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Wanted: BFF; pretty in pink; not too trashy; lower-maintenance than Barbie. Must speak Chinese.
Meet Princess Secret, would-be playmate to the children of China’s growing consumer class, which increasingly demands better-quality toys at prices cheaper than foreign brands can offer. The doll’s manufacturer, China Focus (Yiwu), is among Chinese exporters seeking a slice of the domestic market. “Our products probably cost twice as much as those designed for the local market, but that’s not a problem because they’re still cheaper than imports,” said Maggie Zhang, a sales manager minding a stall packed with Princess Secret dolls and accessories at a trade fair held in the southern city of Guangzhou in October.
Although three decades of economic growth averaging 10 percent a year have lifted hundreds of millions of Chinese out of poverty, name-brand Western toys remain out of reach for most families. Mattel (MAT) in March shuttered its first Barbie-dedicated store in China just two years after opening the six-story Shanghai outlet. In an e-mail, Jean-Christophe Pean, Asia-Pacific general manager for Mattel, did not give a reason for the closure, saying only that the company is expanding its distribution network into smaller Chinese cities.
At around 30 billion yuan ($4.5 billion), China’s toy market is still miniature compared with that of the U.S., at $21.9 billion, according to market researcher NPD Group. Yet the China Toy & Juvenile Products Assn., a Beijing trade group, expects sales to double by 2015. In contrast, international demand for China-made playthings grew just 8.9 percent in the first nine months of the year, lagging the 23 percent growth in total China exports. “Chinese toy exporters are coming to a turning point where domestic growth is starting to outpace that of overseas orders,” says Hua Zhongwei, an analyst with Huachuang Securities in Beijing.
At last month’s Canton Fair in Guangzhou, a semiannual event for exporters, some of the 23,700 exhibitors reported a drop in interest from foreign buyers. Growth in shipments to Europe, China’s biggest export market, plunged to 9.8 percent in September, from 22 percent in August, as the euro zone sovereign debt crisis intensified. “Business isn’t good,” said Ken Shum, a product manager at Euland Industrial, which makes foosball tables, as he killed time playing on his cell phone. “We may not come again next time.”
It was a slowdown in exports that prompted Ningbo Shenma Group, a maker of baby carriages based in Zhejiang province, to set up a China sales department. “When overseas sales growth gradually became flat, we thought it was time to develop a domestic business,” says Wendy Xu, manager of domestic sales. Last year, China accounted for 5 percent of the company’s 500 million yuan in revenues.
Selling in China requires more effort, and “hidden costs are everywhere,” says Shum of Euland. The company also gets about 5 percent of its sales from its home market. Companies that manufacture primarily for export must apply for a government license to sell a portion of their production at home. They must also sacrifice a 20 percent rebate on the value-added tax. Rising labor costs are another concern: Monthly wages at a Euland factory in Dongguan that makes tables for billiards and other games have jumped 50 percent this year, says Shum.
Despite the hurdles, China Focus is also moving to exploit opportunities on the mainland. The company, based in Yiwu, Zhejiang province, got the bulk of its almost 32 million yuan revenue last year selling its Princess Secret and other dolls, along with a dizzying array of accessories, in the U.S. and Europe. China Focus’s Zhang says retailers such as Hong Kong’s China Resources Enterprise (CRHKF), which runs a chain of supermarkets on the mainland, are starting to show interest in its products. “There definitely is a market in China,” she says.
Still, outshining royalty can be hard for a newly crowned princess, no matter how attractively your ball gown and tiara are priced. At the Nextage Department Store in Shanghai’s Pudong district, six-year-old Yue Yue had eyes only for Barbie. After inspecting a similarly sized 128-yuan doll made by Guangzhou-based Star-Moon Toys, she settled on a “Princess Charm School” model Barbie that retails for 199 yuan. “Barbies aren’t cheap, but local brands are also catching up in terms of price,” says the child’s mother, Yang Yuan. “I’d rather spend a little more on better quality and a better brand.”
The bottom line: China’s toy market is set to double, to $9 billion, by 2015, creating opportunities for local manufacturers.