The toy industry is undergoing a major transformation, presenting challenges and opportunities for small and medium-sized businesses (SMBs). In 2026, the biggest opportunities are not just bigger markets. They are smarter product design, stronger safety planning, direct-to-consumer growth, faster prototyping, and better sourcing decisions.
While established players like Hasbro, Mattel, and LEGO continue to hold strong market positions, there is increasing demand for niche, innovative products that cater to shifting consumer preferences. This presents a significant opportunity for smaller toy companies to carve out their own space by focusing on specialized product categories, educational play, sustainable materials, safe design, and digital sales strategies.
Unlike large corporations with deep resources and long production timelines, SMBs must find creative ways to stay competitive. Adapting quickly to emerging consumer trends is essential, but resource constraints can make this challenging. Smaller toy companies can differentiate themselves and build a loyal customer base by strategically leveraging market insights, streamlined supply chains, and direct-to-consumer models.
Key Takeaways
- Consumer demand for innovation, education, and sustainability is shaping the toy market. SMBs can compete by designing niche products, integrating learning elements, and choosing safer, lower-waste materials where those choices fit the product.
- The rise of e-commerce and direct-to-consumer strategies is creating new growth opportunities. By optimizing digital storefronts, leveraging social media-driven sales, and engaging directly with buyers, SMBs can reduce reliance on traditional retail models.
- Efficient supply chain management and compliance are critical for long-term success. Investing in supplier diversification, smarter inventory management, clear safety documentation, and production visibility can help SMBs control costs, reduce disruptions, and navigate tightening safety expectations.
#1: The Rising Popularity of Educational STEAM Toys
In today’s fast-paced world, parents and schools are increasingly valuing toys that promote cognitive development, creativity, and problem-solving skills. Educational STEAM toys—those that focus on Science, Technology, Engineering, Arts, and Mathematics—remain a strong opportunity because they connect play with learning and give parents a clearer reason to buy.
While not every school has adopted robotics kits or coding programs, after-school clubs, educational toy retailers, and online learning platforms have made these tools more accessible. Subscription-based STEAM toy kits, monthly coding challenges, and build-your-own science experiments provide structured, hands-on learning experiences at home. This shift opens up new opportunities for SMBs to manufacture accessible, affordable, and engaging STEAM toys that cater to both parents and educators.
The demand for STEAM toys is being driven by the rise of informal and at-home learning experiences, where parents are seeking educational alternatives outside of traditional school curriculums. While many schools lack funding or infrastructure to support coding and robotics programs, parents are turning to subscription-based STEAM toy kits, after-school coding programs, and digital learning platforms to introduce children to these skills at an early age.
Platforms like Osmo, Kano, and Sphero have made coding and robotics more accessible by offering tablet-based coding games and beginner-friendly robotics kits that do not require formal classroom instruction. Meanwhile, interactive science kits that allow kids to conduct simple chemistry experiments or build working circuits have gained popularity as hands-on learning tools.
How SMBs Can Capitalize on This Trend
For SMBs, there is a strong opportunity to develop affordable, modular, and engaging STEAM toys that cater to parents looking for educational solutions outside of school settings. Creating age-appropriate, easy-to-use products that integrate digital and physical elements—such as coding games that sync with mobile apps or science kits with guided video lessons—can further enhance accessibility and engagement.
The safest starting point is often a focused learning outcome. Instead of trying to build a full robotics platform, a small brand can create one clear product that teaches circuitry, measurement, storytelling, engineering basics, or creative problem-solving. Keep instructions simple, define the age range clearly, and design the product so parents can understand the value quickly.
#2: The Demand for Eco-Friendly and Sustainable Toys
As environmental awareness grows, consumers are seeking eco-friendly alternatives across industries, including toys. Many parents and caregivers are looking for toys made from recycled plastics, responsibly sourced wood, lower-waste packaging, and safer materials. While sustainability was once a niche market, demand has increased as major toy manufacturers and retailers introduce more eco-conscious product lines.
Governments are also enacting stricter rules on plastic use, packaging waste, chemical safety, and environmental claims. For SMBs, this presents an opportunity to differentiate themselves by committing to sustainability throughout the supply chain—from sourcing materials to packaging solutions.
How SMBs Can Capitalize on This Trend
SMBs can capitalize on the sustainability trend by experimenting with alternative materials such as responsibly sourced wood, recycled content, lower-impact textiles, and non-toxic dyes. Incorporating these materials into toy designs can reduce environmental impact and appeal to eco-conscious consumers when the material still performs safely and reliably.
