As indicated by the typical company data, the demand for electronic learning products has been stable and increasing in the past three years. Asia market presents much stronger growth than North America during the same period reflecting factors including economy, demography, and local retail industry.  

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. There is not proof indicating that the general demand for toys is shrinking. However, the whole industry, as many other traditional industries, has been experiencing huge changes caused by changes in consumers’ behaviors.

2. It seems that traditional toys manufacturers and traditional retailers have experienced declining demand for their products in North America market.

3. However, demand for value-added toys, including those using high technology and popular story related brands, seems to be stable.

4. It seems that the demand for electronic learning products has been strong and increasing fast in Asia Pacific in the past three years.

5. Consolidation activities in this sector increased in North America in the past several years.

Causes behind the trend

1. Generally, the demand for toys has been growing driven by demographic and macro-economy factors.

2. This is particularly true in developing countries such as Asia where we have seen strong growth in household income in the recent years.

3. Unfavorable retail climate in US and struggling toys retailers may work against performance of toys manufacturers in US market.

4. Increasing popularity of online sales driven lower shipping charges, which provide more options for consumers looking for traditional toys from different manufacturers, dilute market shares of not only physical stores but also of current major manufacturers.

Industry Future

1. Companies may find that competition for high end product and brand may be the only way to maintain their market share. Physical retailers will be continuingly struggling in declining traffic. However, the whole industry will also benefit from increasing economy and population in emerging market.

General Financial Performance of Companies In the Sector

It seems that the demand for electronic learning products (kids) provided by companies in this sector has been stable and increasing in the past several years. The growth seems to have been slowing down in matured markets such as North America (generate 0.6% growth in revenue of 2017). However, the growth has been very fast in Asia area (present average annual 40-60% growth).

The typical gross margin is about 33% and with a SG&A as percentage of sales of 19% the operating margin is about 11% in 2018. The typical enterprise cash flow/EBI ratio is 20. The average annual increase in EBI/share is 14% in the past two years.

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