state-of-the-art equipment churn out patented designs for major-league global manufacturers, who then sell them to foreign markets at enormously inflated margins because of the benefit of low wages and taxes in the east. Second, there are few indications that domestic manufacturers have ever contemplated taking on up-market producers, such as Chicco, Fisher-Price (part of Mattel, with factories in China) and Lego, whose products dance out of our shops even at stratospheric prices in the region of zł. 400. The big names rely on expert in-house designers to constantly probe ahead for new child-enticing products. Again, a major difference with Poland.
On the market for plastic toys there are numerous domestic players, such as Wader&Woniak in Dšbrowa Górnicza, Plastsit ans Nina in Bydgoszcz and Mochtoys in wierk. But their products are described as simple and unchallenging, while the market is turning to quality and interactivity, according to Krzysztof Dziełak, marketing director of the Polish division of Swedish producer Brio. They all aim at the same customers with small budgets.
"Ten złotys is a magic price. If we keep our product below that, it will sell well," said Artur Moch, owner of Mochtoys. "We tried to go into more complicated and, therefore, more expensive toys, but it did not work."
Polish-made plastic toys are multishaped and multicoloured, but not challenging for children. Old faithfuls, such as bricks, toy cars, the sandpit bucket and spade, are simple to extrude from standard patterns and simple machinery.
"We do not invest in different technologies because the market tells us something different," said Wojciech Gęborek, marketing director of Wader&Woniak. His company is probably the largest domestic producer, with 2,000 outlets. But Gęborek said that his firm does not conduct market research on the grounds that it does not deem it necessary. As Pietrusiewicz commented, the absence of research does not fill the shops with expensive, high quality toys which spend little time on the shelves.
Domestic producers find it easier than specialised toy outlets to sell to the supermarkets. For example, Mochtoys co-operates with Auchan, Carrefour, Tesco and others because they find the supermarkets are more reliable payers and that bulk orders are more attractive, said Artur Moch. But shops like wiat Dziecka are not really interested in domestic toys due to their inferior quality. "We have toys from the medium and upper shelves," Pietrusiewicz said.
Toys offering educational value are enjoying strong growth, led by pioneers such as Early Learning Centre in the United Kingdom, which astonished the toy world by breaking the big-name dominance of the market with a range of specialist-designed products to encourage children to enjoy thinking and problem-solving. Again, although domestic producers claim their toys are "educational," they, in fact, offer a restricted range of toys which all resemble each other. The "round pegs and square holes" toy is virtually the only type to be found.
One segment of the market which is expanding is wooden toys.
"Since last year we noticed increasing interest in our products," said Krzysztof Poraziński, owner of a family business, Ekofan, in Warsaw, one of many small specialist producers. "People are seeking original toys; they are bored with plastic," he said.
Yet, it might turn out to be the only future the domestic toy market has. Poraziński does not co-operate with any designers because, as he put it, his inspirations are his own. He does not have the CE kitemark and his "wife is going to deal with it." And Brio, the world leader in wooden toys and already strong on the market here, is promoting another brand, Plan Toys from Thailand.
A specific small part of the market are books for small children, nearly all of which are produced in and shipped from China as well. This especially applies to the new fashion for interactive board books, which enable very small children to connect with the storybooks beyond the visual encounter. In Europe, just two countries count as serious producers in this area - the Czech Republic and Italy. The technology to print on thick card paper is expensive, and no Polish companies have invested there, according to Renata Szmyd, production manager of the Wilga publishing house. Another publisher, Egmont, part of a global brand, often reprints Polish-language versions of stories which sell well in other countries, but not in Poland. With worldwide punch behind them, the firm prints simultaneously in many languages, delivering massive savings to the bottom line. But even smaller domestic publishing houses commission their printwork in China, especially if they require complex designs which include electronic gadgets.
Every year the huge January toy fairs in Nuremberg attract Polish toymakers in abundance. Even though many of them will shelter behind German or other foreign names due to the general distrust of Polish products, they win business. The industry declares that the rival Polish event in Poznań is really just a social event where serious deals are rarely struck.
