Mattel

Strong Growth in Toy Jobs Projected

While the toy industry saw strong search starts in the first quarter, a lot of hiring decisions were postponed due to the uncertainty caused by the weak economic and retail environment. Starting in Q2, we were rocking and rolling again. Search starts continued at a good pace, but now previously delayed hiring decisions were being made.

In July, toy jobs continued to be filled, although, as usual, search starts slowed due to seasonal factors.  For the second straight year, search assignments restarted during the final week of July. I’ve been saying it for a long time, but it seems that toy companies have finally started to realize that if they want to add new members to their teams in time for the Fall Toy Preview, they have to start looking well before Labor Day.

From where I sit, toy industry hiring looks to be strong through the end of the year and beyond.  NPD has recently reported that toy sales improved by 6.5% in the first half. They also project an increase of 6.2% for the entire year. This will be the strongest growth in the toy industry has seen in decades. Several hot properties and product lines have been leading the charge, including:  Frozen, Shopkins, Minecrafts and Paw Patrol. Coming soon will be an all-out blitz by the Star Wars franchise.

Strong sales growth should create confidence in toy companies, which should in turn instigate their desire to grow. In particular, look for rivals to try to continue to bite off shelf space from still staggering Mattel. All of this growth will necessitate an increase in staff. I look for renewed toy industry confidence to spur hiring through the end of this year and into the next. May the force be with us.

All the best,
Tom Keoughan

By | August 12th, 2015|ToyJobs Blog|Comments Off on Strong Growth in Toy Jobs Projected

He’s baaaaaack!…Neil Friedman Returns

After just a few short weeks in “retirement” Neil Friedman has returned to the retail side of the desk by being named Toys’R’Us’ US President. This comes just in time for the upcoming TRU IPO (good for him!). Early in his career, Neil spent ten years at Lionel Leisure before moving to the toy manufacturing side with Hasbro, Gerber and finally Fisher Price and Mattel. He also spent an additional short stint at Lionel Leisure in the early nineties.

The toy industry should benefit nicely by having Neil in such a prominent place at Toys’R’Us which has been looking awfully “Targety” lately. It should certainly be helpful that he understands and empathizes with the challenges that manufacturer/importers face. Congratulations to Neil and good luck to the toy industry which hopefully will find it just a little bit easier to do business with TRU.

Mr. Friedman’s alma mater, Mattel, just lost the most recent round in its “total war” with MGA. Most toy industry executives that I have spoken with are absolutely flabbergasted. To hear MGA Chief Executive Isaac Larian crow “After seven years of fighting with Mattel, I’m finally vindicated” reminds me of Ollie North saying “I’ve been completely exonerated. It seems that Mattel and MGA are now tied at one and one with one “do over”. So what happens next? Appeal? Jumpball? Tiebreaker?

From my reading of the case (which is admittedly far from complete) it seems clear that Carter Bryant created the original Bratz drawings on Mattel’s time and dime. It seems equally clear that Mattel turned the concept down internally (oops!). That’s completely understandable. We’re in a fashion business and much of product selection is just guessing at what a very fickle group will decide they must absolutely have usually for a very short period of time.

I, of course, haven’t read Carter Bryant’s Mattel contract but I do know (as does everyone in the toy industry) that these contracts are meant to cover all intellectual property developed day or night or weekend while in a company’s employ. Both Carter Bryant and Isaac Larian must have known that in producing Bratz, they were on a very slippery slope whether there was some loophole in the Bryant/Mattel contract or not. On the other hand, it is also very clear that MGA overwhelmingly built the Bratz franchise through smarts and hard work.

So, what should be done? This isn’t the way “the law” reads or the way contracts were written but it I were King Solomon…First, no damages for anybody. I would guess there was an adequate amount of “stolen trade secrets”, dirty tricks, subterfuge and just plain smarmy behavior by both combatants. The original concept was probably technically owned by Mattel but the business was built by MGA. So Mattel should receive the highest customary inventor’s royalty paid in some sort of split by MGA and Carter Bryant who surely knew he was violating the spirit if not the letter of his contract.

I’m not particularly happy with that opinion. I am decidedly not an MGA fan but in trying to be impartial that’s where I come out. It’s just one man’s opinion admittedly based on a very limited reading of the evidence (mostly newspaper stories). If I had more first-hand access to the evidence, my opinion might be different. So please, there’s no need for huffy phone calls from either the Mattel or the MGA camp. You both need to focus on the next round of your battle (and I’m predicting there will be a next round).

