How to Start a Toy Business?

Starting a toy business can be an exciting and profitable venture, but it requires careful planning and strategic execution. Whether you’re considering opening a brick-and-mortar toy store or an online toy store, understanding market dynamics and customer needs is crucial. This comprehensive guide is designed to walk you through the essential steps of building a successful toy business. From conducting thorough market research and choosing the right location, to developing a solid business plan and selecting the most attractive products, we cover all the key aspects to help you build a thriving store in the toy industry.

Table of Contents

1. Market Research
2. Develop a Business Plan
3. Obtaining Licenses
4. Choose Products to Sell
5. Determine the Sales Channels
6. Establish Sourcing Channels
7. Develop a Pricing Scheme
8. Marketing and Promotion
9. Running a Toy Business Tips
10. FAQ

1. Market Research

To understand the target market, competitive landscape, toy trends and other information.

(1) Assess Local Needs

First of all, you have to ask yourself, do you want to sell toys online, or open a brick-and-mortar store offline? If your goal is to open a brick-and-mortar store, is there enough demand for toys in the local market?

Next, you need to understand the local competition. How many toy stores are there in your neighborhood? What kind of toys do they all sell? Can you find a gap in the market? Don’t forget that in addition to brick-and-mortar stores, you’ll also face competition from online retailers.

When you open a store in a small town or village, the competition may not be as fierce, but the number of customers is also relatively small. The purchasing power of your customers will also affect the kind of toys you sell. Customers in affluent areas may be more likely to buy expensive, high-quality toys, while cheaper toys may be more popular in less affluent areas. Interestingly, however, studies have shown that the least affluent parents tend to buy the most expensive toys for their children.

Finally, you need to do the math. in 2023, the average amount spent per child on toys will be $294 in Europe and $427 in the United States. How many families do you need to attract to reach your target turnover? How many families in your area have children? Is there a school nearby? If the local population is predominantly retired, it may be difficult to attract enough customers to your toy store.

(2) Choosing the Right Location

The location of a toy store is critical to its success. Ideally, the store should be as close to the city center as possible to attract as many customers as possible. However, rental costs in the city center can be high, so establishing in suburban shopping areas is also a viable option. These areas are frequented by a considerable number of customers on a daily basis and are more affordable to operate. In addition, market stalls may be a cheaper way to get a good location.

When choosing a store, you also need to consider the accessibility of parking facilities, especially for stores that sell large toys. In addition, the local crime rate is also a factor to consider and store owners need to try to avoid areas with high crime rates.

(3) Differentiated Competition

In order for a toy store to be in a competitive position, it must find its own differentiated position to attract customers to choose your store over other existing stores. Therefore, before developing a differentiation strategy, you need to find out about your competitors, including:

By understanding your competitors, you can find your own strengths and weaknesses, and develop your own business strategy on this basis.

2. Develop a Business Plan

Define goals, strategies, costs and profit models, etc.

To start a toy business, developing a business plan is a crucial step. A business plan is a roadmap for a toy store or toy manufacturing business, outlining goals, strategies and success tactics. It not only helps you make informed decisions, but also attracts potential investors and lenders.

A complete business plan should contain the following areas:

(1) Executive Summary

The executive summary is an overview of the business plan and should succinctly describe the concept, goals and unique selling points of your toy store or toy manufacturing business.

(2) Market Analysis

The market analysis is the core part of the business plan and requires an in-depth study of the toy industry, including current trends, consumer preferences, and market demand. It also involves identifying target customer segments and analyzing competitors to understand their strengths and weaknesses.

(3) Marketing and Sales Strategy

Marketing and sales strategies are key to attracting and retaining customers. You need to define the target customer segments and develop marketing strategies accordingly, including advertising channels, promotional activities and sales strategies.

(4) Operation Plan

An operations plan describes the day-to-day operations of a toy store or toy manufacturing business, including store layout, inventory management, staffing, and customer service.

(5) Financial Plan

The financial plan is an important part of the business plan and needs to provide a detailed budget including start-up costs, projected revenues, pricing strategy and break-even analysis.

(6) Risk Assessment

There are risks involved in any entrepreneurial venture, and a toy business is no exception. You need to assess the potential challenges and develop risk management and mitigation strategies.

