Industry Description
The hobby & toy stores industry retails a broad range of toy and hobby goods, such as traditional dolls and toys, electronic toys, video games, boardgames, hobby kits and craft supplies (NAICS 451120). This industry does not include companies that primarily retail toys, fabric and sewing supplies or children’s apparel and furniture that are used.
The following are some basic characteristics of the hobby & toy stores industry:
- Hobby & toy stores industry has a combined revenue of $18.9 billion, which declined an average of 1.2% per year in 2016-2021
- There are approximately 17,000 businesses as of 2021
- The hobby & toy stores industry employs approximately 204,000 people
Industry Trends
The hobby & toy stores industry has moderate levels of market share concentration, with the top three industry operators comprising approximately 45.0% of industry revenue in 2021. Small players are independently operated with less than 4 employees, while the biggest players have multiple locations across the US with more than 4 employees. Some key external forces influencing this industry are (i) educational toys, (ii) emphasis on experience, and (iii) use of e-commerce. Each of these is described in further detail below.
The popularity of hobbies & toys among kids and adults is in part due to educational games and toys evolving fast. Guardians and parents are looking for fun games or toys that help their children learn and develop skills. UNO is an example of this trend shaping the industry with it. UNO is a game that allows kids to practice working memory skills and obtaining flexibility skills. Industry players catering to this trend by offering educational games and toys meet an industry demand.
Consumers are increasingly seeking experiences over material possessions. Consumer demographics vary and include children, parents, collectors, and enthusiasts. Industry players can offer unique experiences such as in-store events, workshops, and demonstrations to attract customers and create a loyal following. Those above 35 years old spent the most money on toys in the United States in 2020, followed by those below 34 years old. Nonetheless, kids are the main consumers of toys, and their choices impact the industry.
E-commerce is also changing the landscape of the retail industry through online sales, and hobby & toy stores are no exception. Online toys & hobby items have been growing faster than in-store sales. During the 2019 holiday season 59% of shoppers planned to use online retailers to purchase toys Of the 59%, 47% of planned purchases are through online-only retailers like Amazon and the remaining 12% of planned purchases are through big-box toy behemoths like Walmart or Target. Industry players should have an online presence and offer convenient delivery options to stay competitive.
The industry is evolving, and industry players must stay on top of industry trends to remain competitive. The industry remains dynamic, and its growth is influenced by shifting consumer preferences and behaviors. Industry players can attract and retain consumers in the changing retail landscape by focusing on educational toys, emphasizing experiences, and having an e-commerce presence. Industry players staying on top of these industry trends will meet industry needs.
Key Performance Metrics
In evaluating hobby & toy stores, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions:
- Average order value
- Average item cost
- Number of items sold
- Number of items added to popular products
- Number of returned products
- Expansion rate of customer base
- Inventory turnover rate
- Customer satisfaction
Industry Organizations & Publications
The following organizations publish useful information:
- American Specialty Toy Retailers Association
- The Toy Association
- Craft and Hobby Association
- National Retail Hobby Stores Association
- Consumer Product Safety Commission
- Federal Trade Commission
Guideline Information: Private Purchase Transactions
Most hobby & toy stores are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held hobby & toy stores is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of hobby & toy stores:
- Revenue multiple between 0.16 and 0.95 times
- Gross profit multiples between 0.34 and 2.51 times
- EBITDA multiples between 2.0 and 14.9 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most hobby & toy stores are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The four largest publicly traded US hobby & toy stores, ranked by market capitalization are:
- Hasbro, Inc. (HAS) – $6.7 billion market capitalization
- Mattel, Inc. (ID) – $5.9 billion market capitalization
- GameStop Corp. (GME) – $5.2 billion market capitalization
- Build-A-Bear Workshop, Inc (DIS) – $358.6 million market capitalization
The Price-to-Earnings (P/E) ratios of these four companies range between 7.6 times to 33.2 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Hobby & toy stores are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.