Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Toy Industry
Transcript
- Lucas: So, fewer kids means fewer toys — that sounds obvious, but the toy industry has been quietly rethinking its entire business model because of demographic decline. And the numbers are pretty stark. Luna: I remember reading that Japan's toy market shrank something like 15 percent over the last decade, just because there are fewer children. But it's not just Japan, right? Lucas: Exactly. Japan is the canary in the coal mine. The population under 14 dropped by about 15 percent from 2010 to 2020. But you see similar trends in Italy, South Korea, even parts of the US. The birth rate in the US hit a record low in 2023, at about 1.6 births per woman. That's well below replacement level. So the traditional customer base for toys is shrinking. Luna: And yet, LEGO reported revenue growth of 13 percent last year. How does that square? Lucas: That's the fascinating part. LEGO is thriving because they figured out that adults are their fastest-growing segment. They've got these intricate sets — the LEGO Botanicals line, the Architecture series, the massive Star Wars Millennium Falcon — all aimed at grown-ups with disposable income. In fact, their adult-focused sets now account for nearly a third of total revenue. Luna: So the strategy is: sell to the 'kidult' market. I've seen that term a lot. Basically, adults who still want to play, or collect, or build. Lucas: Right. The kidult market is now estimated at around $5 billion globally, and it's growing faster than the traditional children's toy segment. Hasbro and Mattel are all over it too. Hasbro has their adult-focused board games, and Mattel has been releasing collector Barbies — you know, the ones that cost $150 and sit in a display case, not in a toy box. Luna: But isn't there a risk? If you pivot too hard to adults, you might alienate families. And kids still play, just maybe differently. Lucas: That's the balancing act. The companies that are succeeding are diversifying. They're not abandoning children's toys — they're expanding into new categories. LEGO still makes Duplo for toddlers. But they're also licensing huge franchises: Harry Potter, Marvel, Disney. Those appeal to both kids and adults, which is smart because it creates a multi-generational customer base. Luna: And it's not just about age. There's also a shift in what parents want for their kids. Educational toys, STEM kits — those are growing fast because parents are investing more per child. Lucas: Big time. The 'fewer but better' mentality. If you're only having one or two kids, you're more likely to spend on quality. That's why the premium toy segment is doing well. Melissa & Doug, for example, focuses on wooden, open-ended toys that promise developmental benefits. Their revenue has been climbing steadily. Luna: It also means the mass-market, low-margin toy segment is getting squeezed. The dollar-store toy aisle probably doesn't look so appealing when you have fewer kids to shop for. Lucas: Exactly. And that's playing out in the numbers. Traditional toy retailers like Toys 'R' Us collapsed partly because of this demographic shift — combined with e-commerce, of course. But the underlying trend is that the total addressable market for children's toys is shrinking, so you have to find new customers or new ways to add value. Luna: One thing I wonder about: what about the secondary market? Collectible toys, vintage action figures — that market has boomed. Is that part of the same trend? Lucas: Absolutely. That's the kidult phenomenon in action. Adults who grew up with Star Wars or Transformers are now willing to pay thousands for a mint-condition figure. It's nostalgia-driven, but it's also an investment for some. The collectibles market has become a legitimate asset class, with dedicated auction houses and price indexes. Luna: But let's go back to the core point: if fewer kids means fewer toys, what does that mean for the broader economy? Manufacturing jobs, retail space, advertising — it's a ripple effect, right? Lucas: Definitely. Consider that the toy industry supports a huge supply chain — plastic molding, packaging, logistics. If the demand base shrinks, those industries have to adapt. Some factories in China that specialized in toys have already shifted to making consumer electronics or medical devices. And retail-wise, toy aisles are getting smaller in big-box stores, replaced by electronics or pet supplies. Luna: There's also the advertising angle. Children's TV programming used to be funded by toy commercials. Now, with fewer kids watching linear TV, that model is breaking down. Streaming services don't have the same ad inventory. Lucas: Right. And that's why we're seeing toy companies invest heavily in YouTube content, influencer unboxings, and digital advertising. They have to reach kids where they are, which is increasingly on tablets and phones. Luna: But also, toys themselves are changing. Digital integration — like a physical toy that connects to an app — is becoming standard. That's a way to add value and keep kids engaged longer. Lucas: Yeah, and it's also a data play. Companies can learn how kids play, what they like, and then target them with new products. But that raises privacy concerns, especially with children. The FTC has been looking into that. Luna: So, to wrap up: the toy industry is a perfect microcosm of demographic change. Fewer kids, but more spending per kid, and a new adult customer base. It's not dying — it's transforming. Lucas: Exactly. And honestly, I think this is a pattern we'll see in many industries. The companies that ignore demographics do so at their own peril. The ones that adapt — like LEGO — will thrive. Luna: Quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these episodes. Lucas: Yeah, this show is ad-free, and we want to keep it that way. If walking through the economy with us has made something click, that support really helps us keep going. Luna: And we're grateful — it lets us dig into angles like this without worrying about commercial breaks. Lucas: So, bringing it back to the toy industry: one more example I want to mention is how Hasbro has been leaning into its 'Wizards of the Coast' division — which makes Magic: The Gathering and Dungeons & Dragons. Those are essentially toys for adults, and they're printing money. Luna: Right, because those games have a built-in community and endless expandability. It's a subscription model in physical form. Lucas: Exactly. And that's the kind of innovation that demographic pressure forces. If you can't rely on a growing number of children, you have to find other growth engines. Luna: So the next time you see a $300 LEGO set or a collector-edition Barbie, remember: it's not just a toy — it's a demographic adaptation. Lucas: Well said. And on that note, I think we've covered the key dynamics. Thanks for listening, and we'll be back next time with another angle on how demographics shape the economy.