ToyJobs Blog

The toy industry had a strong year with sales growth of about 5%. While that is down from 2015, it’s really pretty good. Despite strong annual sales, it looks like growth in the fourth quarter slowed from 2015 even though in the final week before Christmas goods were literally blowing off the shelves. Fourth quarter weakness mirrored the economy as a whole as GDP growth dropped from 3.5% in the third quarter down to 1.9%

The big winner was interactive sales. While brick and mortar growth was only up 1.6%, online sales grew a whopping 12%. That brought web sales to 21% of all holiday spending up from 15.4% last year. In other news; Edward Lampert sold of Craftsman Tools and pumped an additional $1 billion into his company. It looks like toy manufacturers will be able to sell to Sears-Kmart for at least one more year. Lastly, toy industry’s strong 2016 helped to propel Toyjobs to its third best year on record.

The future, however, is full of uncertainty. We have a new and very different Presidential administration. Emotions are running high and flying in all directions. I will try to put my comments in context by telling you that I could not bring myself to vote for either Trump of Clinton and only voted down ballot. And before my inbox explodes, this is a business publication so I will examine this from a purely business perspective.

As pragmatic business people, now that Trump is here, it is not our job to support or condemn but to adapt. That has been made difficult because for the first twelve days things have been moving incredibly fast. That said, our ability to try and interpret and predict Trump are enhanced by the fact that thus far he has been very predictable in pushing forward watered down versions of things he promised on the campaign trail. Every politician does this but usually to a less (hmm) Trumpian degree.

Much of Trump’s behavior is right out of The Art of the Deal. Make incredible demands and then negotiate back to what you really want.  Behave outrageously to throw your opponents off balance and confound them on how to strategize against you. This is pure Art of the Deal. I recommend you read it. Not because it’s the greatest book of all time on sales and negotiation techniques. It’s not. But it does give you a pretty clear picture into the Trump playbook.

Recent headlines suggest negotiations of a new trade deal with Mexico and…the Wall. Trump has floated a 20% “border tax” to pay for his behemoth. That would hurt both American consumers and American businesses who already manufacture goods in Mexico. Trump doesn’t want to hurt American consumers. Not if he wanted to protect his majorities in the House and Senate. Not if he wants to get re-elected in 2020. Trump is also very much pro-business (although not as much as he is pro-Trump).

Mexico is in a very weak position. Their economy is based on exporting to the US. In a “Mexican Standoff” (sorry) their economy would crater…and fast. Could they redirect and rebuild? Sure, but that would take a lot of time, money and most importantly pain. That said, Mr. Pena Nieto isn’t about to commit political suicide by just writing a check. Trump holds a much stronger hand and he needs to build The Wall and appear to make Mexico pay for it. I would expect that some mechanism in the renegotiated NAFTA agreement will allow both men to declare victory to their constituencies. I also expect the US to end up with a better deal than it had previously. For Trump this is an easy win against a weak and dependent opponent.

Moving on to the TPP. I didn’t like Obama’s version of the potential trade deal nor am I happy with Trump just ripping it up. China isn’t going anywhere. They are only going to get stronger. Obama sought to negotiate a multilateral trade deal with everyone in China’s neighborhood while at the same time skirting the elephant in the room. When you look at the region, China is big and has a large and strong economy. Their ability to either seduce or bully their neighbors is only going to increase. In fact, it has already. China continues to sign up partners in the Asian Infrastructure Investment Bank left and right. The sensible thing is to sign a big multilateral deal which includes China now. In the future they will only be stronger and be more closely tied to the rest of the region’s economies. If we wait, they will have much more leverage.

I understand Trump’s wanting to retreat from multilateral trade deals and replace them with bilateral ones. The US has the largest economy in the world. We are the 500lb gorilla. If we are negotiating with, say, Belgium; we are going to have much more leverage and get a much better deal than if we are negotiating with Europe as a whole. It also allows us to better pinpoint actions, either positive or negative, in the future. That makes perfect sense in the short term. I don’t know if it works in the long run. Frankly, it’s above my pay grade.

Negotiating trade with China is a completely different story. China is ascendant. It has a big powerful economy, the second largest in the world. It has numerous trading partners. It has choices. I expect Trump will bluster and blow. China is a convenient political whipping boy. He will tirade about currency manipulation – although the reality of that ended about ten years ago. While Trump rails about “America First” we need to remember that “China First” has always been China’s policy. I’m sure that both sides of this imbroglio realize that a trade war serves nobody’s interests.

After the fireworks, I expect that Trump will walk away with very positive optics and a marginally better deal but the Chinese will be able to bring home some face saving measures. Chinese negotiators have a history of taking a longer view. They have always been good at postponing their concessions to sometime down the road. Sometime down the road could mean post-Trump and a new round of negotiations.

The danger is that when two Big Brutes play a high stakes game of chicken (especially with an audience) they often have to get hit in the head a couple of times. Therein lies the potential for disruption…and broken bar room furniture. It’s entirely possible that this scenario doesn’t play out. Maybe cooler heads will prevail and realize “everybody gets hurt.” Things may not slide in this direction…but they could.

I’m approaching the next two years with an attitude of optimistic caution. I am naturally optimistic but cautious because the rules are changing and the game board may be altered. Business has been good and Trump plans on instituting some very business-friendly measures in tax reform, deregulation and overseas profits repatriation but his public stance on international trade hangs over our heads.

I expect Trump’s trade negotiations to work out as a marginal net positive in the end. The question is when will that end be? With Mexico, I expect things to come together quickly and easily. China, on the other, could be a long and rocky road

…on the other hand I could be completely wrong about all of this. I am reminded of the traditional Chinese Curse, “May you live in interesting times.”

