For Spanish Toy Sector, Lockdowns Would Be Nightmare Before Christmas

One of the educational board games made by Spanish toy company Ludilo. E-commerce saved Ludilo during the spring lockdown, but stricter measures over the Christmas season could prove disastrous for the sector.

This year, children should write their letters to Santa Claus and the Three Wise Men earlier than usual, so that their parents don’t crowd stores in a last-minute dash and raise the risk of exposing themselves to the coronavirus.

This was one of the recommendations by the Spanish association of toy manufacturers for this year’s unusual Christmas. The holiday season accounts for 75% of their total revenue, meaning it can make or break their year.

“If the health situation doesn’t deteriorate, we could save the year. But if we had another lockdown during Christmas, trade would suffer a lot and some stores would have to close permanently,” said José Antonio Pastor, president of the toy makers’ association.

In Spain, the toy sector generates revenue of roughly 1.6 billion euros, equivalent to $1.94 billion, Mr. Pastor said. Spain is the second-largest toy producer in the eurozone after Germany, whose domestic market is four times larger.

“Because we have a small domestic market and there’s a lot of seasonality in this sector, we need to export a lot to keep our production constant through the year,” said Mr. Pastor.

Exports represent 40% of the sector’s revenue, and toys are sold mainly to other European countries, Mr. Pastor said. The Spanish toy sector can compete globally thanks to their competitive advantage in the production of artisanal dolls, for which there is a long tradition, as well as large items, such as toy cars, that would have been expensive to ship from countries like China.

Toy exports remained resilient this year, recording a decline of just 1% between January and September compared with the same period in 2019, data from the Ministry of Industry, Trade and Tourism showed.

But the Spanish market suffered a more severe blow. When the coronavirus broke out this spring, Spain imposed one of the world’s strictest lockdowns. All nonessential businesses had to close, including toy stores.

“Children were completely forgotten during the first lockdown,” Mr. Pastor said, remembering that children spent 43 days locked at home.

With children having to spend so much time away from school and without the opportunity to socialize with other children, the need for toys increased. From January to November, toy sales increased by 15% in the Netherlands, 11% in Germany and 7.7% in the U.K compared with the same period the previous year, according to data from the NPD Group, a market-research company. However, in Spain, toy sales fell by 9.3% during the same period.

“The sales declines were similar across countries during the lockdown period, but other markets rebounded quickly following the easing of restrictions and this wasn’t the case of Spain,” said Fernando Pérez, country manager at NPD Spain. Consumers there were more cautious regarding their short-term economic prospects, and toy sales remained muted.

Another factor explaining why sales flourished in some countries but remained muted in others is the maturity of the online channel in each country. The market share of online toy sales in Spain jumped from 22% in September 2019 to 40% in September 2020, as store closures led to a massive recruitment of online shoppers. This is still below the 45% average of the five largest European economies, according to NPD’s consumer poll, but it represents great progress. “In a very short period of time, we achieved what would have taken years otherwise,” Mr. Pérez said.

During the lockdown, e-commerce saved Ludilo, a Spanish company focused on board games with an educational component. The Valencia-based company’s games are sold in 1,000 stores across Spain, which remained closed during the spring lockdown. But they continued to sell online, particularly on Amazon.

“Sales in the board game category rose strongly during the lockdown and we think the trend is here to stay,” said Sandra Gómez, managing director at Ludilo. The company is now expecting to beat its 2020 earnings forecast by 15%.

But for most toy manufacturers, much of the uncertainty about how this year will go still lies ahead: The crucial period leading up to Christmas kicked off in October and so far, it seems children didn’t write their letters to Santa earlier this year. During October and November, toy sales in Spain decreased 8.6% compared with the same period the previous year, NPD’s data showed.

The big question now is whether consumers are just waiting for further clarity on coronavirus restrictions during the festive season, or whether the deteriorating economic situation is taking its toll on a sector that proved resilient during past crises, Mr. Pérez said.

The NPD analyst forecasts sales in Spain will remain flat in December compared with the previous year, what would leave the sector with a loss of 5% in 2020, “a pretty good result taking into account the exceptionality of the current situation.”

There are upside risks to this scenario, such as extra spending on toys to reward children after a difficult year, an increase in the sales of toys for adults or less competition from other leisure forms, such as cinemas or thematic parks. But there are several downside risks too: further deterioration of consumer’s confidence, fewer families meeting over the holidays or a tightening of coronavirus restrictions, Mr. Pérez said.

If governments have to impose stricter measures due to the virus this holiday season, they should consider the importance of toys, people in the sector say.

“Games are part of the development of children, they shouldn’t be considered a whim,” said Ludilo’s managing director, Ms. Gómez.

“We ask them not to forget children’s needs this time,” said Mr. Pastor, president of the toy makers’ association.

Write to Maria Martinez at