Quick, think of the major players in toy industry retail. Your mind may immediately jump to Walmart, Target, or perhaps the rapidly-expanding CAMP footprint. There’s a good chance Dollar General wasn’t first, or maybe even on your list.
However, with around 19,000 brick-and-mortar locations across the U.S., this discount retailer isn’t one that we should, well, discount.
More than 75% of the U.S. population lives within 5 miles of a Dollar General, according to Katie Ellison, a spokesperson for the chain. And within the aisles of those stores, shoppers can find many of today’s top toy brands, including 5 Surprise, LEGO, Barbie, and more.
Dollar General is one piece of a much larger trend that is seeing discount and outlet stores become a significant force within the toy industry. While today’s shoppers can find Disney exclusives at Big Lots and weekly Squishmallows drops at Five Below, there was a time not too long ago when, broadly speaking, discount stores were not considered a place for consumers to find brand-name toys.
“If you think about the dollar or the value channel five years ago, it was comprised of, basically, tchotchke business,” says Keith Gammon, Vice President of Sales for North America at ToyMonster. “A lot of cheap product that really was meaningless in terms of the market, but it hit a price point.”
Now, thanks to economic shifts, changing consumer expectations, and a stronger emphasis on toy inventory, these discount shopping destinations have started stocking their shelves with recognizable brands and focusing on the value that consumers can find for $5.
Five Below President and CEO Joel Anderson — a former Toys “R” Us executive — has highlighted the company’s commitment to wow-factor toys during investor calls in the past. The strategy appears to be working: In January, the retailer reported an 11.2% spike in 2022 holiday season sales.
“We believe our diverse eight worlds and ‘wow’ merchandise offering, along with increased and more targeted marketing, effectively highlighted the tremendous value for our customers,” Anderson said in a statement.
The list of major toy companies with product on-shelf at discount stores is expansive and ever-growing, but one example is ToyMonster’s Captivz line, which features Jurassic World dinosaur figures hidden inside eggs alongside tactile compounds.
Another well-known brand with a strong foundation in the discount space is Squishmallows, the popular plush line owned by Jazwares. While collectors may not find a massive, 24-inch Squishmallows plush at their local Five Below, they will find exclusive designs and a constantly changing inventory at a $5 price point, which Gerhard Runken, Senior Vice President of Brand and Marketing at Jazwares, says stays true to the brand’s goal of being accessible for everyone.
“You never know what you are going to find or how long it will be available, adding to the excitement of the shopping experience,” Runken says. “From gateway fans to hardcore collectors, they know that discount stores might hold that hidden gem they are looking for. It can also provide a great value and can give someone looking for a toy a chance to get something additional because of the lower MSRP.”
Both Captivz and Squishmallows bring intellectual property into the mix with their discount store offerings. When working at such a low price point, this can mean small margins. However, as ToyMonster Global Head of Brand Development Claire Carroll explains, this can push creativity in toy manufacturing.
“It really is about what sparks that consumer need, and what does that kid at the end of the day want to have a piece of,” she says. “And how do we achieve that within this formula of needing to hit everyone’s requirements, which is obviously low price point plus branding, plus all the approvals, plus royalties, plus still being able to afford to market it. But I think that makes us more innovative as well.”
And innovation isn’t the only upside to working in the discount space. Sunny Days Entertainment recently launched Cutie Loos, a fashion-inspired line of flocked animal collectibles, at Five Below. Rick Mershon, Senior Vice President of Sales and Marketing at Sunny Days Entertainment, speaks highly of Five Below as a retail partner, describing the team’s collaborative process, creative leeway, and frequent face-time as qualities he appreciates.
Mershon also notes that discount retailers tend to run a product-focused business, as opposed to a program-focused business, which provides an opportunity for toy manufacturers to launch single items that may not make a splash at traditional retailers. “If you imagine going to a Walmart or a Target or a Fred Meyer, they tend to shy away from a little tiny box that is a single item,” he explains. “So it’s a single item and it’s a 5-by-5-inch box. It’s really hard to make an impact if you don’t have a statement in those environments.”
“I think a lot of people have, in the past, thought of the value chains as opportunistic … And it’s changed from that to being a developmental partner.”
– Rick Mershon, Senior Vice President of Sales and Marketing, Sunny Days Entertainment
This means that launching products in a discount space can be an opportunity to explore trends and innovate without committing to a full product program. If a smaller, value-exclusive item becomes successful, he explains, then the company can expand that brand with higher price-point items that can find a home in other retail spaces.
“I think a lot of people have, in the past, thought of the value chains as opportunistic, right?” he says. “It’s like, oh, we have this excess product that we’re going to ship to them. And it’s changed from that to being a developmental partner for sure.”
And it isn’t just discount stores that are part of this trend. According to Scott Feinstein, Vice President and Division Merchandise Manager at Ollie’s Bargain Outlet, outlet stores are also gaining a foothold in the toy business. Feinstein says that Ollie’s has always prioritized carrying brand-name toys. However, as the chain has expanded from 12 stores to more than 460, the retailer’s connections within the industry have also deepened. Now, Ollie’s partners with most major toy manufacturers to offer some of the most discounted toy prices available, exclusively at its brick-and-mortar locations.
Feinstein adds that when you add up the various outlet chains, such as Ollie’s, TJX, Ross, and Burlington, you’re looking at thousands of retail locations.
“If you lump us together, it’s pretty big buying power,” he says. “For the last 40 years, I have been trying to get the manufacturers to realize how important the off-channel line is. And I think they have realized it now.”
He highlights changing consumer needs as a primary driver behind this shift, and he isn’t alone. As consumers face difficult economic times and inflation, they are searching for ways to cut costs and seek out alternative retail channels.
“Our customers, especially in times like now, need a bargain. And they’ve been able to come to Ollie’s for years and years,” he says. “It’s really no secret sauce. I mean, that’s really it. Just offering the customer a great value at drastically reduced prices, up to 70% off the fancy store’s price.”
And while discount and outlet stores offer a solution that consumers need, the discount store boom seems to hint at a larger trend toward affordable, quality toy options in all retail spaces. According to Carroll, ToyMonster is seeing more value and dollar opportunities from mass retailers as they change their mindset.
“Everybody, at the end of the day, still wants to deliver on Christmas and kids’ birthday presents and get the latest and greatest,” she says. “But how do they get a piece of that that doesn’t take away from their daily spending, their necessities?”
Looking ahead, as North America faces a likely recession, offering high-quality toys and games with budget-friendly pricetags will remain top-of-mind. And the industry will be watching as emerging retailers and concepts in this space — such as Canada’s Showcase, Dollar General’s new pOpshelf locations, and Five Below’s Five Beyond offerings — continue to innovate and aim to impress cautious consumers.
A version of this article was originally published in the 2023 edition of The BIG Toy Book. Click here to read the full issue! Want to receive The Toy Book in print? Click here for subscription options!