On to more broadly important matters. Last week we learned that US manufacturing output has been rebounding at an incredibly fast rate. During the first quarter it increased at an annual rate of 9.1% compared to an estimated growth rate of about 2% for the US economy as a whole. This is due to a number of factors. In 2010 most large companies postponed purchases in order to hoard cash. Now that the deer in headlights portion of the crisis is over and the recovery has slowly begun, companies are beginning to spend to satisfy pent up demand. Large increases in corporate spending for computer and software upgrades are being seen.

Another reason in commodity inflation as US companies seek to jump on the bandwagon of rising prices and growing sales volume. Food price inflation is boosting spending world-wide on agricultural equipment. Globally rising metal and oil prices have encouraged spending on mines and oil and mineral exploration requiring additional equipment. As freight traffic grows, trucking firms are investing in vehicles with better fuel efficiency.

All of this heavy machinery will require additional people to build it. Additional workers will mean increased spending on consumer products and consumer products firms will need additional employees to fulfill demand. When the manufacturing sector does well the rest of the economy generally follows. The whole shebang is beginning to snowball albeit very slowly. Indeed in March, the unemployment rate edged downward in its fourth consecutive monthly decline. I’ll be leaving tomorrow to attend a Pinnacle Society conference with the other Big Dogs of Recruiting. It will be interesting to hear how employment is fairing in all of their various niches.

There are, of course, a few concerns. One is that the recent earthquake in Japan will lead to shortages of automotive parts, semiconductors and electronic components. That could slow production of some goods but thus far the effect seems to be relatively minor. A bigger worry is a spike in oil prices due to Middle East unrest. Saudi Arabia has enough spare oil capacity to offset almost any Middle East problems short of someone going to war with Iran (which doesn’t seem likely). The biggest danger would be if Saudi Arabia itself sank into crisis. If that happens…well, let’s just hope it doesn’t.

Toyjobs continuing forecast is for increased toy industry hiring of specific and necessary jobs and an increase in sales to toy retailers. Unfortunately, due to China’s slowly strengthening currency, rising labor costs, rising commodity prices and general inflation – we foresee lower margins. Things are so much better than they were a year ago but in 2009 the economy sank so low that it’s still not even close to normal.

 

All the best,
Tom Keoughan

By | April 27th, 2011|ToyJobs Blog|Comments Off on He’s baaaaaack!…Neil Friedman Returns

Toy Fair (Without Snow) But Oil Clouds on the Horizon

Spirits ran high at the TOTY awards dinner and the Toy Industry Association did a fantastic job landing a great new venue – Jazz at Lincoln Center. The very fun evening was dominated by seeing lots of familiar faces and by Mattel’s Sing-a-ma-jigs. In a sense, the event was a well deserved Victory Lap for Neil Friedman who will be retiring from Mattel. Congratulations to all award winners, nominees, of course, Neil and Carter Keithley and the TIA.

The Women in Toys dinner was upbeat as always. Speechifying was kept mercifully short. Congratulations to everyone in attendance for being such a lovely and cheerful crowd.

Toy Fair itself was the best I’ve seen in several years with very strong traffic on Sunday and Monday even in what I’ve formerly called “the basement of gloom”. The bustling basement may have been the result of the strangely bifurcated main floor where it appears that the Teamsters are trying to secretly build a nuclear submarine. The smell of fear was gone. The falling have already fallen and the survivors were getting back to business. It was also nice to see major toy companies like Mattel, Lego and MGA supporting an industry wide trade show again.

The reason for all this cheerfulness was that the economy has been picking up. NPD reported that US retail toy sales for 2010 increased slightly from 21.4 billion to 21.9 billion. US GDP grew at a 3.2% annual rate in the fourth quarter. That’s up from the 2.6% pace in the quarter before. Toy industry hiring has increased as companies seem to have been much more comfortable putting together their 2011 budgets than they were for the previous two years.

Other positive post Toy Fair news includes John Barbour, everyone’s favorite Scotsman (with apologies to Bob Wann) being named President of Leapfrog. The company has always had great product but has been hurt by consistently tumultuous “leadership”. Mr. Barbour should be a stabilizing force that will allow the company to keep its eye on the ball. The toy industry should also welcome Tomy’s purchase of RC2. After their recent pull back from the US market, Tomy is showing confidence in the future growth of the US toy business. It also appears that they will be keeping most or all of the current RC2 team in place.

