The US recreational products market, consisting of games consoles and software, traditional toys and games, and sports equipment, generated revenues in 2006 of approximately $57 billion.
The markets most lucrative segment in 2006 was sports equipment, generating total sales of $23.8 billion. This sectors performance has been boosted by the increasing awareness of obesity in the US, as consumers have looked to lead healthier lifestyles and incorporate sports into their daily routine.
The rising price of raw materials and the need to cater to an evolving demographic are placing financial pressures on companies. However, consumers with increasing amounts of disposable income and growing demand for 'gadgets' has seen revenues grow strongly, mitigating these rising costs, providing that companies have managed to diversify in order to meet consumer demand.
Leading companies in this highly competitive industry include Brunswick Corporation, Mattel, EMI Group, and Hasbro. Companies are continuing to outsource manufacture to areas of low cost labor, such as China. Recent news articles have reported the use of unsafe materials in toys made in China and sold in the U.S. This will pose a challenge for Chinese toy makers as they work to overcome this damage to their credibility.
High Input Costs
Companies throughout the US manufacturing sector are experiencing increased costs due to high prices for energy and many raw materials, including base metals and plastic resins. Many markets are highly price competitive, and therefore additional costs cannot be passed onto the customer, detracting from profit margins.
Decline in Sale of Traditional Toys
Manufacturers of traditional toys and games have experienced significant difficulties in recent years, as children are tending to lose interest in traditional toys at an earlier age. Indirect competition from the video and PC gaming sector is thought to be a major reason for the change in market dynamics.
The aging population and falling birth rate are reducing consumer bases in key demographics, particularly within the toys and games sector. Companies have been forced to shift the focus of their marketing strategies and product portfolios in order to keep pace with this change in demand.
To defend margins, manufacturing companies are outsourcing or relocating manufacturing operations to regions with lower labor costs, most notably South-east Asia, including China and Taiwan. The United States is currently experiencing an influx of Chinese-made goods, especially toys and games, as domestic supply has failed to meet demand.
A major source of revenue within the toy and video game market is gained through the production of products linked to recent film releases or TV shows. For example, in June 2006 Mattel gained a licensing deal with Time Warner to produce toys based on characters and shows from the TV channel Cartoon Network. Such deals are highly lucrative, as the popularity of TV show should assure the sale of the associated product.
Next-Generation Games Consoles
The US games console and software sector is currently undergoing a period of intense competition with the 2006 release of Sonys Playstation 3 and Nintendos Wii third generation consoles. Microsoft has had a significant head start with the release of its third-generation console, the Xbox 360, in Autumn 2005. Although technological features of consoles are important competitive factors within the console gaming sector, of paramount importance is the quality and diversity of games available. An important emerging feature of video gaming is the ability to play online, and therefore software titles with online compatibility will have a significant sales advantage moving forward.
The US recreational products market is valued as the revenues from retail sale of games consoles and games software, traditional toys and games, and sports equipment.