Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Toy Industry Part 4
Transcript
- Lucas: You know, when we first started this series on falling birth rates, I thought we'd run out of industries to talk about after maybe a dozen episodes. Luna: And here we are at episode 121, still going. Lucas: Exactly. Today I want to look at an industry we've touched on before — toys — but from a completely different angle. Not just 'fewer kids means fewer toys sold.' That's the obvious part. What's more interesting is how the toy industry is reinventing itself to survive. Luna: And if this episode makes that reinvention a little clearer for you, maybe it's worth the cost of a coffee. You can find us at buy me a coffee dot com slash fexingo. No pressure, just a way to keep this ad-free. Lucas: Appreciate that. So let's start with a number. In 2025, the global toy market was worth about $90 billion. But the compound annual growth rate from 2020 to 2025 was only around 2 percent. Compare that to the previous decade when it was closer to 4 percent. Luna: That's a meaningful slowdown. And the obvious culprit is fewer children. But what's the industry doing about it? Lucas: Well, the most visible shift is the move toward adult consumers. Lego has been a pioneer here. Their adult-oriented sets — the botanical collection, the architecture series, the massive Star Wars models — now account for roughly 15 percent of their revenue. And those sets have much higher price points. A single Lego orchid set is $50. The Titanic model is $680. Luna: Right, and adults aren't just buying for themselves. They're also buying for their kids, but they're the ones making the purchasing decision. So the marketing has shifted from 'fun for kids' to 'quality time for the whole family.' Lucas: Exactly. And it's not just Lego. Mattel has been pushing their 'Creations' line — limited-edition collector dolls and Hot Wheels for adults. In 2025, their adult collector segment grew by 12 percent year-over-year, while their core kids' segment grew by only 1 percent. Luna: So they're basically following the money. Fewer kids, but the kids they do have are getting more expensive toys, and adults are spending on nostalgia. Lucas: That's one piece of the puzzle. Another is educational toys. Parents with fewer children tend to invest more in each child's development. STEM toys, coding kits, language-learning games — that segment is growing at about 8 percent annually. Companies like KiwiCo and LittleBits have built entire subscription models around this. Luna: Subscription boxes for toys. That's interesting because it also solves the problem of toy saturation. Parents don't end up with a closet full of plastic junk. Lucas: Right. And the subscription model gives toy companies predictable recurring revenue, which Wall Street loves. The toy subscription market was worth about $2.5 billion in 2025, and it's projected to grow at 15 percent compound annual growth rate through 2030. Luna: So the industry is adapting. But does this shift to higher-priced, niche products actually replace the volume they're losing from fewer children? Lucas: That's the billion-dollar question. And the answer so far is: partially. The average toy company's revenue per customer has gone up, but the total addressable market has shrunk. Hasbro, for example, reported a 3 percent decline in overall revenue in 2025, even though their adult-focused 'Hasbro Pulse' line grew 18 percent. Luna: So they're winning with adults but losing the kids' business faster than they can replace it. Lucas: Exactly. And that's why we're also seeing a wave of mergers and acquisitions. Smaller toy companies with strong IP — like the company behind 'Bluey' — are getting snapped up by bigger players who need content to license. Licensing revenue is becoming a bigger piece of the pie. In 2025, licensed toys accounted for about 30 percent of all toy sales. Luna: That makes sense. If you can't sell as many physical toys, you sell the characters and stories that make kids want the toys. But that's a media play, not just a toy play. Lucas: Right. And that's led to some interesting partnerships. For instance, the toy company Spin Master has been investing heavily in digital games and apps that tie into their physical toys. They call it 'phygital' — physical plus digital. Luna: Phygital. I've heard that term before. It's a way to extend the life of a toy beyond the initial purchase. If a kid can scan their action figure into a game and level it up, they're more likely to buy more figures. Lucas: Exactly. And it also creates a recurring revenue stream through in-app purchases. Spin Master's digital revenue grew 22 percent in 2025, while their traditional toy revenue was flat. Luna: So the industry is moving from selling plastic to selling experiences. But what about the environmental angle? Fewer toys means less waste, potentially. Lucas: That's a silver lining, and some companies are leaning into it. Lego has committed to making all its bricks from sustainable materials by 2030. They've already introduced plant-based polyethylene for some pieces. And they're marketing that heavily to eco-conscious parents. Luna: Which, again, is a strategy that works better when you have fewer, wealthier customers who care about that stuff. Lucas: Exactly. And that's the through-line here. Falling birth rates aren't just a problem to be solved — they're a signal to change your business model. The toy companies that are thriving are the ones that stopped trying to sell to every kid and started selling to specific, valuable customers. Luna: So what does this mean for the future of the toy aisle? Is it going to shrink? Lucas: Probably, yes. But the toys that remain will be more expensive, more educational, and more tied to digital experiences. The days of a $5 action figure are numbered. We're moving toward a world where a toy is an investment — something that costs $50 but lasts for years and can be integrated into a game or a learning curriculum. Luna: And for investors, that means the toy industry is no longer a simple bet on birth rates. It's a bet on IP, on digital integration, and on the willingness of adults to spend on nostalgia and education. Lucas: Right. And that's a very different kind of business. I think the toy industry's adaptation is a case study for any industry facing demographic decline. You can't just do what you've always done and hope for more customers. You have to change what you sell and who you sell it to. Luna: Any final numbers to leave us with? Lucas: Just one. The global population of children under 14 peaked around 2020 at about 2.1 billion. By 2050, it's projected to be about 1.9 billion. That's 200 million fewer potential toy customers. But the global economy will be larger. The question is whether toy companies can capture a bigger share of that wealth per child and per nostalgic adult. Luna: And from what we've seen today, some of them are figuring it out. Lucas: Yeah. It's not going to be easy, but the ones that innovate will survive. And the ones that don't will end up in the toy box of history.