Now for the bad news. This has been the most difficult part of this piece to write because major events around the globe have been changing so rapidly over the last week or so. New information should naturally bring a shift in analysis and attitude. So rather than “phoning it in” like some Obvious Huckster in Ohio (OHiO) we’ve been repeatedly revising this as new information comes to light. The final revision was today – Wednesday, March 16 @ 8:57am (EST)

The – let’s call it what it is – Civil War in Libya has caused an upward spike in oil prices. This has already translated to a significant hike in the price of plastic resin. In their infinite wisdom the global community has opened an investigation into crimes against humanity thereby guaranteeing that Gaddafi will “fight to the last drop of blood” (Dudes! Do that – AFTER!). He has already begun to have his air force bomb oil infrastructure situated in rebel controlled zones so they can’t sell oil for currency or swap it for supplies. In Congressional testimony, US Director of National Intelligence, James Clapper stated that “Gaddafi is relying on two of his brigades which appear to be very, very loyal, disciplined and robustly equipped” – “his superior military forces mean that his regime will prevail in the longer term”.

The drop in Libyan oil production can be offset by Saudi Arabia which has significant reserve production capacity and acts as the world oil market stabilizer. Unfortunately, Mideast unrest has reached there as well. At this point, a few smaller protests appear to have been contained but, make no mistake, there are tiny but growing bubbles percolating in the Saudi streets. Saudi troops have also crossed the causeway into neighboring Bahrain after Bahrain’s police force was overrun by Iranian inspired Shiite protesters. Any real trouble in Saudi Arabi itself will cause oil prices to skyrocket and could cause the global economic recovery to stall.

Add to this the terrible triple disaster in Japan – quake, tsunami,and the Fukushima nuclear crisis which resembles a slow motion but ever escalating train wreck. Our hearts go out to everyone affected by this ongoing tragedy and their families. It’s just too awful to even think about…

Japan is the world’s third largest economy and an estimated 10% of their electricity is offline and is likely to be disrupted for the long term. They will need to import tremendous amounts of oil, diesel, natural gas and coal for a very long time. Over time, this will put significant upward pressure on the cost of these commodities and things made out of them (i.e. plastic resin). Japan is also a major supplier of electronic chips. There are several factories down and we could potentially see shortages of electronic components, wafer boards and chips into the late summer. Price hikes on these items have already begun.

What all this adds up to is that there is significant new upward pressure on the cost of making plastic consumer goods. This comes on top of already rising costs for wages, transportation, etc. Taking the good with the bad, Toyjobs’ (easy to make) forecast is for increased toy sales at tighter margins. That said, keep a wary eye on Saudi Arabia because if that blows it all goes Kablooey.

Again, our hearts and prayers go out to everyone in Japan and their extended families.

 

Tom Keoughan

By | March 16th, 2011|ToyJobs Blog|Comments Off on Toy Fair (Without Snow) But Oil Clouds on the Horizon

Product Safety Conundrum and a Fall Toy Preview Review

Just as the toy industry began to make headway in convincing government agencies to rationalize product safety regulations along comes Mattel with an eleven million toy safety recall from its Fisher Price unit. Jakks Pacific then chimed in with its own half million piece recall and Graco added a recall of baby strollers. One thing that all three had in common is that they all were “product safety” issues or – design flaws. Certainly, it’s nearly impossible to police every factory in the Chinese hinterlands who may slip in a little lead paint to increase their beaten down profit margins when the gweilo isn’t looking. These, however, are design flaws and there just really isn’t an excuse. I’ve heard the arguments that if you look at these toys you don’t intuitively see any danger. That may be true, but Mattel is the largest toy company in the world and has entire departments focused purely on product safety. They also used outside safety labs who were apparently asleep at the switch.