3. Obtaining Licenses

Applying for business licenses, tax registrations and other relevant documents.

Opening a toy store is an exciting venture, but you need to make sure all legal requirements are met before you open your business. Obtaining the necessary permits and licenses is a critical step in operating legally and avoiding potential fines or legal problems.

Here’s a checklist to help you through the process:

Obtain a Business License: Obtain a general business license from your local municipality or county that allows you to legally operate a toy sales business in a specific jurisdiction.

Ensure Toy Safety Compliance: Make sure your toys meet safety standards set by regulatory agencies such as the U.S. Consumer Product Safety Commission (CPSC). Familiarize yourself with the regulations and obtain the necessary certifications to demonstrate compliance.

Register Trademarks and Copyrights: If you plan to use specific logos, characters or designs on your toys, consider registering a trademark or obtaining a copyright to protect your intellectual property.

Obtain a Health and Safety License: If you have a physical manufacturing facility or warehouse, you may need a health and safety license to ensure a safe working environment for your employees. Check with your local occupational health and safety department to obtain the necessary permits.

Obtain a Shipping Permit: If you plan to ship your toys across state or country lines, you may need a shipping permit to comply with regulations for the transportation of goods.

4. Choose Products to Sell

Choose the right toy products based on your target market and positioning.

If you want to start a toy business from scratch, the product selection process is quite important. You can find a lot of strategies to choose profitable products online, here I will teach you how to choose the right toy products according to the “4+2” method.

4 CHOICES

Choose everyday toys with high market demand

For startups, choosing everyday toys with high market demand is a sound strategy. These products can continue to generate cash flow, which is conducive to maintaining steady growth for the business, and avoiding premature risky bets on fashionable or novelty toys. In the start-up phase, companies should focus on common niches and look for the first products that are suitable for their development to ensure a healthy cash flow and lay the foundation for subsequent growth.

Choose toys that are easy to transport and resistant to damage

When you’re planning to start a business, every penny counts. If you choose products made from fragile materials, it will increase your packaging costs and the rate of damage to goods during international shipping can get out of control. Any further damage to goods incurred during domestic transportation will bring negative reviews to your store.

Choose toys with a profit margin of more than 50% 

Profit margin is a measure of the profitability of the goods or services being sold, and is calculated by taking into account all relevant costs, including purchasing costs, shipping costs, advertising and platform service fees. For an online business, a 50% profit margin is a reasonable target to ensure profitability after all expenses.

Choosing to sell toys with a unit price of more than $15

In addition to profit margins, the unit selling price of toys is also a key factor in revenue. Even if the profit margin is high, if the selling price is too low, you won’t be able to make a significant profit. Therefore, choose toys with a selling price of more than $15 in order to get a larger revenue margin while ensuring profitability.

2 AVOID

Avoid oversaturating competitive toys

Sellers who are new to the toy industry often have limited resources, and choosing a competitive market segment at this time is undoubtedly risky. Competing with the giants for share in a red sea market means high costs and great challenges.

To determine whether a toy market segment is over-saturated, you can refer to the following two indicators: search volume and keyword advertising price. The higher the two, the more intense the competition. It is also possible to search for a target product directly on Amazon; if the number of reviews exceeds 1,000, the product may not be the best choice.

Avoid infringing toys

Toy sellers, especially those who import toys from overseas, often encounter infringement issues. Infringement usually occurs in two situations: when the design, logo, etc. of the toy being sold infringes on the intellectual property rights of an existing major toy brand in the country where it is being sold, or when the seller is purchasing an original toy from overseas, but another buyer has already registered a relevant patent in that country.

Once accused of infringement, the seller will face huge financial losses. In order to avoid such problems, sellers should double-check whether the product is registered with a trademark or patent before placing an order. For example, for toys to be imported into the US, sellers can check the website of the US Patent and Trademark Office for confirmation.

Here is some additional toy-related information that we have posted recently, you can try browsing the following articles to get some inspiration.

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5. Determine the Sales Channels

Online, offline or a combination of both.

