Japan’s toymakers up their game

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Japan may be a Buddhist country, but for toymakers Christmas is king. The country’s children are as familiar with Santa Claus as their western peers and – alas for Japanese parents – demand as much from his gift run.

But Japan’s big toymakers are not entirely full of festive cheer. Bandai – which ranks number-three in the world behind Mattel and Hasbro – and its rival Tomy have their own problems. With the vast majority of their toys made in China, safety concerns are high.

The good news is that Japanese producers have so far avoided large-scale recalls that hurt the likes of Mattel.

Bandai last month recalled 3,300 Chinese-made stuffed toys after their painted parts were found to contain high concentrations of lead. But that pales beside the millions of Polly Pockets and Aqua Dots consigned to industrial rubbish bins.

Bandai and Tomy credit Japanese safety standards, which require third-party inspectors.

Yet, they have been rattled by recent recallls. Bandai has doubled its staff of factory auditors in China to 200 and Tomy will move more production to neighbouring countries such as Vietnam. In three years, it aims to make no more than 70 per cent of its toys in China, says Keita Satoh, head of marketing.

Of greater long-term concern is the decline of the home market.

A low birth rate means there are fewer children pining for Power Rangers, while the spread of video games has eroded demand. “It gets tougher every year,” Mr Satoh says.

Yusuke Fukuda, a director at Bandai, estimates that the market is shrinking by 5 per cent annually, though he adds that Bandai – which bought the video game maker Namco in 2005 – is targeting 10 per cent sales growth in its toy business.

Bandai and Tomy see several ways to increase sales. One is to pitch more to grown-ups.

Tomy says 20-30 per cent of its products are designed to appeal to adults as well – things such as miniature remote-controlled helicopters and sophisticated user-programmable robots.

Toymakers are also expanding marketing tie-ins with video games, television, clothing and snacks. Bandai is using tie-ins to revive its egg-shaped Tamagotchi digital pets, a massive global hit a decade ago.

The first animated Tamagotchi movie is now in Japanese theatres.

They are also looking abroad. Foreign sales accounted for 30 per cent of Bandai’s Y186bn ($1.16bn) of toy revenues last year. Mr Fukuda expects that portion to grow, especially as China becomes more of a consumer market influenced by Japanese media. “China will be a huge market for us. They have a similar sensibility.”

This year, Texas Pacific Group, the US private equity firm, bought a 14 per cent stake in Tomy in the hope that a more global sales strategy would lift revenues.

In the past, Japanese producers all but abandoned overseas markets to foreign licensees. Hasbro made millions by cobbling together two robot toy lines from Takara, now part of the Tomy group, and rebranding them as Transformers.

Today, Japanese toymakers are transforming into global merchandisers. Bandai America last year won the right to make toys based on Ben 10, a US animated series that is not aired in Japan.

“We have a winning formula that can work anywhere,” Mr Fukuda says. It helps that Japan has emerged as an entertainment brand in its own right. “Made in Japan” is now a label to be flaunted rather than – as with the first Transformers a generation ago – disguised by foreign distributors.

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