Every day we are pounded by headlines about retailers closing stores. Toys ‘R’ Us leads the charge and will be closing about 180 or 20% of its locations in the US. Walgreen, Brookstone and Hallmark have also announced closures.
Sears Kmart will be closing about 165 locations. Of course, if you are still selling to Kmart you already know that you’re sitting at the blackjack table deciding whether to draw another card when your hand stands at 15. Can I get 15 day payment terms? Can I get 10?
Wal-Mart will also be closing 63 of its Sam’s Club locations, although about a dozen of those will be converted into e-commerce distribution centers. Building out their e-commerce fulfillment network should help them deliver online orders to customers faster.
All of these store closings will mean less shelf space to fill but greater predictability for the year ahead. No longer will toy manufacturers have to wonder: “Will they?”….They already have. Unfortunately, many manufacturers still have uncertainty on how much and when they will be paid by TRU for goods that they’ve already sold. That means that while the future looks brighter, many vendors still have uncertainty about their own current financial situation. It doesn’t help that Toys ‘R’ Us has secured a bankruptcy extension beyond April 6th. It is also unhelpful that throughout this whole bankruptcy process, TRU has been far from forthcoming and has not acted as a very upstanding citizen toward the toy industry community. “Not only are our payables way late but we will continue to nickel and dime you in the warehouse and any place else we can think of.”
There are, however, silver linings on the horizon. Holiday sales for 2017 posted strong gains. The National Retail Federation stated that overall sales when up 5.5% while according to data from MasterCard Spending Pulse they were up 4.9%. Target, Kohl’s and even J.C. Penney all hit it out of the park. Amazon continues to rocket forward. A study by One Click Retail said that the online juggernaut claimed 44% of all US e-commerce sales for 2017. Additionally, Amazon accounted for 4% of total retail sales for the year – approximately $200 billion.
Unfortunately, toy sales gains were much more muted. According to NPD they grew only 1% in the US and 1% globally in the 12 countries they track. Mexico and Russia were hot sales growth markets. Toys ‘R’ Us has to be one of the major causes of this. We have heard that TRU’s US sales dropped by 15% in 2017. And if those are the numbers we are hearing, the real numbers could be substantially worse.
Although we were coming off of our third best year ever, 2017 was a lousy year for Toyjobs. For the first nine months of the year our clients told us: “We need additional people but we are going to wait and see what happens with Toys ‘R’ Us.” Once the bankruptcy was announced, toy manufacturers, for the most part, pulled in their horns. TRU is everybody’s second or third biggest customer and manufacturers big and small all took a hit to their overall profit margins.
Moving forward we are cautiously optimistic on toy industry hiring for 2018. Although there will be less shelf space to fill, there should be greater predictability on 2018 sales. In addition, tax relief should mean wider profit margins for toy manufacturers. That said, I wouldn’t be surprised if retailers are unsatisfied with their own expanded profit margins and also want a piece of yours. Consumer spending was up 3.8% in the final quarter of 2017. That looks to continue due to strong employment, signs of wage gains, a galloping stock market and high consumer confidence. Spending should be boosted even further as consumers see their take home pay begin to rise. The media has 90% of the American people believing that their taxes will be going up. What a surprise it will be when 85% of them actually see their tax burdens drop and their paychecks increase. Add to that, the pent up demand when toy manufacturers who wanted to add people last year now feel comfortable enough to do so. All of this should come to pass if and when the toy industry can finally get past the Toys ‘R’ Us fiasco.
I look forward to seeing everyone in the New York February cold.