Determine the sales channel is one of the key steps to start a toy business, determines how you will reach your target customers and realize product sales. Online and offline sales channels have their own advantages, which one to choose or a combination of both, need to be based on your specific situation and goals for a comprehensive assessment.

Online sales channels include e-commerce platforms and social media platforms. E-commerce platforms such as Amazon, Ebay, Shopify, etc. have a large user base and a mature transaction system, which can help you quickly reach a large number of potential customers and expand the scope of sales. Social media platforms such as Tiktok, Facebook, Instagram, etc. can be used to showcase your products, interact with fans, build brand awareness, and make direct sales through live streaming with your products.

Apart from online sales channels, toy business can also reach a wider customer base through offline channels to boost sales. Here are some key offline channel strategies:

Partner with Community Centers: Community centers have a large pool of potential customers, especially children and parents. You can partner with community centers to offer educational toys and workshops such as puzzles, craft classes, programming courses, etc. to engage your target customers, enhance your brand image, and expand your market.

Sell in brick-and-mortar stores: Selling in brick-and-mortar stores provides an intuitive shopping experience and builds trust with your customers. You can choose to open your own toy store or distribute your products to retailers or dealers.

6. Establish Sourcing Channels

Find Reliable Toy Suppliers.

There are two main sourcing channels for toy sellers: wholesale from local markets and import from China.

For first-time sellers, they can start by wholesaling toys from the local market, which allows them to quickly understand the market demand and reduces the cost of trial and error. However, the price of wholesaling from local markets is usually higher and the profit margin is limited.

If sellers already have a clear understanding of the market and have identified their target customer base, they can try to import toys from China. China is the world’s largest producer of toys, with a wide range of toys and styles, and lower prices and greater profit margins. However, importing toys requires a certain amount of financial strength and time cost, as well as a certain understanding of the import and export process.

I will explain the benefits and advantages of each of these two toy wholesale channels in this section.

Wholesale toys from local market

Short Transportation Time

Compared with overseas importation, especially when shipping by sea, the transportation time will be much shorter when wholesaling toys in bulk from markets near your location.

Easy Contact

With short geographical distances and no language barriers, you can connect and communicate with your suppliers more easily. There are no border restrictions, and you can even visit your suppliers whenever you want.

Smaller MOQ

The MOQ for international trade is usually higher than for domestic trade for the same product. Therefore, if you have limited budget and time, buying toys from the local market can provide a more diversified portfolio space.

Sourcing toys from China

Lower Prices

Compared to toys produced in developed countries such as the United States and Europe, toys from China offer better value for money due to their cheap labor and electricity costs. You can source toys from China more cost-effectively.

More Choices

70% of the world’s toys are manufactured in China. Thanks to the well-established supply chain and supporting services, you can easily purchase all kinds of toys, including electronic toys, plastic toys, wooden toys and many other types.

Strong Production Capacity

China’s toy manufacturing industry has a strong production capacity and is able to quickly scale up production to cope with large numbers of orders while maintaining consistent product quality.

7. Develop a Pricing Scheme

Consider factors such as cost, competition and profit.

The pricing strategy of the toy store is one of the key factors in determining its profitability. In the development of pricing strategy, you need to consider the cost, competition, profit and other factors.

After considering the cost, competition, profit and other factors, the toy store can develop a reasonable pricing strategy. Pricing strategies for toy stores can take several approaches:

Cost-plus pricing: Calculate the total cost of the service, including purchasing, labor, and overhead, and then add your desired profit margin to determine the price.

Competitive analysis: research what competitors are charging for similar services. Position your pricing according to the market and consider whether to match, under or over these prices based on your value proposition.

Value-based pricing: Evaluate the perceived value of your services to your customers. If you offer a unique service or experience, you may be able to command a higher price.

The right mix of different pricing methods can help a store get more customers. For most common products, you can use cost-plus pricing. For competitors’ hot styles, you can appropriately use a lower price than your competitors to attract customers and establish the image of a store that is good value for money. For the market scarcity of products, can be based on the value of pricing, improve store profitability.

8. Marketing and Promotion

To attract target customers and improve brand awareness.

Create a good store image is the key to attract customers. The appearance of the store should be neat and beautiful, and the display in the store should be well organized and reasonably partitioned according to the type of toys. At the same time, providing quality services, such as professional shopping guides and perfect after-sales service, can also enhance customers’ shopping experience.

