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Star Wars Collecting - A Reality Check

We all want more toys. Who wouldn’t want more toys, right? And our particular group wants more Star Wars action figures. The current campaign for more TVC exists for this sole reason: to get more toys. A goal everyone can get behind.

But, and you certainly knew there would be a “but”, what collectors on fansites want and what is economically viable does not always align. The purpose of the following article is to examine if Hasbro, Walmart and all the others will actually listen to what (TVC) collectors vehemently ask for. I mean, it’s simple right? Make more of something and you make more money? Cater to the hardcore demographic! Correct? So just make more of what they want and you will make lots of money! But in actuality it is not that simple, not at all. So click through to learn more about the impact hardcore collectors can make and how retailers see things like toys.

Once upon a time in a store, far far away…

This article has two parts. Part I talks about retailers and what matters to them. Part II tries to investigate how much of an impact the TVC community has on Hasbro in regards to revenue and profit. And yes, the article is long, but I would encourage you to read it so you may hopefully get an idea what things actually influence the decision to make “more” of something. It’s not as easy perhaps as you may think.

 

Part I – Retailers

So let’s talk about retailers first. I did talk about the following points in various comments sections in the past week or so, so maybe you have read some of it before.

Retailers like Walmart exist for one reason only. To make money. Simple. We all know that. But what is a good performer for a retailer like Walmart? You may think it’s just a matter of how much of any given product Walmart sells. That is, whatever is sold more often must make Walmart more money, right?

Not necessarily, actually, many times it’s not true at all. Retailers carry products with terrible margins, retailers carry products they don’t make a lot of money with. But retailers do so because customers expect them to have said product. Milk, bread, flour etc. you get the picture. And the customers would not come to your store if you didn’t carry these items. So you absolutely have to have them, regardless of margins.

Walmart and other retailers carry these items because they know that customers who expect you to have milk, bread or flour won’t just buy milk, bread or flour, they will buy many other things as well. So it works out in the end.

And this is a very important fact: retailers also look at overall performance of something, i.e. how much else people buy who also buy milk, bread or flour.

The next very important concept is that of the “loss leader”. A loss leader is something Walmart & co sell at or below cost, the typical bargains you get each week. Walmart doesn’t give you bargains because they like you, they do so because they know that bargains lure customers to their stores that may not have come otherwise. And Walmart also knows that a considerable number of people won’t just buy the special offer of the week, but also many other things. So even if Walmart makes no profit or even a loss with one item, the loss leader, overall sales and profits are still boosted because people buy other things as well. A perfect loss leader increases traffic to your store and earns you a nice overall profit. This is why bargains exist. They make economic sense. If people only bought bargains and nothing else the practice would stop.

This is also the reason why exclusives exist. The retailer does not necessarily expect to make a lot of money with the exclusive, it’s nice if they do, of course, but they primarily expect that the exclusive will increase the number of customers and boost overall sales and revenue (because the additional customers buy other things as well)! And if an exclusive from a company fails to do so repeatedly… the retailer may not be so eager anymore to ask for exclusives or may even say “nah, we won’t sell it after all, let Entertainment Earth have it”.

So that brings us to Star Wars. When people demand that Walmart carries and orders more TVC (or Star Wars) figures or that Hasbro simply make more TVC, then the following things need to be considered:

  • how many other things are bought by people who buy TVC (or TBS, or any other Star Wars toy)?
  • is TVC (or any other Star Wars toy) a good loss leader? That is, do people who wait for bargains for TVC/TBS etc just buy that and then hurry out of Walmart as quickly as humanly possible, or do they buy other things as well, things they hadn’t really planned on buying?
  • are other toylines better overall performers and better loss leaders? Does the Fortnite crowd spend more money at Walmart on average, therefore outperforming Star Wars collectors?
  • how well do exclusives perform for retailers and etailers? How well do they increase traffic to stores, how much do they boost overall revenue? Are other exclusives from other lines better performers?
  • what are the actual margins? Now margins become less relevant when an item is great at boosting overall sales, how does TVC fare here?
  • Hasbro does not exist in a vacuum, they can only make what retailers and etailers order from them. Fans can demand all they like, if Walmart, Amazon and all the others don’t order more, then Hasbro can’t make more.

