Struggling imports pressure toy and sporting goods makers

Behind the eight ball: The industry is struggling
to remain competitive against imports

IBISWorld Industry Report C2942
Toy and Sporting Good
Manufacturing in Australia
May 2011 Claudia Burgio-Ficca

2 About this Industry 13 Major Markets 25 Revenue Volatility
2 Industry Definition 14 International Trade 26 Regulation & Policy
2 Main Activities 15 Business Locations 26 Industry Assistance
2 Similar Industries
2 Additional Resources 17 Competitive Landscape 28 Key Statistics
17 Market Share Concentration 28 Industry Data
3 Industry at a Glance 17 Key Success Factors 28 Annual Change
17 Cost Structure Benchmarks 28 Key Ratios
4 Industry Performance 18 Basis of Competition
4 Executive Summary 19 Barriers to Entry 29 Jargon & Glossary
4 Key External Drivers 20 Industry Globalisation
5 Current Performance
7 Industry Outlook 21 Major Companies
9 Industry Life Cycle 21 Pacific Brands Limited
22 Rip Curl Group Pty Ltd
11 Products & Markets
11 Supply Chain 24 Operating Conditions
11 Products & Services 24 Capital Intensity
12 Demand Determinants 25 Technology & Systems

www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com

www.ibisworld.com.au Toy and Sporting Good Manufacturing in Australia May 2011 2

About this Industry

Industry 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
Toys

Similar 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


Industry at a Glance
Toy and Sporting Good Manufacturing in 2011

Key Statistics Revenue Annual Growth 06-11 Annual Growth 11-16
Snapshot
$521.0m -3.7% -1.5%
Profit Exports Businesses

$36.5m $132.0m 1,100
Revenue vs. employment growth Sport participation
Market Share
Pacific Brands 5 3.4
Limited 14.0%
0 3.0
Rip Curl Group Pty
Ltd 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 locations

Key External Drivers 3% 1% 0.5%
Sport participation 4.5% TAS ACT NT
SA
Number of primary
9%
school students WA 40% NSW
Real household
disposable income
Trade-weighted index

17%
VIC

p. 4
25% SOURCE: WWW.IBISWORLD.COM.AU
QLD SOURCE: WWW.IBISWORLD.COM.AU

Industry 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


Industry Performance
Executive Summary | Key External Drivers | Current Performance
Industry Outlook | Life Cycle Stage

Executive 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



Key External Drivers affects the cost of imported goods. decrease the interest rate differential
continued 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


Current 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 years
Performance 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



Import competition foreign buyers, leading to a 4.0% per resulting shift from traditional toys at an
grows annum decline in industry exports. earlier age towards technologically
Along with rising import competition, interactive games like Nintendo or
continued
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.



Consumers get fit Alternatively, the teenage and young 0.9% per annum, the contraction in
continued 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 million
Outlook 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



Imports remains high demand for some toys and sporting electronic and interactive toys will be
continued 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.


Life 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



Industry 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 have
is 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.


Products Markets
Supply Chain | Products Services | Demand Determinants
Major Markets | International Trade | Business Locations

Supply 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.


Products Markets

Products Services Products and services segmentation (2011)
continued

40%
60%
Toys

Sporting goods

Total $521.0m SOURCE: WWW.IBISWORLD.COM.AU

Demand Demand for toy and sporting good purchase new and more expensive toys
Determinants 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


Products Markets

Demand 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 healthy
continued
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


Products Markets

International Trade International trade in toy and
sporting goods has remained high Industry Trade Balance

Level Trend over the past five years. Driven by a
800
shift in production facilities to Asian
Exports in the

countries (due to their lower cost of
industry are High production), China has dominated 0

and Increasing import volumes, often accounting for

$ million
over 65% of total annual imports. −800
I
mports in the
The majority of imported goods
industry are High include stuffed toys, plastic toys, −1600
and 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


Products Markets

Business 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



Products Markets

Business 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


Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks
Basis of Competition | Barriers to Entry | Industry Globalisation

Market Share Concentration in this industry is low. The awareness. Demand for locally
Concentration 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 the
Level
concentration in the industry has been dominance of international products in
Concentration in
held down by significant international the domestic market, Australian industry
this 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 with
I
BISWorld identifies locally or through imports, is important. imported products.
250 Key Success
Factors for a Establishment of brand names Level of competition
business. 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 are
important for this
with these attributes. not subject to significant import
industry 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



Cost 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.AU

Basis 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 based
Level 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 important
H
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 for
is 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



Basis of Competition product differentiation (such as product External
continued 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 Level
Level Trend the capital investment required to Competition High
establish operations in this industry. Concentration Low
Barriers to Entry

Such expenditure includes the cost of Life cycle stage Decline
in this industry are purchasing or constructing Capital intensity Medium
M
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.



Industry 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. Mattel
Level 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 a
this 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, while
is 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.


Major Companies
Pacific 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.AU

Player 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 discontinued
Pacific Brands brands’. Company operations are brands. The difficult and changing retail
Limited 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


Major Companies

Player Performance growth of 2.5%, while operations in New the outerwear and sport segment
continued 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, the
Rip 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


Major Companies

Other 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.


Operating Conditions
Capital Intensity | Technology Systems | Industry Volatility
Regulation Policy | Industry Assistance

Capital Intensity Capital expenditure has remained a
vital part of operations for toy and Capital intensity
Capital units per labour unit
Level sporting good producers over the past
five years. In fact, capital expenditure is
The level of capital

estimated to have increased owing to
0.5

intensity required advances in automation techniques 0.4
is Medium leading to a rise in efficiency and output 0.3
volumes. Capital expenditure for this
industry comes in the form of 0.2

expenditure on machinery and 0.1
equipment required for manufacturing.
Larger manufacturers in this industry 0.0
Economy Manufacturing Toy and
have the financial ability to invest in Sporting Good
Manufacturing
more sophisticated capital equipment Dotted line shows a high level of capital intensity
and defray the cost of this of this SOURCE: WWW.IBISWORLD.COM.AU

equipment across a larger sales base.
Alternatively, smaller-based operators labour intensive.
are better equipped to cater for the The medium level of labour intensity
specific needs of smaller clients. reflects this industry’s need for
However, these smaller and often labourers, technicians and designers
privately owned businesses are more that are actively involved in the

Tools of the Trade: Growth Strategies for Success

New Age Economy Investment Economy
recreation, Personal Services, Information, Communications,
Health and Education. Firms Mining, Finance and real
benefit from personal wealth so Estate. To increase revenue
stable macroeconomic conditions firms need superior debt
are imperative. Brand awareness management, a stable
and niche labour skills are key to macroeconomic environment
product differentiation. and a sound investment plan.
Capital Intensive
Labour Intensive

Sponge, Hoses, Belts and Other
rubber Product Manufacturing Toy and Sporting Good Manufacturing
Traditional Service Economy Old Economy
wholesale and retail. Reliant Agriculture and Manufacturing.
on labour rather than capital Textile Product Leather and Leather Substitute Traded goods can be produced
to sell goods. Functions cannot Manufacturing Product Manufacturing using cheap labour abroad.
be outsourced therefore firms To expand firms must merge
must use new technology or acquire others to exploit
or improve staff training to economies of scale, or specialise
increase revenue growth. in niche, high-value products.

Change in Share of the Economy SOURCE: WWW.IBISWORLD.COM.AU

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