While sustainable materials may increase production costs, customers may pay more when the value is clear. SMBs should focus on communicating specific, provable benefits rather than vague claims. The FTC Green Guides warn that broad claims like “green” or “eco-friendly” are difficult to substantiate and should be qualified with clear, specific environmental benefits.
For toy brands, this means avoiding generic sustainability language. Instead of saying a toy is “eco-friendly,” explain whether the package uses a specific percentage of recycled content, whether the wood is certified, whether the product is refillable or repairable, or whether the packaging is recyclable in the markets where you sell.
#3: Licensing and Branded Toy Sales Are Still Powerful
Licensed toys tied to popular movies, TV shows, games, sports, and creator brands continue to drive demand. Partnerships with major brands can help toy manufacturers capture attention quickly and create a strong market presence. However, accessing high-profile licensing deals can be challenging and expensive for SMBs.
Despite these challenges, there are alternative ways for smaller toy companies to compete in the licensing and branded toy market. By leveraging micro-licensing deals with independent artists, educational brands, local creators, or niche content communities, SMBs can create unique licensed toys that stand out. Developing original intellectual property (IP) and engaging storytelling can also help SMBs build a loyal following over time.
How SMBs Can Capitalize on This Trend
SMBs can leverage micro-licensing deals to create unique and appealing toys. Partnering with independent artists, educational brands, museums, local sports communities, or niche content creators can result in innovative toy designs that capture consumer interest.
Focusing on nostalgia and retro trends can further differentiate SMBs in the market. By reviving classic toy concepts with a modern twist, smaller toy companies can tap into the emotional connection consumers have with beloved childhood toys. This approach can resonate with both parents and collectors, driving sales and brand loyalty.
SMBs should also protect their own ideas early. Original characters, packaging systems, game mechanics, and story worlds can become valuable brand assets. Before sharing concepts widely, document ownership, use clear agreements with designers and partners, and make sure licensed artwork or characters are cleared for commercial use.
#4: E-Commerce and Direct-to-Consumer Sales Are Reshaping the Toy Market
The dominance of traditional retail in toy sales is no longer the only path to growth. Platforms like Amazon, Shopify, and niche e-commerce sites continue to give smaller toy companies ways to reach customers directly. Social media and influencer marketing have become powerful tools for building brand awareness and reaching consumers with lower early distribution barriers.
The broader retail environment supports this shift. The U.S. Census Bureau reported that U.S. retail e-commerce sales accounted for 16.6% of total retail sales in the fourth quarter of 2025, showing that online buying remains a major part of consumer behavior. For SMB toy brands, e-commerce can provide launch data, customer feedback, and proof of demand before larger retail commitments.
E-commerce allows smaller toy companies to bypass traditional retail gatekeepers and connect directly with their target audience. By optimizing their digital presence and leveraging social media platforms, SMBs can build a strong online brand and drive sales. The ability to reach consumers through multiple digital channels also provides valuable insights into consumer behavior and preferences, enabling SMBs to tailor their offerings accordingly.
How SMBs Can Capitalize on This Trend
SMBs should invest in high-quality product photography, video demonstrations, comparison images, age-range clarity, and compelling Amazon listings to optimize their digital sales. These elements are crucial for capturing consumer attention and driving conversions. Utilizing social commerce platforms like Instagram, TikTok, and YouTube can further enhance brand visibility and engagement.
Crowdfunding platforms like Kickstarter and Indiegogo offer additional opportunities for SMBs to validate product demand before mass production. By engaging with their target audience early on, smaller toy companies can gather valuable feedback and generate buzz for their new toy designs. This approach can help reduce risk and create a sense of community and anticipation around the product launch.
For toys, digital content should show the play pattern quickly. Parents want to know what the toy does, what age it fits, whether it is safe, how big it is, what is included, and why a child will come back to it more than once.
#5: Integration of Advanced Technologies in Toys
Smart toys are evolving beyond traditional play by incorporating app connectivity, sensors, voice features, AI-assisted content, and adaptive learning experiences. These technologies can create interactive, educational, and personalized experiences that grow with a child’s development.
However, while some high-end brands explore Augmented Reality (AR), Virtual Reality (VR), and advanced AI, these technologies remain cost-prohibitive and risky for many SMBs. Instead, affordable tech enhancements like interactive sensors, simple app-connected learning kits, audio-guided educational toys, and QR-supported instructions can provide more practical ways for smaller brands to integrate technology without excessive R&D costs.