The story is a sad one. It is about the widespread refusal of SMEs to invest, to understand the value of research and marketing and to innovate. The toy market is so far lost it will never be won back.
This is a story about Polish toy producers. Health warning! The majority of domestically produced toys will be wiped out by ones offered by foreign competitors. The process is far advanced and largely, it is local manufacturers' own fault.
The exact value of the toy market is unknown, but industry watchers estimate it at €230 million, based on the number of children in the under-10 age group at just 4.76 million and the fact that the market is 90% controlled by importers. There are around 2,000 domestic companies involved in the production or distribution of toys, remarkable compared with the whole of the European Union, where the number is exactly the same. But this means a domestic market composed of numerous, fragmented producers. Only last year did toy producers organise themselves into an industry association. The process of market consolidation has not even started yet, and already it may be too late, because as Jolanta Sitek, owner of toy producer Plastsit, puts it: "When we join the EU, the Germans and Italians will walk over us."
The numerous operators on the market display all the usual deficiencies of too many SMEs.
"I reinvest slowly from my profits, and I am afraid to take on large credits," Sitek said. In the battle with the big foreign names, it means there will be many more casualties. Home producers have virtually abandoned the market for children under three on account of the approval certificate required by the Institute of Mother and Child (IMiD) or the Polish Institute of Hygiene (PZH). To avoid the costs involved, they apply a warning: "Not suitable for children under 3." This leaves a growing number of parents who are sensitive to the safety needs of their children with no choice other than to buy imported toys. "The Polish producers are lying on their backs," said Anna Pietrusiewicz, manager of the wiat Dziecka shop in Warsaw.
Most are totally unprepared for accession, and the government provides little assistance to them. EU Directive 88/379, which governs toy safety on very strict terms everywhere in the common market, mandates that nothing can be sold without the sign of approval, namely the easily recognised CE kitemark. Only toys bearing this sign can be sold on the EU market, and therefore, from the moment of accession, on our domestic market as well. There is no institution which presently has the power to grant the kitemark since the country is not in the EU yet, so producers have a choice: either to wait for enhanced competition plus tight EU regulation to push them out of the market, or to apply to the Polish Centre for Testing and Certification (PCBC), which conducts safety tests in their own laboratories and sends the results to an approval laboratory in Paris to be granted a certificate, a protracted and expensive procedure, or they can arrange compliance via a selected partner in Germany or the Czech Republic. And yes, the Czech Republic has, unsurprisingly, had the foresight to sign an enabling agreement with Brussels. Another black mark for the Polish government.
VAT on toys, which was increased to 22% this month, is another blow. The government insisted that the increase was made to comply with EU regulations concerning VAT levels. Indeed, there is a statutory minimum, but it's 15%, and beyond that, member states can select their own applications. So VAT rates range from 15% in Luxembourg to 17.5% in the UK to 25% in Sweden, placing Poland's 22% almost at the top.
Jolanta Sitek said: "We are not miners or steelworkers. We will not go to protest in front of the Sejm, so no-one takes any notice of our problems. I feel helpless when I look at the 15 women I employ, most of them breadwinners for their families." Because of the VAT increase, Sitek will be sending some of her workers to the ranks of the unemployed.
The majority of toys on global markets originate in the Far East, mainly China - Hong Kong especially - with Thailand, Taiwan and the Philippines as big exporters, too. Low wages are not entirely responsible. Asian companies, encouraged by prestige western brand names, invest in increasingly complex machinery, especially those which enable children to engage in interactive enjoyment. They have no difficulty complying with safety requirements. The majority of toys imported by the EU are from Asia, and only 3.1% from all Eastern European countries combined. EU exports of toys to Eastern Europe amount to 19% - 3.7% of which come to Poland.
Only 10%-15% of the toys sold in Poland are produced domestically, with imports amounting to €200 million, increasing by €5 million-€10 million annually. There are two significant factors for the near-total dominance of importers. Asian-made toys are popular because they are safe and increasingly well-made. Large factories in China filled with state-of-the-art equipment churn out patented designs for major-league global manufacturers, who then sell them to foreign markets at enormously inflated margins because of the benefit of low wages and taxes in the east. Second, there are few indications that domestic manufacturers have ever contemplated taking on up-market producers, such as Chicco, Fisher-Price (part of Mattel, with factories in China) and Lego, whose products dance out of our shops even at stratospheric prices in the region of zł. 400. The big names rely on expert in-house designers to constantly probe ahead for new child-enticing products. Again, a major difference with Poland.