What that boils down to: even if TVC itself outsold things like Marvel Legends, Fortnite or The Black Series it doesn’t necessarily mean a retailer like Walmart is happy about TVC. It also depends on how much else people buy. If, on average, a customer who buys Fortnite figures has a bill of $100 and the average person who buys TVC only $50 you can easily see why selling Fortnite figures, even if fewer Fortnite figures than TVC figures were sold, may still make more sense overall for Walmart. TVC would need to outsell Fortnite 2:1 to perform the same overall, in my arbitrary example. It was just meant to illustrate the point. I am not saying Fortnite is the better performer, we don’t know of course!

The current debate about more TVC is only focusing on the collector side of things. But the decision makers at Walmart or Amazon consider toys a means to an end.

Now, we don’t have any numbers. We know nothing. We can’t say how well TVC (or Star Wars toys) perform for Walmart and other retailers overall, i.e. if Star Wars customers also buy lots of other stuff that drives profits or if Star Wars fans focus much more on just buying Star Wars and little else.

But it is absolutely something retailers consider when ordering products. Thus demanding from Walmart that they order more TVC figures from Hasbro would fall on deaf ears if (to point it out, we don’t know) things like Fortnite, or Marvel Legends, or Barbie dolls, on average, made them a lot more money overall. Shelf space is limited, retailers will prefer things that customers absolutely expect you to have and that boost overall revenue the most.

We don’t know if the typical TVC collector buys more, less or about the same as the average retail customer. But Walmart knows. And these things inform their decisions. We collectors always have to keep that in mind.

 

Part II – Overall Impact

But now to part II. How much of an impact do TVC collectors have? That is, how much money might they make Hasbro? This we don’t know. However, we can make several educated guesses!

The first guess we have to make is the number of (hardcore) TVC collectors. The people who sign petitions. The people who buy barges. The people who buy almost every single release.

Let’s say there are 15,000-20,000 TVC collectors. The petition for more TVC currently has ca. 4,200 signatures.

The next guess we have to make is how much, on average, a TVC collector spends on TVC each year. I will try to be very optimistic here and say it’s $1000. Now some of you may say, “but I spend much more money”! Sure, you do, but many others won’t. While we don’t know how much on average is spent, I would assume that $1000 is an extremely optimistic number and most likely too high.

If we go with 20,000 hardcore TVC collectors who all spend $1000 on average in a year that is $20 million revenue! Is that good or bad?

Hasbro, on average, makes something like $200 million – $300 million with Star Wars toys each year. In a really bad year, like 2018, it may be somewhat less than $200 million, but sales have increased again since then. However, Hasbro’s numbers are NOT based on the MSRP. Hasbro’s revenue only comes from retailers and etailers that pay wholesale prices.

Now, we also don’t know the wholesale price for TVC. Is it $10? Is it $6? The average markup is about 50%. So let’s say the wholesale price for TVC is ca. $7 – maybe it’s a bit more even or a bit less. But it won’t be completely off the mark, i.e. wholesale price won’t be $1 or $12.

Thus for each dollar Walmart, Amazon etc make with TVC, Hasbro gets about 54 cents.

So how much actual revenue for Hasbro would 20k TVC collectors make who all buy $1000 worth of TVC annually?
$10.8 million.
That is less than 5% of the average Hasbro Star Wars revenue. In other words, Hasbro would make 95% of its Star Wars revenue with other things.

But the story doesn’t end here. Because revenue is not profit. Hasbro’s average profit margin is something between 13-15%. Let’s assume that the profit margin for Star Wars toys fall into that range, even if there is a very good possibility that margins are lower because of the licensing fees. But let’s work with 15% profit margin.

A 15% profit margin would mean that TVC’s profits are $1.6 million. And average annual profit for Hasbro Star Wars would be something like $33 million.
In 2019 Hasbro’s total profit was $652 million. TVC would account for 0.24% of profits here. Star Wars toys overall would contribute something like 5%.

Walmart’s revenue in 2019 was a staggering $514 billion by the way. TVC at best accounts for less than 0.0002% of Walmart’s revenue. I am not telling you this to depress you or to annoy you, I am telling you all this because it has to be understood how much of an impact TVC collectors actually have. Especially if you look at TVC in isolation. Almost any product, seen in isolation, makes hardly a dent in Walmart’s revenue. But how much people buy on average does. And some products are better at boosting overall revenue than others.

And if Walmart had a 30% market share for Hasbro Star Wars toys even that would only contribute something like 0.008% to their revenue.

One more word about number of customers: there’s the “20/80” rule in economics. The “Pareto Principle”, as it is called, states that 20% of your customers account for 80% of your revenue. In more simpler terms, hardcore customers make you the most money, even if they are a minority.

