State of the Industry: Resetting Expectations — The U.S. Toy Market Sets Its Sights on More Correction in 2024

by JULI LENNETT, Vice President, Industry Advisor, U.S. Toys, Circana (formerly The NPD Group)

In 2023, retail sales of toys in the U.S. totaled $28 billion, reflecting an 8% decrease — equivalent to $2.4 billion — compared to 2022. This decline was mirrored in both unit sales and average selling price (ASP), which experienced an 8% and 0.4% drop, respectively, with the ASP settling at $12.08.

Looking beyond the annual figures, it’s important to recognize the resilience of the toy industry. Despite the decline in 2023, the overall picture reveals a sizable $5.7 billion increase in sales since 2019. This positive trend is largely attributed to the consistent growth in ASPs over the past four years, driving an average 6% year-over-year increase in dollar sales. The toy industry has demonstrated the ability to adapt and thrive, even in the face of challenges.

The industry experienced several headwinds in 2023, including persistent inflation, dwindling consumer savings, and a rise in consumer credit card debt. These factors markedly affected consumer spending trends, as many shoppers began to prioritize essential purchases and reduce discretionary spending. In the fourth quarter, specifically, dollar sales decreased by 8% compared to last year, according to Circana’s Retail Tracking Service, while unit sales declined at a slightly slower rate of 6% and ASP dropped by 2%.

While economic challenges have impacted overall consumer behavior, the toy industry has still reaped the benefits of an influx of new consumers since 2019. Engaging with these consumers and keeping them interested with innovative and exciting products is essential for driving future growth.

Consumer preferences shifted throughout 2023 across product categories, with three out of the 11 supercategories tracked by Circana experiencing growth. Building Sets led the charge with the most significant dollar gain, followed by Plush and Vehicles. While Outdoor & Sports Toys maintained its position as the largest supercategory, it also faced the most substantial dollar decline.

The year’s top-performing toy properties, including Pokémon, Barbie, Squishmallows, Star Wars, Marvel, Hot Wheels, Fisher-Price, LEGO Star Wars, Disney Princess, and Melissa & Doug, offer a snapshot of 2023’s consumer preferences and trends.

To reset and rebalance was my overarching theme for the toy industry in 2023. This year, my message is one of correction and consistency, to pave the way for stability. With that, as an industry, we need to get through some inconsistency before we can get back on solid ground. Consumers will continue to face financial pressures in 2024 so we’re still in for a bumpy road ahead.

Inflation, despite a slowdown, remains a notable challenge. Elevated prices persist, and consumer demand across the discretionary categories is still yet to fully rebound despite slower inflation. Student loan repayments will further impact parents with young children and the kidult demographic. This financial strain is expected to peak in September 2024, as the deadline looms for starting repayment without negatively impacting credit ratings.

Amidst these macroeconomic challenges, there are some nice tailwinds to lift the industry. Overall, the economy, labor market, and consumer confidence are all showing signs of improvement. On the retail front, retailers are recognizing that they need to improve the shopping experience and are investing in their stores. With many retailers successfully shedding excess inventory from the holiday season, the stage is set for improved inventory management and enhanced reported sell-in to retailers compared to 2023. From a demographic perspective, grandparents are stepping up to the plate, buying more toys for their grandchildren in the third quarter of 2023 compared to the prior year. Grandparents have big spending power in the toy industry, so implement a grandparent strategy if you don’t already have one.

Consumers will be more focused on their immediate needs in the year ahead, but they naturally will not forgo the top toy-buying occasions including birthdays, Christmas, Easter, and so on. Doubling down on these occasions will be critical as consumers manage tighter budgets. Highlighting overall value to justify spending and offering something for everyone, across all price points, will be important for success.

Furthermore, adopting a strategic approach to marketing, inventory management, and adapting to shifting demographics will offer toy industry
leaders a way to navigate and thrive in 2024. Consumer demand will be heightened by newness, innovation, and evergreen or nostalgic products showcased in a new light.

Data Sources: Circana, Retail Tracking Service, January-December 2019-2023; Circana, Checkout Recipient Insights, Q3 2023. Data is representative of retailers that participate in Circana’s Retail Tracking Service. Circana’s current estimate is that the Retail Tracking Service represents approximately 76% of the U.S. retail market for toys.

*New = no sales volume in 2022

A version of this feature was originally published in the February 2024 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!