A man dressed up as a blueberry is jumping towards me in London's Kensington Olympia. Across the path, there is a shelf full of 100 identical plastic beaming dinosaurs, interactive eyes blinking in unison.
It's impossible to look 10 metres in any direction without seeing at least one smiling Peppa Pig. And every so often, sober-suited men whizz past, testing out scooters. Their colleagues, meanwhile, stand behind, with one eyed screwed up tight, trying to "shoot" their colleagues with hi-tech, pretend plastic guns.
It looks ridiculous – but for the nearly 190 exhibitors at the 59th annual exhibition of Toy Fair 2012, entertaining kids is a very serious business.
On the face of it, toy makers have much to celebrate. Retail monitor NPD reported sales in the UK's toy sector rose by 3 per cent in 2011, bringing in revenues of £2.96bn. That makes it the largest in Europe, and comprehensively beats other areas: the British Retail Consortium reported that total UK retail sales excluding food spending rose just 0.2 per cent last year.
Some in the toy industry expect 2012 to be even stronger. In the week the UK's latest quarterly GDP data showed a 0.2 per decline, many reckon this summer's combination of the Olympics, the Queen's Diamond Jubilee and Euro 2012 football championships will trigger a boom in sales, and have made toys ready to cash in.
Weaving along an aisle packed full of interactive Doctor Who games that link up to iPhones, Richard King, the chairman of the listed Character Group, waves to a new range of Premiership football player collectable figures in a Lego-style stadium.
"I'm not a big football fan myself, but we've seen a lot of interest in these," says Mr King. "The country will be focused on sports this summer, that will rub off on kids – and these are the kinds of toys they want."
But beyond this summer's one-off boosts, perhaps Britain's most smile-producing industry isn't quite so happy. Sales may be up – although most independents admit that's mainly from the likes of giants Mattel, Hasbro and Lego; their numbers are flat or up a few digits at best – but margins are squeezed and profitability is down.
Hornby illustrated the point yesterday as the toy and model maker warned that its profits would miss targets after shops and shoppers shunned its higher end models over Christmas.
"Retailers can't keep up with supermarkets forcing prices down," says Martin Grossman, the managing director of Glasgow toy group H Grossman, who employs 40 in the UK and another seven in the Far East.
"If you have a £9.99 toy and a major retailer wants it for £5, a lot of firms will say yes for the sake of the volumes involved. Often, I won't – because I know that if freight costs rise or the exchange rate moves, I could be screwed. Still, it is hard to say no to the biggest buyers."
Last year H Grossman's turnover fell 5 per cent to £9m. This year, its hopes hinge on a new range called Deadstone Valley, which seems to rely on the idea that kids love things that adults hate. The game involves kids making corpses, burying them in coffins and creating a headstone. Then they log in to a website where they can personalise their corpses, write epitaphs, watch the bodies being buried, and visit their gravestones.
That kind of interactivity is a key trend at this year's fair. US toy maker Bandai has come up with 3D packaging, so kids can direct their parents' iPhones at the box of its new ThunderCats action figures to see a lifelike model of the toy projected from the box. All of this year's most-hyped toys, such as Character Options' Foam Fighters, which sees a nine-inch fighter plane attached to a smartphone to be "flown", have linked websites or apps.
Toy makers say that is partly due to shoppers' demands to get more for their money, and a reluctance to part with cash. Vance Withers, group sales director of Worlds Apart, which employs 95 from its Newquay, Cornwall, headquarters, says: "A few years ago, people would compare prices for a £40 toy. Now they're doing so for a £10 one. The market is tough, consumers are challenged, and Chinese manufacturing is more expensive because of the rising cost of labour and the exchange rate."
Some toy makers are improving their odds by focusing on markets overseas where household spending is not so stricken. Marvin Berglas founded his Marvin's Magic business 25 years ago. Thanks in part to new openings in Dubai and Mumbai, as well as growth in the US, sales jumped 21 per cent last year. The company expects to beat that this year.
"International is a growing focus," says Mr Berglas. "Magic is in focus and sets are in demand. In the UK, the market is split. The West End is really strong –our concession in Hamleys had record sales last year – but the high street is much weaker. Sales are all driven by promotions."
Marvin's Magic is expecting an Olympics boost but the rest of the toy industry is divided on the issue. Paying a licensing fee Locog, the London Olympics organiser, to use the official London 2012 logo can add about a fifth to most toys' price tags, and, as one executive puts it, "once the sport is over, you're sitting on a pile of rubbish that you and everyone else has to find some way to flog, fast."
Still, many believe it's worth it. Winning Moves, the gamesmaker behind Top Trumps, has bought 14 licences for London 2012, including a special edition Trivial Pursuit, Monopoly Bananagrams, jigsaws and playing cards. "We're expecting it to be like a second Christmas," says marketing director Fiona Hortopp.
The Olympics may be a gamble, but so is the whole toy-making industry, says Mr Grossman. Pointing at one of his Deadstone Valley graves, he says: "We hope it will be huge. The kids we've tested it on absolutely loved it, and it's gone down well with buyers. But you never know: in the toy industry, so much comes down to chance. If you get a brilliant line, you've made it. If not, well, you keep on trying."
Derailed: Hornby is hit as customers rein in
Hornby is to shift into "pocket money-priced" toys, including a new line of Corgi vehicle models at £1.99 each, in an attempt to offset falling sales of its high-end ranges.
The toys and models maker yesterday said sales of its Hornby train and Scalextric car sets priced at £50 and upwards had been disappointing over Christmas as shops were reluctant to take on large stocks in the face of cash-strapped consumers.
It said that although sales between October and January had still come in ahead of last year, growth had been below expectations and profits would miss forecasts. Hornby shares dived 18 per cent to 101p on the warning.
Neil Johnson, the chairman, said: "In anticipation of continuing difficult trading conditions, we have adapted our business to offer a wider range of products at lower price points in categories complementary to our core business."
Hornby made profits of £4.4m last year when it was hit by supply problems. Analysts had pencilled in a bounceback to profits of £7.1m for the current year. Yesterday they trimmed their forecasts to around £6.3m.
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