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Toy Sales Expected to Stay Strong in 2012

 LOS ANGELES -  The toy, doll and game manufacturing industry is expected to remain strong and have a modest recovery in 2012 despite the poor economy of the past five years, according to IBISWorld Industry.

Industry revenue is expected to increase 3.2 percent to $2.55 billion in 2012, according to the the report. As disposable income rises, consumers may be more willing to purchase toys at retail driving more demand for manufacturers, according to IBIS. Toys, dolls and games are discretionary items, so demand is dependent on economic factors like unemployment, consumer sentiment and the level of disposable income, which experienced losses over the past five years, according to IBIS.

"To make matters worse," said Sean Windle, IBISWorld industry analyst, "industry operators have had to face not only dismal economic conditions, but also mounting competition from lower-cost imports." As a result, IBISWorld estimates industry revenue fell at an average annual rate of 5.9 percent in the five years leading to 2012.

Additional obstacles like import competition have made it difficult for the industry to compete with lower-cost imported toys, particularly those manufactured in China. "In order to remain competitive, industry firms have had to lower their prices, which has caused them to incur higher fixed costs, and made it harder to absorb rising raw material expenses," says Windle. "As a result, the industry's profitability has declined over the past five years. With faltering profitability, many firms have resorted to labor and wage cuts, facility closures or been forced to exit the industry."

The report shows that the toy, doll and game industry has a low market share concentration with a considerable share of the market led by toy giants, Mattel and Hasbro, and a large number of small and privately owned firms filling out the remainder of the industry.

While consumer confidence, disposable income and employment are expected to increase over the next five years, import penetration is also set to increase, according to the report. U.S. manufacturers with higher labor and regulatory costs, will continue to be at a disadvantage to lower-cost overseas manufacturers, according to the IBIS. As import penetration continues to accelerate, U.S. operators may find more business opportunities through exports, which are forecast to increase over the next five years, according to the report; export growth will help offset some of the industry's losses from import competition. IBISWorld expects industry revenue to increase marginally through 2017.

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