So if there were 20k hardcore TVC collectors and the Pareto Principle applies, it would mean that there are ca. 100,000 people who either occasionally or very often buy TVC. But the extra 80,000 people only make Hasbro an additional $2.16 million (based on wholesale price) – remember the 20/80 rule says that 80% of your (more casual) customers only make you 20% of the money and the 20% hardcore customers give you 80% of the revenue.

So what’s the takeaway here?

Without knowing how well Star Wars toys in general and TVC in particular perform for places like Walmart and Amazon (taking into account everything else the average TVC collector buys) it may turn out to be futile to demand more TVC orders from them. Asking Hasbro to make more will not be met with any success if retailers and etailers like Walmart, Target and Amazon don’t order more TVC from Hasbro. And they base their decision on various factors, as illustrated in this article. It’s not just the isolated performance of TVC that matters here, but overall performance.

If there were indeed 20,000 TVC hardcore collectors who buy $1000 worth of toys each year, and if there are – according to the Pareto Principle- roughly 100,000 overall people who at least sometimes buy TVC, it would mean that total annual revenue for TVC is $24 million of which Hasbro gets approx. $13 million. That accounts for ca 5.8% of total Hasbro Star Wars revenue. Hasbro would make approx. $200+ million with other things like The Black Series, roleplay items, Galaxy of Adventures and all the other things they sell, like plush Baby Yodas.

All of my assumptions are extremely optimistic. It’s not even guaranteed there are 20,000 hardcore TVC collectors left, and they certainly don’t spend $1000 on average each year on TVC alone (not talking about the outliers here who buy $1000 worth of Stormtroopers, they are the rarest of rare exceptions).

In the end only Star Wars collectors think TVC, TBS or anything else Star Wars is special. All the retailers consider it a means to an end, how much money they can make with it. So maybe next time you go to Walmart or shop at Amazon and buy a TVC figure it might be a good idea to also buy an 80 inch tv set and a Playstation 4. This will make Walmart and Amazon happy and this will have the greatest chance of convincing them to stock more TVC (or Star Wars in general). If Star Wars toys boost overall sales much better than other toylines then Star Wars will thrive at places like Walmart.  If they appear to be apathetic about the line then not because they are stupid, lazy or just spiteful, it’s only about the money.

Also, even if specialty etailers report great numbers, they are small fry compared to giants like Walmart, Target and Amazon. Hasbro needs them, Hasbro will cater to them first, they have to, they are a 5 billion USD toy company. Walmart’s net profits from April 2019 to April 2020 were an astounding $15 billion. Walmart has a lot of power and influence over how much  companies such as Hasbro can make. So it’s imperative to change the minds of the big retail chains and online giants like Amazon. But for that you need significant numbers.

So to sum it all up: if niche characters like Sim Aloo, original 92 and more new sculpts are your priority you should probably hope that Lucasfilm (or Hasbro) will eventually allow someone else to (also) make 3.75 inch Star Wars figures. Because all the things I mentioned here don’t apply at all to toylines from companies such as BOSS Fight that have a very different business model. Hasbro, as a 5 billion toy company, cannot afford the same luxuries BOSS Fight can afford. Hasbro needs places like Walmart, Target and Amazon. They need to move a high number of toys or else it’s not worth their while really. And with this Hasbro depends on what Walmart, Target and Amazon order from them. And this will always have the greatest impact on what Star Wars collectors, TVC, TBS or anything else really, will be able to get. The question needs to be asked how much of a top performer Star Wars still is for places like Walmart. And this is where Hasbro can actually tweak things, by making sure they release figures their target audience actually asks for. So in my opinion the very first demand should not be “make more”, but “make what makes sense with the limited number of releases you can afford to make”.

If there will be more all new figures again, it will certainly be a long journey. Change won’t come over night. But with strong offerings like The Mandalorian series, Baby Yoda toys and hopefully a strong performance of ESB based toys things may improve for all collectors again. Star Wars toys need to be be a top performer for retailers before they want more again. Chances are they weren’t in recent years. And sales have just started recovering after a long decline. So not all hope is lost. There is always hope. Star Wars was a top performer for Funko in Q1/2020, Hasbro reported growing Star Wars toy sales as well, despite Corona. If that momentum keeps building up we may get more nice things again. So even if TVC, seen in isolation, is a tiny blip on the radar, if Star Wars as a whole keeps selling more merchandise again and performs well for retailers and toy companies then all Star Wars toy lines will benefit. That and always buying an 80 inch tv set when you purchase a figure are the best hope of getting more all new things!

 

 

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