So the baby boom that many were expecting since the introduction of the so-called Two-Child Policy has not come to be. That boom is being felt elsewhere; not in the belly but in the pocket of parents and grandparents nationwide.
The home of any semi well-to-do family in China resembles a shrine to polyethylene; an almost expected byproduct of a toy market that has tripled in size over the last five years to, in 2014, exceed ¥150 billion. Yet what of a toy? In many Chinese parents’ minds, play is synonymous with idleness and failing exams, which, when coupled with the concern that the education system does not do enough to develop critical skills, explains the popularity of after-school and weekend classes in anything that sounds serious, such as mathematics, music or, dare we say the word, English.
Chief Executive of Lego, Jorgen Vig Knudstorp was quoted as saying,
“Chinese parents are concerned about their children’s competitiveness to survive in society. Their focus is on the children’s learning”.
So while one school of thought questions the value of learning to play with coloured bricks, more and more are attracted to Lego’s capacity to develop children’s creativity and independence, to the extent that by 2017 the company will open its first factory in Asia, in Jiaxing, Zhejiang province, a mere 100km from Shanghai and strategically well positioned for the municipality’s port. With a price tag in the order of €100 million, the new factory will follow the same technology, automation and standards for employee safety and product quality as the firm’s other manufacturing facilities in Denmark, Hungary, Czech Republic and Mexico.
“It will also have a distinct Lego look and feel”,
says Michael McNulty, Senior Vice President of Lego Procurement.
With a workforce of some 2,000, the facility’s location is close to the Lego regional distribution centre for Asia. Jiaxing was further chosen, in part, on account of its plans for Sustainable Urban Development (SUD) aligning nicely with many of Lego’s most fundamental values.
“It is our strategy to have production close to our core markets in order to secure short lead-time and world class service to our customers and consumers, and it has proven a successful strategy”,
says Bali Padda, Lego’s Chief Operations Officer, adding, “Asia, including China, is a future core market for the Lego Group… Having full control of the production process is essential to deliver products of a consistent high quality and safety and in harmony with our values”.
One fallout from the One-Child Policy more akin to gold dust for toy marketeers in China is the fact that many parents are shopping for children’s products for the first time, relying heavily on recommendation when it comes to their purchasing choices. This is where Lego has been really clever; over the past few years the nonprofit Lego Foundation has operated a program that donates construction sets to schools that enrol over 100,000. The minimal numbers only make the program more effective; by creating a premium for time spent with the toy, the not-so-subtle message gets through to parents that they really ought to get one for their child to play with whenever they want.
James Button, a senior manager at the Shanghai-based consultancy SmithStreet, points out Lego is
“straddling the line between education and play”.
The strategy is working (and so are the sales) on multiple levels too; not only are the children happy, mothers believe their child is learning as well as playing and the government backs the programme 100 percent. In South Korea, Lego operates over 100 after-school educational centres and has to date opened 20 in China. No surprise then, Lego sales in the region have grown by more than 50 percent annually in recent years. China is the 82-year-old company’s fastest-growing market, and in 2013 Lego overtook Hasbro to become the world’s second-largest toymaker.
Atop the pile sits Mattel. With 1.4 percent of the overall toy market in China, its most successful brand is the learning-oriented Fisher Price, that according to Euromonitor is the 14th biggest toy brand in China. For now however, industry insiders are not building towers out of wooden toys, they are figuring out whether to invest in the Dreamhouse property market.
Dating back to 1959, Barbie is today sold in 150 countries. China is no exception, yet it was almost not to be. In 2011 Mattel’s flagship Shanghai Barbie Store closed, only two years after opening its doors. It was a very public illustration of what had been going on inside the company for the past decade. Unlike Lego, who focused on one, iconic product, and worked on ways to make more children play with it, Mattel has grown by acquiring a diverse array of toys, a strategy that was to run away with itself in the 1990s through rampant diversification into apparel, video games and theme parks. It was a total disaster that almost bankrupt the company.
Licking its wounds, in 2013 Mattel reintroduced Barbie to the mainland market. This time, she came with an affordable price tag; one of the mistakes made previously was the belief that Barbie in China needed to have an element of bling, no doubt the trumped-up idea of some over-paid, supposedly world-class advertising agency in Shanghai. No, the trick is to go local. So, this time around, instead of designer Barbie clothes by Oscar De La Renta, there came in 2014 a celebrity tie-in with Chinese actress Fan Bingbing. The specialty doll, struck in the likeness of Ms. Fan herself, has a lot more on her plate than hooking up with Ken; heralding in the launch of the doll, Mattel declared,
“[Fan Bingbing’s] collaboration with Barbie will give purpose and meaning to play and help ignite the spark inside girls across China to ‘Shine Your Way’”.
Away from toys, Little Emperor Syndrome has also propelled childrensware into the upper echelons of the to-die-for product categories in terms of merchandising in China, joining the likes of watches and anything made of leather. Indeed, Burberry’s new Beijing flagship houses the brand’s biggest ever childrenswear department. Else where, in what appears to be a total disconnect, Mobi Kids is a product line spun off from its parent Mobi Garden, a large national outdoor equipment retailer. Where else but China would the Little Emperor Syndrome give rise to entire product lines devoted to outdoor clothing for kids?
Xiao Mo Xian, on the other hand, is a franchise of animated feature films, TV shows and merchandise that runs from books and dolls to the devices and magic wands that feature prominently in the part Harry Potter, part Scooby Doo mystical adventure that stars teenagers sporting hair dyes the envy of peroxide itself. While the appeal may be incomprehensible to foreigners, it is not lost on China’s kids; in 2012, sales of derivative product for Xiao Mo Xian exceeded ¥400 million with their animated films reportedly making a handsome 66 percent profit and toys associated therewith producing a 46 percent profit.
With all this activity in the Little Emperor market, and despite what the numbers may lead one to initially suspect, there appears little to suggest that China’s parents are suddenly going to start having more children, just because they can, and simply spend less on each one, to get by. It is certainly a case worth considering; the budget presently blown on all the toys, clothes, treats, red envelopes and after-school classes would be more than enough to provide for two.
While the One-Child Policy may have created the demand, the Two-Child Policy serves to not only placate humanitarians, but also to ensure that very demand’s continuance. As can be said for much of the rest of life, change is good, but gradual change is better.
Cassie Mo, co-General Manager of the Nanjing-based toy producing brand Rock My Baby, whose primary business is the export of toys, remains optimistic over the domestic side of her business too. She says,
“In the long run, it will have a good influence on the baby business, for toys etc.”
From the retail effect to its practical challenges, the slow shift underway is very much based in reality. That relatively very few Chinese couples are taking the government up on the right to have a second child is a blessing, for the system is already at near breaking point.
“There will be opportunities but also competition”,
Mo says in reference to the current situation that puts enormous pressure on educational facilities such as the better kindergartens, most of which have no more places available for additional children brought about by the Two-Child Policy.
For many, it remains a pragmatic choice; better to not have another, than not to be able to spoil one. That is leaving the infant retail sector in China pretty confident in the future. The little emperor is not going anywhere, for now.
This article was first published in The Nanjinger Magazine, April 2015 Issue. If you would like to read the whole magazine, please follow this link.
