The buzz around the Fall Toy Preview was generally very positive. Most of the senior toy executives that I spoke with said they had very productive meetings with retailers and that business looked strong going into 2006. This was a marked departure from the last couple of years when the mood was very downbeat and most toy execs were mainly grousing and complaining. Of course, it’s important to keep in mind that no one was writing orders. Retailers were making “happy talk” with manufacturers and manufacturers, in turn, were making “happy talk” with me and anyone else who would listen.
All of this “happy talk” strains credibility. Walmart was beginning to discount even before Halloween consumers have been squeezed by high gas prices and will likely be squeezed again by the high price of home heating this winter. Manufacturers’ costs have increased due to high resin and transportation prices as well as the Chinese government’s challenging allocation of electricity. Large retailers, for the most part, have not allowed manufacturers to pass these higher costs on. For 2005, at least, it looks like lower sale volumes and tighter margins. Let’s not forget that 15% of the country has been blown into the sea. This could easily lead to a Christmas of clothes, shoes and necessities sprinkled with a few token toys. Still it is encouraging that rather than doomsday scenarios “happy talk” has returned.
Neil Friedman has been elevated to run most of Mattel. He has done a terrific job with Fisher Price, but one has to wonder if this is a promotion that he entirely wants. Barbie as been a disaster in the last few years and will be extremely difficult to turn around in the short term, if that’s even possible. Mr. Eckert pretty much set up Matt Bousquette to take the fall this time but if the slide continues he will likely find it difficult to dodge the bullet next time around. The silver lining for Mattel’s California employees is that Neil Friedman is a true gentleman and will likely put an end to the Stalag El Segundo atmosphere that flourished under Bousquette.
Walmart continues to take its lumps in the publicity wars. First, a confidential memo from their EVP of Benefits leaked out which pretty much recommends age discrimination as a company policy. It goes further to suggest that retail employees with seniority be squeezed out because they earn more than junior employees and are no more productive. To discourage unhealthy and more mature job applicants (and one has to believe to ease current senior retail employees toward the door), it is suggested that Walmart arrange for “all jobs to include some physical activity (e.g. all cashiers do some cart gathering).” Walmart also acknowledged that 46% of the children of its 1.33 million U.S. employees were uninsured or on Medicaid.
Next up, an Arkansas judge dismissed Walmart’s suit against former Vice Chairman Thomas Coughlin which clears him to receive over $17 million in retirement benefits which were being held back by Walmart. Apparently at the time of his retirement, Coughlin and Walmart signed a general release from liability agreeing not to sue each other. A federal grand jury continues to investigate allegations that Coughlin misappropriated up to $500,000 from the company through misuse of corporate gift cards, falsification of expense accounts and vendor invoices. One has to believe that Walmart has extremely smart lawyers. Those lawyers knew what was in that agreement and knew what it meant. They probably wrote it. Walmart decided to file suit against Coughlin knowing that winning was a very, very long shot. What’s interesting is that they decided to file that suit only after Coughlin announced that his defense in the federal probe would be that the allegedly misappropriated funds were in fact reimbursement for monies he paid to employees of various unions to provide him with lists of Walmart employees who were involved in union organizing activities. (This all smacks of something out of the 1930’s). Only then did Walmart begin to go after Coughlin in the courts. This story is far from over. Just this week, Robert Hey who reported to Coughlin from 1997 through 2004, pleaded guilty to three counts of wire fraud in the case and is cooperating with the federal investigation (i.e. he cut a deal). This will likely lead to charges being filed against Coughlin. If Coughlin uses the so called “union project” as his defense and can provide documentation of that, it could be a major crisis for Walmart. If one peers far down the highway it could end up with the unionization of Walmart which would significantly reduce their competitive advantage particularly in the grocery business which is their main traffic driver. A somewhat less powerful Walmart is not necessarily a bad thing for toy manufacturers.
Lastly in Walmart World, documents from a separate federal investigation suggest that several senior Walmart executives knew that its cleaning contractors used illegal immigrants who worked as many as seven days a week at less than minimum wage. Significantly, one Walmart exec also instructed a multistate cleaning contractor to set up multiple companies so that the contractor could continue to clean stores if one company was found to be hiring illegal immigrants and had to be dropped by Walmart.
All of this is only a quick review of Walmart activities which have come to light in just the last month. It clearly displays a continuous pattern of ruthlessness which, as Walmart suppliers, you know all too well.
At last, we get to the continuing saga of the toy building. Now you see it, now you don’t. Let’s start by saying that the relocation committee has a very difficult job with very few reasonable options. Furthermore, anyone who really thinks about it has to agree that one building is preferable to many buildings and shuffling around in the February snow. After checking out the Church Street location, I would have to agree with the TIA that it will be a good spot … in ten years after the area is rebuilt. But what do we do in the meantime? What happens once all the construction begins … a logistical nightmare. I don’t know why after mounting an aggressive campaign to present Church Street as the best of all available options, the relocation committee decided to reopen its building search only two days later. It could have been due to a chorus of toy industry complaints, but it’s probably more likely they reached an impasse in negotiations with the Church Street owners.
The main problem and cause of much confusion (aside from the fact that the toy industry will be out on the street come March 2006), is that over the last ten years the TIA has seemingly not represented the toy industry. Instead they seemed to operate as a private, for profit, trade show promotion company. This has meant that even when they have something constructive to say, no one trusts them. The relocation process is an opportunity for the TIA to both refurbish its image and return to its original mission of representing the toy industry as a whole. Whether this opportunity will be taken remains to be seen. That the Church Street location was, for whatever reason, not ramrodded down the throats of the toy business certainly helps. The Conley “resignation” is probably productive, but I can’t help noticing that they are still not promoting the real dates of the February Toy Fair.
Anyway, that’s my two (or eight) cents.
All the best,
Tom Keoughan