See you all in New York,
Tom Keoughan

P.S. Please direct all complaints to:

Steve Bannon
The White House
1600 Pennsylvania Avenue NW
Washington DC 20500

Let’s at least keep that guy busily distracted.

U.S. employers have continued to hire at a steady clip bringing the jobless rate down to its lowest level in nine years. That’s good news for toy manufacturers as ‘Sell Through Season’ is going strong with total retail sales up sharply.

Foot traffic at stores has been somewhat thinner than the frenzied human herds of years past after retailers began offering discounts as early as Halloween and many Thanksgiving weekend promotions were also available online. Many Americans feel that it’s easier to shop from the sofa rather than to fight one’s way through the mall.

Reduced crowds meant reduced violence which can only be a good thing. That said, there did seem to be an increase in parking lot gunfights so you will still not see me anywhere near a retail outlet on that particular weekend. College kids promoting “Black Friday Brawl” videos online were left offering mostly tame fare and even resorted to posting previous years’ hooliganism under this year’s banner. There was a much shown wild melee in Modesto, California but if you watched it, you would have seen that those kids didn’t know how to throw a punch.

Sales of Hatchimals, Nerf guns, Star Wars Drones, and 4K TVs seem to be driving holiday sales but there is more than enough volume to go around. Here’s to a strong continued sell through season! Strong sell through makes toy companies happy. Happy companies hire. Here at Toyjobs, we like that.

(Sell through) Seasons Greetings,

Tom Keoughan

In recent years, the Dallas Fall Toy Preview has been characterized by more and more toy manufacturers pulling out of the exhibition. This is the result of a split show which sends both manufacturers and retailers scurrying to Los Angeles, then Dallas, then back to Los Angeles, and finally to Hong Kong. Something had to give and it appears that now something has.

This year the dates of the Dallas show were moved forward so as not to conflict with the Jewish holidays, but that caused a direct conflict with Toy Show activities in Los Angeles. As a result, the entire Retail Midwest didn’t show up. There was zero representation from: Kohl’s, Meijer, Walgreens, Kmart, Costco, or Shopko. It was great to have large contingents from Wal-Mart, Target, and Toys ‘R’ Us. It’s always good to get as much face time with them as you can. But the reality is that they really conduct business in their headquarters. Most toy manufacturers will see them there and prefer to see them there.

I’ve always felt that at a trade show, it’s best to focus on mid-tier retailers. If they are all in one place and willing to give you some quality time, that’s where you can justify the cost of the show. Manufacturers can also save the time and expense of trucking to Menomonee Falls or Walker, Michigan.

Don’t get me wrong – I love the Dallas Show. There are open showrooms and toy executives have a fair amount of down time. If I can spend two days and meet thirty toy company Presidents, I’m gladly going to do it. In fact, most toy industry types I talked to like the show itself. It’s relatively inexpensive. It’s compact and people get to see friends and acquaintances from across the industry because everyone is pretty much in the same place day and night. That said, the show can’t go on if it doesn’t make financial sense

After 2016’s lack of retail support, I’m predicting a thirty percent decline in exhibitors in fall of 2017, followed by a 2018 Zombie Walk. Clearly a better solution must be found. The composition of the TIA Executive Committee and Board of Directors seems to be less dominated by Mattel, Hasbro, and Lego than they have been in quite some time. That may provide an opening for less table tipping in trade show planning. It’s time that the show moves to Los Angeles. I often hear that there isn’t a good venue, but that’s hard to believe. There’s the LA Forum and the Los Angeles Convention Center has lots of different size halls available. Truth be told, we only take about two full floors of the Dallas Market Center. I can imagine that two adjacent hotels with exhibitors taking out suites and conference rooms might work. If you think about it, that’s really not so different than the old New York Toy Building.

The real problem has always been timing. The larger companies: Mattel, Spin Master, Jakks Pacific, MGA, etc don’t want to show at a time when buyers may be distracted by their smaller, nimbler (and more creative?) competitors. One answer would be to have a seven to ten-day show with one part dedicated to large companies at their headquarters or El Segundo showrooms and another part focused on small and medium sized companies located at some centralized venue. Manufacturers could be able to choose which group they wanted to join but might find it difficult to command buyer attention if they picked a group that was inappropriate for them. In any case, that’s my two cents. I am now going to duck and cover in a probably vain attempt to avoid incoming poison arrows.

As for the toy industry itself – things continue to be strong. Toy sales have grown 6-7% for the last year and a half, despite somewhat sluggish retail sales. That is making toy companies happy. Happy companies hire. Here at Toyjobs, we are on track to have the third best year in our thirty-five-year existence. In fact, I’m ready to proclaim that toy industry hiring is “Back to Normal.” 2016 has brought a resurgence in toy company hiring of Marketing and Product Development people. From 2009-2015, toy hiring was all about: Sales, Sourcing, and Safety. Sell more – make it cheaper – get us through the regulations. I believe that the strong increase in Marketing and Product Development jobs indicates that toy companies are being less defensive and are now aggressively pursuing new products and new initiatives. That can only be good for the toy business as a whole.

Looking ahead to the holidays sales season, I see no reason why strong toy sales should not continue. Unemployment rates continue to come down. Median household incomes have surged over the last year. Consumer confidence is climbing. This should translate into continued strong toy sales. Robust sales should mean that happy companies continue to hire through this year and into next. May it be so.

All the best,
Tom Keoughan

P.S. My “Back to Normal” comments apply only to toy industry hiring. One need only look at the current election cycle to see that the world at large is certainly not “Back to Normal.”