To let more people know about your toy store, effective advertising is needed. Window displays, external signs, and local media advertisements can be utilized to attract the attention of passing customers. Additionally, creating a website, engaging in social media, and conducting email marketing can expand your target audience and connect with potential customers.

Hosting in-store events is also a great marketing strategy. For example, you can organize regular events such as toy trial days and parent-child game days to attract family customers into your store. At the same time, providing incentives such as membership points and discount offers can encourage customers to patronize again.

9. Running a Toy Business Tips

(1) Don’t be obsessed with the real factory

The source factory seems ideal, but not always the best partner. Even if you find the target factory, small orders can not get the best offer.

Toy import business with factories, may also encounter product certification, customs clearance, language barriers and many other challenges. For example, toys need to meet the safety standards of the importing country, go through cumbersome customs clearance procedures, and cross-language communication is prone to misunderstandings.

Therefore, choosing a reliable trading company can effectively avoid risks, reduce costs and improve efficiency.

(2) Don’t put all eggs in one basket

One of the most common mistakes made by new sellers is to put all their money into one product. This practice is extremely risky, and once the market winds change, you could lose a lot of money.

The saying don’t put your eggs in one basket is especially important in the toy industry. Diversification can be effective in reducing risk. You can invest in different types of toys, such as educational toys, outdoor toys, plush toys, and so on. At the same time, you should also pay attention to emerging trends and adjust your investment strategy in time.

Developing a reasonable investment strategy and avoiding the risk of a single product is the key to success for new sellers. Only in this way can you continue to grow and develop in the toy industry.

(3) Balance price and quality

Balancing price and quality is a constant issue in business. The core objective of pricing strategy is to meet customer expectations and provide cost-effective products or services. Low-priced, low-quality products not only fail to meet customer needs, but also cause misinformation, triggering negative comments and reputational damage, ultimately affecting the long-term development of the enterprise.

(4) Find suppliers willing to communicate

Communication is the key to solving problems. When looking for suppliers, the first thing to consider is the smoothness of their communication and positive problem-solving attitude. A high response rate and a good cooperative attitude means that the supplier is able to understand your needs in a timely manner and actively seek solutions.

(5) Don’t be deceived by suppliers’ low prices

When purchasing, new sellers should be alert to the low price trap of suppliers. On Alibaba, there are many suppliers who will first quote an attractive price to attract buyers to place orders. When the buyer confirms the samples and is ready for mass production, the supplier will raise the price for various reasons, such as increasing shipping and packaging costs, or claiming that the price of raw materials has risen. These are common scams that sellers should take precautions against.

(6) Ensure your toys meet all required national certifications

Before entering the mass production process, you should check with the customs authorities in your country as well as the seller center of the platform where you plan to sell your toys for mandatory product certifications for your products. After obtaining this information, you can ask your supplier to ensure that all required certifications have been completed.

FAQ

1. What are the main costs of opening an offline toy store?

   The main costs include inventory, store rent, renovation, equipment, employee salaries, insurance, ERP system, website development, marketing, etc. Budget at least $100,000 to $200,000 for startup costs.

2. How do I compete with large retailers like Toys R Us and Walmart?

   By offering exceptional customer service, unique/hard-to-find toy brands, knowledgeable staff, hands-on demonstrations, gift wrapping, loyalty programs, community events, and a fun, experiential shopping experience, you can compete with large retailers and attract a loyal customer base.

3. What is the best strategy for selecting a location for a toy store?

   Locations should focus on areas with high foot traffic, convenient parking, and a family clientele. Priority can be given to neighborhoods such as schools, parks, children’s playgrounds, and family restaurants.

4. What is the ideal size for a toy store?

   For most independent toy stores, a space of 1,000 to 3,000 square feet is ideal. This size will meet your needs for retail, storage, checkout, play areas, aisles, and back office space.

5. What toys are profitable?

   Parents are increasingly emphasizing their children’s education and are willing to pay more for toys that help them develop important skills. Educational toys such as STEM kits, puzzles, and board games are in high demand for parents who want to keep their children one step ahead in life.