Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Toy Industry
Transcript
- Lucas: So we've spent a lot of episodes looking at how falling birth rates ripple through specific industries. Hotels, hospitals, life insurance, even the funeral business. But one sector I've been meaning to get to is toys. Luna: Which feels almost too obvious, right? Fewer kids, fewer toys. But I suspect the story is more nuanced than that. Lucas: It really is. Because the toy industry isn't just shrinking in lockstep with the birth rate. It's actually polarizing. The mass market — the kind of cheap plastic stuff you'd find in a big-box store aisle — that's getting squeezed hard. But premium, educational, and collectible toys are growing. Luna: So the same demographic trend that hurts some companies creates opportunities for others. Classic creative destruction. Lucas: Exactly. And the poster child for this pivot is Lego. They saw this coming years ago. Back in the early 2000s, Lego was in serious trouble — nearly bankrupt. But they realized they couldn't just rely on the next wave of five-year-olds. Luna: So they started targeting adults. I've seen those giant Millennium Falcon sets. They're like seven hundred dollars. Lucas: Right. They created the 'Adult Fans of Lego' — AFOL — category. And it's huge. Today, around 20 percent of Lego's revenue comes from sets aimed at adults. That's billions of dollars from people who have no children in the house. They market complex architecture sets, botanical collections, even a typewriter. Luna: And that demographic is only growing. More childless adults, more empty-nesters with disposable income. Lucas: Exactly. Now contrast that with Hasbro and Mattel. They've struggled. Hasbro's revenue from toys like Transformers and My Little Pony has declined as birth rates fell in key markets like the US and China. They've tried to pivot to entertainment — movies, TV shows — but the core toy business is under pressure. Luna: Mattel at least has Barbie, which is more of a lifestyle brand now. But even they had to diversify into movies and digital content. Lucas: And there's another shift happening: the rise of subscription boxes and second-hand markets. Parents are spending more per child — the 'fewer kids, higher quality' mindset. So they're willing to pay for educational toys, STEM kits, and durable items that can be resold. Luna: I've seen companies like KiwiCo and Lovevery. They ship age-appropriate science and art projects monthly. That's a direct bet on parents wanting to optimize their one or two kids' development. Lucas: Right. And then there's the second-hand market. Platforms like Mercari and Facebook Marketplace are booming for used toys. Parents are more price-conscious, and they know that a plastic playset loses value fast. So they buy used or trade. Luna: Which actually hurts the low-end manufacturers. If you're selling cheap toys that break quickly, you're competing with a flood of barely-used hand-me-downs. Lucas: Exactly. So the winners in this environment are companies that can command a premium — either through brand, educational value, or collectibility. Lego, Melissa & Doug, Ravensburger — they're all doing well. Luna: And the losers are the commoditized players. Dollar store toys, generic action figures. That market is shrinking faster than the birth rate itself. Lucas: There's also a geographic angle. The birth rate decline is most acute in East Asia, especially South Korea and Japan. Those markets used to be huge for toy companies. Now, companies like Bandai Namco are pivoting to adult collectors — think Gundam models and anime figurines. Luna: So the playbook seems to be: if you can't sell to kids, sell to the adults who remember being kids. Lucas: Nostalgia is a powerful economic force. And it's demographic-proof in a way that the traditional toy market isn't. For investors, the key is to look at a toy company's revenue mix. What percentage comes from durable, collectible, or educational products versus disposable plastic? Luna: I also wonder about digital play. Video games already capture a huge share of kids' attention. But for physical toys, there's a push to integrate digital — like Lego's video games or augmented reality playsets. Lucas: That's a big trend. Lego's video games alone generated over a billion dollars in revenue last year. And they're not competing with their physical sets; they complement them. A kid who plays the Lego Star Wars game is more likely to want the physical Millennium Falcon. Luna: So the toy industry isn't dying. It's just becoming more stratified. High-end and educational thrive; low-end commoditized stuff struggles. Lucas: And that's a story we're seeing across many sectors as birth rates fall. It's not just about fewer customers — it's about different customers with different preferences and higher spending per child. Luna: You know, speaking of different business models, it's interesting that we can have these conversations without any ads interrupting. A lot of business podcasts are cluttered with sponsors, but here we keep it clean. Lucas: That's intentional. If walking through the economy with us has made something click, or if you just appreciate not having to skip through mattress commercials, you can support that choice at buy me a coffee dot com slash fexingo. Luna: It's a small way to keep the show ad-free and focused on the substance. And we really do read every message. Lucas: Right. Now, back to toys — there's one more angle I want to touch on. The impact of falling birth rates on toy manufacturing itself. Factories in China are seeing declining orders for basic plastic toys, but increasing demand for higher-margin items. Luna: So even the supply chain is shifting. Suppliers that can produce premium, safe, educational toys are winning; those that churn out cheap trinkets are losing. Lucas: Exactly. And this has implications for trade policy and labor markets. As the toy industry upgrades, it may require more skilled labor and automation, which changes the cost structure. Luna: It's a microcosm of the broader demographic transition. Fewer kids, but each one is more invested in — literally and figuratively. Lucas: And for listeners who want to track this, keep an eye on the earnings calls of the big toy companies. Listen for the phrase 'average selling price' — that's the key metric. If it's rising, they're successfully pivoting to premium. If it's flat or falling, they're stuck in the old model. Luna: That's a great tip. I'll be watching that too. Lucas: So to sum up: falling birth rates don't kill the toy industry — they transform it. From mass-market to niche, from disposable to durable, from child-only to all-ages. And the companies that adapt will thrive. Luna: And the ones that don't will end up in the toy box of history. Thanks for listening.