David Simpson
Industry Analysis
August 21, 1998

Several macroeconomic factors impact the toy industry:

• The Gross Domestic Product (GDP) motors along steadily at 3.5% promoting consumer confidence
• Unemployment is at the lowest levels in over a decade promoting non-essential consumption
• Inflation is a non-issue enabling manufacturers to buy raw materials (including labor) at stable prices and keeping retail prices in check
• Fed Reserve Chairman Alan Greenspan continues to hold interest rates steady enabling manufacturers to obtain financing at moderate rates to offset the seasonal cash flow challenges in the industry
• US Dollar remains strong against the Asian currencies resulting in a favorable exchange rate for those with overseas production. On the downside, those US companies with heavy exports may see their products priced out of overseas markets thus diminishing revenues

The unrelenting strength of these economic indicators point towards healthy revenues in the industry for the intermediate term period.

Overall, the economic and social climate bursts with optimism for the toy and game industry. The lion’s share of the revenues awaits those who are able to capture and inspire the imaginations of a new generation. Those creative forces may emanate from Hollywood, a software company in the valley or a garage in Iowa. Regardless, anticipate a bullish season for the majority of participants in the toy and game industry.

(Upcoming articles include "The Structure of Competition in the Toy Industry" , "The Changing Distribution Channels in the Toy Industry" and "The Challenges of Seasonal Cash Flow in the Toy Industry".)

David Simpson is the CFO of Floppyboard, Inc. and a member of the San Francisco Analysts Society. He holds a BA from Harvard and an MS Finance from the Univ. of Colorado.