Connected toys also bring privacy and data obligations. The FTC finalized changes to the Children’s Online Privacy Protection Rule in 2025, including stronger limits on the collection, use, disclosure, and monetization of children’s personal information. If a toy collects data from children, uses an app, connects to the internet, or enables accounts, privacy must be part of product design from the beginning.
How SMBs Can Capitalize on This Trend
SMBs should prioritize cost-effective, high-value tech enhancements rather than investing in expensive AR/VR features. AI-powered storytelling, voice-interactive educational toys, simple sensors, and guided play experiences can help a product stand out when the technology supports the play pattern.
Rather than building technology from scratch, SMBs can collaborate with existing tech providers to integrate off-the-shelf components or app-based interactions into their toys. This minimizes development costs while offering modern, engaging experiences.
Most importantly, SMBs should focus on how technology enhances play rather than adding tech for the sake of novelty. By aligning innovations with education, engagement, child safety, privacy, and long-term play value, smaller toy companies can compete with major brands without overextending resources.
#6: Supply Chain Innovations Reducing Risks and Costs
As supply chain disruptions continue to impact global manufacturing, toy companies are adopting new strategies to reduce risks and control costs. Many brands are exploring nearshoring, reshoring, and supplier diversification to shorten lead times, decrease reliance on volatile global shipping routes, and reduce geopolitical risk. Additionally, AI and IoT-powered supply chain management systems are improving inventory tracking, demand forecasting, and real-time adjustments to supply fluctuations.
For SMBs, balancing cost efficiency with supply chain resilience is critical. While offshore manufacturing in China has long been a dominant strategy, tariffs, labor costs, shipping delays, and risk concentration have made alternative locations—such as Mexico, Vietnam, India, and Eastern Europe—more attractive for some products. Nearshoring can help reduce transportation times and improve production agility, but SMBs must also consider supplier reliability, material availability, tooling, testing, and total landed cost.
Technology-driven supply chain management is another key opportunity. Inventory tracking and demand forecasting tools help SMBs optimize stock levels, preventing costly overproduction or stockouts. Working with logistics partners that use real-time tracking and automation can also improve efficiency, ensuring SMBs remain competitive despite having fewer resources than large-scale manufacturers.
How SMBs Can Capitalize on This Trend
Smaller toy brands should assess manufacturing options beyond a single country, weighing cost savings against supply chain security and logistical flexibility. Nearshoring to Mexico or manufacturing in Vietnam may provide faster shipping times for certain categories, but local infrastructure, supplier specialization, component availability, and testing access should be factored into decision-making. Hybrid approaches can offer both cost savings and stability.
Additionally, SMBs should invest in digital supply chain tools that enhance visibility and responsiveness. Inventory management systems can reduce waste, predict demand fluctuations, and automate reordering, helping smaller companies manage production without excess capital tied up in stock. Finally, strengthening relationships with multiple suppliers ensures greater flexibility, preventing bottlenecks and reducing dependence on a single source.
#7: The Evolving Role of Safety and Compliance in Toy Manufacturing
Safety and compliance are becoming increasingly important in toy manufacturing, with global safety expectations tightening and online marketplaces asking for documentation more often. In the U.S., toys designed or intended primarily for children 12 and under require third-party testing and certification when subject to children’s product safety rules.
The CPSC toy safety FAQ explains that toys for children 12 and under must be third-party tested and certified in a Children’s Product Certificate when subject to applicable children’s product safety regulations. CPSC also states that ASTM F963-23 applies to children’s toys manufactured on or after April 20, 2024. These rules make safety planning a design-stage responsibility, not a final checklist item.
For SMBs, prioritizing compliance from the start is essential to reduce the risk of recalls, fines, shipment delays, and lost consumer trust. Aligning with applicable safety standards early in the design phase helps smaller toy companies avoid redesigns after tooling, sampling, or inventory production.
Working with experienced manufacturing partners who have built-in compliance expertise can further reduce risks and accelerate approvals. Choosing suppliers with a strong track record of meeting safety standards helps SMBs streamline the toy manufacturing process and ensure their toys are safe and compliant.
How SMBs Can Capitalize on This Trend
Staying ahead of compliance rules is crucial for SMBs. By identifying applicable ASTM F963 sections, CPSC requirements, age grading, small-parts risks, chemical restrictions, sound limits, battery rules, and labeling needs early in the design phase, smaller toy companies can reduce rework and avoid preventable delays.
The CPSC ASTM F963 chart helps businesses understand which toy safety sections apply to most toys and which sections apply to specific toy types. SMBs should use this as an early planning tool, then work with a CPSC-accepted laboratory and qualified compliance partners before production.
