DIVERSE INSIGHTS' SPIELWARENMESSE NUREMBERG TOY FAIR 2019 TREND REPORT

Nuremberg, Germany (Feb 5th, 2019) - To tell you this was my favorite trip to Nuremberg to date wouldn't paint you the full picture. Before arriving in Germany, I went to Kiev, Ukraine for the first time since 1991 when my family immigrated to the States. I got to visit my first apartment and understand how fortunate I am to be a part of an industry that has given me and so many others around the globe an opportunity at success. It reminded me that even though the industry didn't see the planned sales for Christmas 2018, we accomplished and overcame incredible challenges and are better for it. We have new retailers creating unique toy boutiques, we became faster at executing on trends, we understood that the collector is within all of us, and we are positioned for a meaningful rebound in 2019. NPD's year end numbers reporting a -2% decline overall, after a +7% increase post Q2, I was worried I would run into negativity and a lack of trend risk, but that was far from what I saw and felt. The industry overall continued to show newness and innovation in the face of challenging times. The retailers & industry experts I met with were positive and enthusiastic about our toy opportunities for a wider sector of retail, because at the end of the day, great items will find their consumers. Below are the products and trend I believe will positively affect the retail landscape and drive meaningful dollars to our industry:

THOUGHTFUL MUSIC - Music is the universal language that connects and inspires through play and a fitting first trend from the Nuremberg Toy Fair, the biggest international marketplace for toys. Numerous new innovations that take into account modern mom's aesthetic in both decor and physical space. These music toys camouflage learning and allow for creativity to dictate abstract development. Future rockstars are going to love the inflatable drum from Rainbow Colours that can be set-up and more importantly taken down in minutes. The beautiful juxtaposition of tech and classic with the Hape piano that perfectly embeds the sensors into wooden key notes and teaches young ones how to play the classics. And finally, and perhaps, truly the best in show was Tonies that re-invents what a kids figurine can be with their integrated music box that plays stories and songs digitally stored and recognized within the physical toy. It was wildly successful in Germany and soon will be launching in the USA.

THE EQ GENERATION - I first learned about this term from a viral video from Alibaba founder Jack Ma who introduced me to the idea of a new quantification for emotional intelligence and how it applies to business and leadership. How EQ balances out IQ - and eventually leads to LQ where love and empathy are just as important as strategy and ego. Toys that teach how to better read and understand emotions we're a noticeable trend as manufacturers and educators see a gap forming as a byproduct of screen time and a lack of human interaction. Understanding that emotional intelligence is taught through diversity understanding and through toys embracing Euclid's idea that "Things which are equal to the same things are equal to each other".

ANIMAL OF THE YEAR FLAMINGOS - Owls, Foxes, llamas, Unicorns, and now Flamingos. Now by no means am I suggesting that Llamas and Unicorns are suddenly unworthy of your shelf space but it seems that a clear new candidate has emerged specifically from the plush vendors at the show. I believe it to be a solid indicator as they have no tooling costs & time constraints, so can react to new fashion trends faster than other vendors in different super categories. I will be curious to see if we see this trend in apparel at New York Fashion Week during Toy Fair. I gotta admit I was a bit disappointed to not see any axolotls, the adorable Mexican "walking fish" that is trending in Japan and as one trend buyer pointed out, currently featured as Yolanda Buenaventurain on the Netflix show Bojack Horseman.

HARRY POTTER EVERGREEN - No license since Frozen was as widely embraced by retailers in a variety of channels of distribution as Harry Potter was in 2018. The brand has a unique mix of wholesomeness, Hollywood, epic battles, relatability, and of course magic. The character depth and sheer size of Wizarding World gives manufacturers plenty of ammo to make unique products that make sense for the super fan and the new youth that enters the brand every year. This should be a staple at retail, because there is enough newness every year to surprise the guest. New hybrid lighted figures give you a reason to collect and a way to display. The advent calendar has been trending in the US the last couple of years, although nowhere close to what it is in Germany, the trend is growing and adding a meaningful license like Harry Potter could push it over the top. Finally novelty magic socks that are easy to merchandise for retailers and offer a wow reveal to the consumer.

SCOOTERS MIX FUN & MOBILITY - I started thinking about this trend as companies like Bird and Lime started sprinkling ride share electric scooters all over major cities throughout the US. The product was positioned as fun, fast, affordable, and eco-friendly. I saw wide adoption right in front of me living in Downtown Dallas and throughout my travels - riders of all ages, sexes, and perceived economic status were giving it a try. Toyetic mobility was a real thing all of a sudden. I think this real world trend will trickle down to toys, and scooters are going to energize the ride on super-category. My favorite item in this trend was the nerf licensed shoot & scoot from Flybar - it was a blast (pun intended!). Globber's sophisticated approach was well received and offers a product thats both functional and stylish.

GASTRO-ANATOMY - Toys that teach about the human body are more core than trend in the toy business. However I feel that there are two trends swirling around each other with the kids chef trend and the curiosity that it sparks of how good food benefits the body physiologically. The food we ingest makes a major impact on every part of our lives and the exposure that celebrity chefs have given to kids has made this an interest. The rebranding of the chef career and how aspirational it is has made this motif interesting for younger kids and gives retailers an opportunity to sell food education thats fun.

FAVORITE FIDGETS - Yes I'm using the F word. Don't be like me - use words like tactile, manipulatives, and sensory toys because it really describes the all encompassing trend better but I love alliterations. The over-digitization of our society has created a caveman-like craving for physical toys that you can mindlessly mess with and it's now bigger than a trend, its turned into a category. There were a number of fun items at the exhibition but these stood out to me as best in show. PopPops are the best of bubble wrap with slime and a secret collectible. Hand gum is called exactly the play pattern that it offers and finally Stems is a nice update to construction toys with a fidget factor.

MEANINGFUL MOVERS - These were some of the fresher items at the show overall, and they all have a unique movement however live in different super-categories. From preschool to active games to special feature RC these items have an instagram moment and repeat playability for the various targeted aged consumers for each product, respectively. I loved the thoughtfulness of Legler's wooden lawnmower with the rotating role-play grass. The new pre-cool king of the monsters RC with vapor breath action and the controlled frustration of a goal that autonomously moves to make you the next Ronaldo.

**BONUS** A NEW VOICE IN COLLECTIBLES - As Alexa and Google smart speakers become a mainstay in all our homes, a new thought process emerged - what if we change the AI personality to put us into the world of our favorite characters? The new Alexa/Google integrated Batmobile bring Alfred, the ultimate and most trustworthy servant into your home. The timing is right with Batman's 80th anniversary in 2019 and this was the most unique item at the show.

Thank you for taking the time and interest to check out my post, if you would like to discuss anything in this trend report in more detail please don't hesitate to contact me SteveS@diversemail.com or follow my adventures visually on Instagram at @RedStarArmy1 and show some love to the company page @DiverseMarketing.

Thank you,

Steve Starobinsky

Chief Discovery Officer

Diverse Insights