Mixed signals behind us. Mixed signals ahead. Mixed signals all around. On the one hand, job growth has been weakening for a while and last week was strongly revised in a downward direction. Credit card debt and defaults have grown to a very high level and that debt is at sky high interest rates of around 23%. Many companies led by Home Depot, McDonald’s, Macy’s and Disney have sounded alarms about weakening consumer spending after years of pent-up pandemic demand. On the other hand many lower cost retailers like Walmart, Target and T.J.Maxx have been hitting it out of the park.
image via newyorkfed.org
Many prognosticators (beware the fortune tellers) are saying that we’re on the cusp of a recession but then they’ve been saying that for years. If the downturn didn’t happen 18 or 24 months ago, why should we expect it to happen now. I suspect that consumers are “trading down” and looking for bargains. And why not? After 20 plus percent cumulative inflation during the last four years; today’s bargain is yesterday’s normal price. What’s going to happen in the future? A reduction in the interest rates would be welcome but anybody who tells you that they know what the future will be, isn’t being truthful.
What does that mean for toy industry hiring? Since Covid began I’ve been using the allegory that the pandemic was like a big rock thrown in a quiet pond. I’m sticking with it. Over time the ripples have been getting smaller, but the ripples are still with us. Last year the ripple was an inventory glut which in turn was a reaction to the previous year’s inventory shortage. Due to the glut, retailers bought much less merchandise as they already had a backlog piled upon their shelves and in their warehouses. Toy manufacturers had goods piling up on their shelves too. That meant they either had to blow it out rock bottom or pay to store it as much of it potentially lost value.
In the first six months of 2024 the toy headlines were all about major layoffs and reorganizations at the largest toy companies. A few noteworthy companies were sold as well. That said, many small and medium-sized companies were hiring. Not hand over fist hiring but looking to add one or two key players. Starting in July, toy industry hiring slowed considerably. I see three potential explanations for this, and I think it’s probably a bit of each.
First, since toy companies didn’t sell as many toys last year, their annual pay day in January and February was much reduced. That began to pinch by mid-year and companies were reluctant to borrow a lot of money while interest rates remained high.
Second, it’s summer! Hiring Is typically dead in July. People are away on vacation. Toy executives go into hiding as they hope retailers won’t cancel orders at the last minute, etc. That usually rebounds in August as inventory makes its way to retailers, and toy companies suddenly realize that in early October the following year’s sales cycle will begin with Fall Previews. If they want to change or add to their sales teams, they will have to move FAST! This year that August rebound hasn’t happened.
Which leads us to our third explanation. The trade show schedule has changed. The new “streamlined” Fall Previews have become a six-week marathon (longer if you’re going to Hong Kong) of toy people rushing to and from Los Angeles. I honestly don’t know how anybody gets their work done. I suppose hotels are happy to keep laundering the same shirts at peak rates.
Hopefully, as things begin to settle down in October, companies will put together their forecasts. They’ll see that 2024 won’t be a great year but it will be better than 2023. They’ll see that the pandemic ripples while still there are continuing to recede and business will continue to improve in 2025. New calendars will arrive and they’ll come to realize “that if we start hiring searches now, we can start them in the new year and on the new year’s budget.”
That’s my hope. What is my prognostication? I don’t have one other than a piece of advice which some may find helpful and others will not. Take a stance of being optimistically cautious which is one notch below my usual cautiously optimistic. Things are moving rapidly in all directions right now and it’s impossible to read them accurately. Keep your weight on your back foot but ….. Be Ready To Be Nimble.
All the best,
Tom Keoughan
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