Choosing experienced manufacturing partners with built-in compliance expertise can streamline the process and reduce risks. By working with suppliers who have a proven track record of meeting safety standards, SMBs can ensure their toys are safe, compliant, and ready for market.
Short-Term & Long-Term Strategies for SMBs
Short-Term Strategies (Next 6-12 Months)
SMBs can make immediate adjustments to align with industry shifts without overhauling their business models. Focusing on niche markets, optimizing digital sales, and incorporating sustainability can yield quick wins and set the stage for long-term success.
Optimize Digital Sales & Marketing
Ensuring a strong presence on Amazon, Shopify, and social media platforms is crucial for driving digital sales. Leveraging TikTok, Instagram, YouTube, and influencer partnerships can further enhance brand visibility and engagement.
Lean into Sustainability Where Possible
Incorporating eco-friendly packaging and highlighting existing sustainable practices in marketing can attract environmentally conscious consumers. Partnering with responsible manufacturers and offering a more sustainable toy line can also test market demand, but claims should be specific, substantiated, and easy for customers to understand.
Stay Agile with Supply Chains
Diversifying suppliers and exploring domestic, nearshore, or multi-country manufacturing options can reduce lead times and mitigate risks in the production process. Monitoring global regulations ensures compliance with changing safety standards and enhances supply chain agility through quality control.
Long-Term Strategies (1-3 Years)
Investing in strategic initiatives such as product innovation, brand development, IP protection, and distribution expansion can position SMBs for sustainable growth in a competitive market.
Develop a Unique Brand Identity & IP
Building a distinctive brand identity through original characters, storytelling, and product innovation can create long-term customer relationships and brand loyalty.
Invest in Product Innovation
Investing in AI-assisted play, digital add-ons, STEAM-based toy concepts, or modular toy systems can enhance play value and longevity when those features support the core product. SMBs should avoid expensive technology for novelty alone and focus on features that improve learning, safety, replay value, or customer experience.
Expand Distribution Beyond Traditional Retail
Strengthening direct-to-consumer channels through social commerce and brand-owned platforms can diversify revenue streams. Partnering with subscription box services, specialty retailers, educators, museums, or toy rental companies can further expand distribution and reach.
Staying in Lockstep with Toy Trends Helps SMBs Thrive in 2026
The toy market is evolving rapidly, presenting both challenges and opportunities for SMBs. Staying updated with emerging trends, consumer preferences, e-commerce behavior, safety standards, and regulatory changes enables smaller toy companies to adapt and thrive in this dynamic landscape. Continuous innovation and strategic planning are essential for staying competitive and relevant.
Gembah specializes in helping toy brands with research, design, sourcing, and manufacturing, making it easier for SMBs to turn trends into profitable strategies. Utilizing expert guidance and resources enables smaller toy companies to navigate the complexities of the toy industry and achieve sustainable growth.
Frequently Asked Questions
What are the biggest challenges SMBs face in the toy industry today?
Competing with large brands while managing rising costs, supply chain issues, customer acquisition, and evolving safety regulations are some of the biggest challenges SMBs face in the toy industry.
Focusing on niche markets, sustainability, direct-to-consumer sales, and compliance-ready product development can help SMBs stand out and thrive.
How can a small toy company stand out in a crowded market?
Differentiating with STEAM-focused, eco-conscious, tech-enhanced, or niche toys can help small toy companies stand out. Building a unique brand identity, original characters, engaging storytelling, and creator or educator partnerships can create a distinctive brand presence.
What steps should SMBs take to ensure toy safety and compliance?
SMBs should identify the toy’s age grade, materials, small-parts risks, battery needs, sound levels, chemical requirements, and applicable ASTM F963 sections early. For toys intended primarily for children 12 and under, third-party testing by a CPSC-accepted lab and a Children’s Product Certificate may be required.
Regularly updating safety protocols based on the latest regulations is also essential.
Is e-commerce more important than retail for SMB toy brands?
E-commerce is essential for SMB toy brands because it allows them to connect directly with consumers through platforms like Amazon and Shopify, while social media amplifies their reach without requiring national retail placement. Embracing these digital channels can significantly boost their sales potential.
How can SMBs future-proof their business in the toy industry?
Diversifying supply chains, investing in innovation, strengthening direct-to-consumer strategies, documenting compliance, and building original IP are key steps to future-proof SMBs in the toy industry. Embracing sustainable practices and staying informed about emerging trends can also provide a competitive edge.
