The toy and game retailing industry in Australia has experienced difficult trading conditions over the five years through 2012-13, with sales declining by an annualised 0.4 per cent, says IbisWorld.

Despite consumer demand for electronic and interactive toys, trading conditions for industry operators were tough due to mounting industry competition.

According to IbisWorld industry analyst, Claudia Burgio-Ficca, sales have also been affected by annual fluctuations in household disposable income, interest rates, consumer sentiment, the relative share of the total Australian population aged 14 years or younger and seasonal trends.

The tough trading environment faced by operators affected industry profit levels, with operators experiencing a downwards pressure on margins due to strong price-based competition.

Sales over 2012-13 for the toy and game retailing industry in Australia are projected to rise by a modest 2.1 per cent to $1.67 billion.

“Consumer demand is expected to be driven by growth in disposable income levels and a recovery in consumer sentiment,” says Burgio-Ficca.

Industry sales are also expected to benefit from the growing popularity of games with interactive entertainment continuing to provide families with good value for money.

However, the industry is set to come under mounting pressure from e-tailers and auction sites.

Other competitors such as department stores and supermarkets will also continue to erode market share for retailers via their lower pricing strategy and mass promotional deals.

Toy and game retailers are forecast to record steady growth over the next five years.

Despite continued competition from external players, industry operators are expected to benefit from income growth, a steady increase in the relative share of Australian consumers aged 14 years and under, and consumer demand for the latest tech toys.

But retail spending on toy and game products may be hindered by volatility in consumer sentiment and rising interest rates.

As a result, industry retailers will forecast to continue to diversify their operations by reviewing their product range, entering niche markets or placing greater emphasis on customer service.

Market share concentration has intensified for toy and game retailers over the past five years, with the industry becoming increasingly polarised via many small retailers at one end of the spectrum and a few large firms accounting for a substantial portion of revenue at the other end.

In 2012-13, the largest players are expected to be Associated Retailers and Toys “R” Us.

The difficult trading environment faced by operators over this period has largely stemmed from the growing dominance of toys within department stores.

In addition, the declining number of speciality stores within the industry has also affected market share concentration.

For more information, visit IBISWorld’s toy and game retailing report.