The Game And Hobby Channel - Large, Growing And Off The Beaten Track

by: Lutz Muller

Hasbro faces a major threat to one of its major profit generators, Wizards of the Coast.

The threat is Asmodee who has over the past four years eaten Hasbro’s lunch.

Asmodee is now looking to be acquired and there is no shortage of potential suitors.

The Game and Hobby channel is often overlooked by Toy industry executives because it does not fit into their overall perception of their market place. In fact, it is a different, albeit important, segment of the U.S. toy space.

Firstly, it is growing more rapidly than the traditional toy market. The traditional market grew between 2008 and 2017 by a quarter whilst the Game and Hobby channel skyrocketed by a factor of five.

Secondly, it is a significant market in terms of Dollar volume. It went at retail from a $315 million figure to $1.6 billion between 2008 and 2017 – now representing nearly 6% of the combined total toy market

This is how the numbers look like:

Source: Klosters Retailer Panel

It is easy to understand why toy executives do their best to ignore the potential of this channel The stores are very small, they have a totally different profile from the regular toy consumer , they are difficult to reach via the traditional supply chain, and they are mainly involved in providing products for competitive gaming done on the premises.

Firstly – the stores themselves. There are about 5000 of them in the U.S. and they are usually one-door operations with between one and three employees; typically located in urban areas and tucked away in small strip malls. Their consumers are mainly adults between 18 and 35 years of age, predominantly males who congregate in these stores to play competitive games, to trade cards, and to participate in group events. These stores are off the mainstream as far as the established supply chain is concerned. Unlike the traditional toy market where the major manufacturers talk directly to the large retailers and ship their products to Distribution Centers, in the case of the Game and Hobby channel you look at rather confusing patterns. Most of these stores typically buy only minute quantities and do not qualify for the minimums mandated by the manufacturers. They, therefore, buy from small sub-distributors, who in turn buy from larger distributors, who in turn finally buy from the manufacturers. The quantities these larger distributors buy are broken down into smaller and smaller parcels on the way to the store. These stores are also off the main radar of the toy research entities such as NPD and their potential is hence not recognized by the toy manufacturers.

These stores make their living by selling products to their gaming customers and by charging small fees for participation in group events but they typically provide the gaming space in their store without charge.

The 2017 product sales of the Game and Hobby Channel in the U.S. are estimated as follows:


Retail Sales

$ million


Over 2016

Major Brands

% of Retail



Retail Sales

$ mm 2017

Collectible Board




Hasbro Wizards












Miniature Games



Gameshop Warhammer

Privateer Press








Role Playing Games



Hasbro Wizards


Fantasy Flight





Card Games




Fantasy Flight

Looney Labs










Source: Klosters Retailer Panel

What these figures do not include is the market in digital or virtual cards. I asked Ben Higgins, the manager of the Quarter Staff store in Burlington about them. His store is not only, in my opinion, the best Game and Hobby establishment in Vermont, he also has a very deep knowledge of the entire category and would be an excellent resource for anybody wishing to become active in it. In his view, while virtual card games are growing rapidly, they are not in any direct way competitive to the card games played in the stores. For one, they cost next to nothing, if anything at all, and you do not own them as a result. Also, the consumer profile is extremely different and more akin to the one for online games such as Solitaire, Mahjong Dimensions, Bridge, Crossword, Word Wipe etc. A limiting factor is also the rampant sexual harassment of female players on the internet which effectively limits the growth rate of this segment. Possibly as a result of this problem, the percentage of female players frequenting brick-and-mortar Game and Hobby stores is rapidly growing and is becoming a real economic factor.

There are obviously two heavyweights in this space – Hasbro and Asmodee.

Hasbro (HAS) is the by far larger company with total sales in the U.S. estimated for 2017 at $2.45 billion at wholesale. Of these, games in both the traditional toy market as well as in the Game and Hobby market amounted to an estimated $700 million. Scaling this up to retail we are looking at an estimated number of $1 billion. Of this $1 billion, the Game and Hobby channel accounted for about half of Hasbro’s gaming business in the United States Equally importantly, the channel also represented about 15% of Hasbro’s total business in the United States. There are three significant problems with these numbers. One of them is that Hasbro’s market share in the Game and Hobby Channel has declined significantly over the past few years. It now stands at about one-third whereas in 2014 it was estimated at 50%. The second is that revenue growth continues to decline – it stood in 2017 at about 6% which was well below the rate of nearly 10% recorded by the Game and Hobby Channel overall. The third is that Hasbro’s gross profitability on games is very much higher than for other toy product categories which suggests that the Game and Hobby channel represents about 20% of Hasbro’s total U.S. gross margin generated last year. Any further slowing in sales growth is likely to result in a disproportionate impact on the bottom line.

To whom did Hasbro lose out? There is no question – it is Asmodee. Asmodee was founded by a group of gaming executives in France in 1995. It stayed a relatively small regional player until early 2014 when Eurazeo (OTCPK:EUZOF) , a French investment company, bought a controlling interest in it and from that point onwards financed very rapid international expansion through both organic growth and acquisitions. Between 2014 and 2018, Asmodee acquired about 20 companies, all in the gaming category. Its revenue skyrocketed as a result – from 2013 $160 million to $430 million in 2016 to $550 million in 2017 – all at wholesale. Of this, North America now accounts for about 60%.

I asked my contacts to what they attributed the market share decline of Hasbro in the Game and Hobby space. They gave three reasons. One is that the Wizards franchise is now nearly 30 years old and its innovation curve is getting very flat. The second is that Asmodee is offering more interesting games and is very strong in the quickly growing Card Games category. The third is that Hasbro tends to be more remote from the stores than Asmodee who through their exclusive distributor Alliance provides faster and more consistent service. As the CEO of Asmodee North America said at the time of the agreement with Alliance “that it will provide hobby games retailers with the support and inventory they need to successfully grow their business selling Asmodee’s games” as the reason for the change.

Hasbro will obviously have to have their skates on to correct what is essentially a major threat to their business. They will have to tackle this in three ways. One is that they have to come up with completely different products from the “same old same old” Wizards games they have been trying to foist unto a not so gullible public. The second is that they have to get closer to their stores, similar to what Asmodee has already accomplished. The third is that they need to get ahead of the curve in terms of promoting their business. I do not know what their plans are for the first two but I do understand that they are in the process of producing with Paramount a movie focused on Wizard’s Dungeons and Dragons franchise for release in 2021. Their track record for movies based on their toys is not too hot – see both Battleship and Ouija – but this may be an exception.

There is increasing speculation about the future fate of Asmodee now that Eurazeo has signaled that they intend to sell their stake in the company. Potential bidders are many – Asmodee isan extremely profitable company with its estimated 2017 earnings of 100 million Euros before interest, taxes, depreciation and amortization. It is also a very attractive company in that, at least for the time being, its business is to a very large extent shielded from competition by dint of its position in these small stores. Friends of mine mention as potential acquirers Mattel (MAT), Bandai (OTCPK:NCBDF) and Takaratomy (OTC:TKHIY).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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