On the market for plastic toys there are numerous domestic players, such as Wader&Woniak in Dšbrowa Górnicza, Plastsit ans Nina in Bydgoszcz and Mochtoys in wierk. But their products are described as simple and unchallenging, while the market is turning to quality and interactivity, according to Krzysztof Dziełak, marketing director of the Polish division of Swedish producer Brio. They all aim at the same customers with small budgets.
"Ten złotys is a magic price. If we keep our product below that, it will sell well," said Artur Moch, owner of Mochtoys. "We tried to go into more complicated and, therefore, more expensive toys, but it did not work."
Polish-made plastic toys are multishaped and multicoloured, but not challenging for children. Old faithfuls, such as bricks, toy cars, the sandpit bucket and spade, are simple to extrude from standard patterns and simple machinery.
"We do not invest in different technologies because the market tells us something different," said Wojciech Gęborek, marketing director of Wader&Woniak. His company is probably the largest domestic producer, with 2,000 outlets. But Gęborek said that his firm does not conduct market research on the grounds that it does not deem it necessary. As Pietrusiewicz commented, the absence of research does not fill the shops with expensive, high quality toys which spend little time on the shelves.
Domestic producers find it easier than specialised toy outlets to sell to the supermarkets. For example, Mochtoys co-operates with Auchan, Carrefour, Tesco and others because they find the supermarkets are more reliable payers and that bulk orders are more attractive, said Artur Moch. But shops like wiat Dziecka are not really interested in domestic toys due to their inferior quality. "We have toys from the medium and upper shelves," Pietrusiewicz said.
Toys offering educational value are enjoying strong growth, led by pioneers such as Early Learning Centre in the United Kingdom, which astonished the toy world by breaking the big-name dominance of the market with a range of specialist-designed products to encourage children to enjoy thinking and problem-solving. Again, although domestic producers claim their toys are "educational," they, in fact, offer a restricted range of toys which all resemble each other. The "round pegs and square holes" toy is virtually the only type to be found.
One segment of the market which is expanding is wooden toys.
"Since last year we noticed increasing interest in our products," said Krzysztof Poraziński, owner of a family business, Ekofan, in Warsaw, one of many small specialist producers. "People are seeking original toys; they are bored with plastic," he said.
Yet, it might turn out to be the only future the domestic toy market has. Poraziński does not co-operate with any designers because, as he put it, his inspirations are his own. He does not have the CE kitemark and his "wife is going to deal with it." And Brio, the world leader in wooden toys and already strong on the market here, is promoting another brand, Plan Toys from Thailand.
A specific small part of the market are books for small children, nearly all of which are produced in and shipped from China as well. This especially applies to the new fashion for interactive board books, which enable very small children to connect with the storybooks beyond the visual encounter. In Europe, just two countries count as serious producers in this area - the Czech Republic and Italy. The technology to print on thick card paper is expensive, and no Polish companies have invested there, according to Renata Szmyd, production manager of the Wilga publishing house. Another publisher, Egmont, part of a global brand, often reprints Polish-language versions of stories which sell well in other countries, but not in Poland. With worldwide punch behind them, the firm prints simultaneously in many languages, delivering massive savings to the bottom line. But even smaller domestic publishing houses commission their printwork in China, especially if they require complex designs which include electronic gadgets.
Every year the huge January toy fairs in Nuremberg attract Polish toymakers in abundance. Even though many of them will shelter behind German or other foreign names due to the general distrust of Polish products, they win business. The industry declares that the rival Polish event in Poznań is really just a social event where serious deals are rarely struck.
The story is a sad one. It is about the widespread refusal of SMEs to invest, to understand the value of research and marketing and to innovate. The toy market is so far lost it will never be won back.