Ironically, the biggest beneficiary of the recall will probably be Mattel. Most of those toys were sold between 2001 and 2008 and the majority of them are already on the scrap heap. Under the Mattel regime, Fisher Price toys don’t seem to have the longevity they did twenty years ago (thinner walls equals lower costs). Few will be returned and there is no inventory to pull off of retailer’s shelves or languishing in Mattel warehouses. Rational changes that were being considered in safety regulations will now most likely be shelves. The current overregulation disproportionally affects small and medium size toymakers. Mattel is the only company which gets to use its own internal safety lab which I have got to believe is less expensive than going outside. It can also amortize testing costs and manpower over a gazillion products sold. Small and medium companies are hit much harder by testing costs, time to market and eyestrain (having to read through all those crazy regs). Creativity has also been blunted as companies learn to play it safe. It’s very risky to produce a new and innovative product and take a flyer to see if it sells in the marketplace. Overregulation means that a company needs pretty large presells to be sure that a product at least breaks even. The unlevel playing field benefits Mattel quite nicely. No one believes that Mattel has been orchestrating large product recalls on purpose…but it sure makes you wonder.

Switching gears (kerlunk!) – the economy continues to improve albeit very very slowly. September’s unemployment rate was unchanged at 9.6% but U6, a broader measure of unemployment which includes people who have stopped looking for work and those settling for part time jobs rose to 17.1% from 16.7%. Government shed 159,000 workers half of whom were temporary census workers the rest are layoffs primarily from state governments and municipalities who have seen their tax revenues shrink. The somewhat good news is that private employers added 64,000 jobs. Unfortunately that is not enough. The US needs to add 200,000 jobs per month simply to keep up with the population growth of the workforce. It seems that we’re running harder and not even staying in place.

Despite what the media may say, the real disappointment isn’t consumers, who have good reason to be conservative given widespread unemployment and their damaged balance sheets. The real problem with the economy is large companies who are flush with cash but seem to be too scared of their own shadows to start spending. Economists are seeing an increase in the number of job postings but companies are very slow to fill them. It’s estimated that if openings were turning into jobs at the pace they usually do, the unemployment rate would be about three percentage points lower. One reason that companies are dragging their feet is uncertainty over the November congressional elections. Before hiring, business needs to know if what some call “the Bush tax cuts” but is really – the existing tax code – is going to be extended.

This was echoed at the Fall Toy Preview as many of the senior executives that I spoke with were finding it difficult to make planning decisions. As for the business of selling toys, most were upbeat. Sell-in has been good although margins are down. There is a feeling that the holiday season will have a very strong price focus which should help the toy business as most companies have been concentrating on producing lower cost goods. After the economic turmoil that we’ve had most companies want some clarity out of Washington and also want to cash their big January checks before they spend them.

Down in Dallas a common complaint was the lack of trade show support by larger toy companies. For years, the behemoths, Mattel, Hasbro and Lego have not supported toy industry trade shows. That practice is now being taken up by second tier companies like Jakks Pacific and MGA. Mattel and others were having their own “toy fairs” in LA in the two weeks following the Fall Toy Preview. Some buyers even left Dallas early to travel to Los Angeles. Certainly this makes business sense for larger companies as they know they are going to get their face time with the retailers. Obviously, they would prefer that buyers be totally focused on their product line rather than be “distracted” by hundreds of smaller competitors. Alright I get it, but the toy industry may want to consider whether they want these larger toy companies dominating the TIA board. Certainly, the TIA needs their dues but one of TIA’s main functions is to organize trade shows and industry events. In choosing not to support trade shows, these companies dominant place on the TIA board is a clear conflict of interest. One of a trade organization’s most important missions is to protect the interests of its smaller and medium sized members. The big boys have the ability to fend for themselves.

If the Fall Toy Preview was moved to Los Angeles at the same time that Mattel and others were holding their “toy fairs” then the larger companies would likely just switch weeks. I wonder if maybe all parties could be accommodated by having two shows in LA on consecutive weeks. The main show with small and medium size companies during one week. Mattel and other large companies could do their thing the following week. Any company that thinks it’s important enough to draw buyers away from the big boys would be welcome to take the gamble and show in week two. Of course, that may or may not work out for them.

“Everyone under one roof” is an admirable goal but it’s never going to happen. The toy industry can’t even get everyone in the same town at the same time. I don’t want to criticize the Toy Industry Association too much here. By all accounts, they have done an excellent job under the leadership of Carter Keithley. This is NOT the TIA of even just a few short years ago. However, TIA and the TIA board need to tackle this problem now. Meetings should be scheduled, smoke filled rooms rented, arms twisted and compromises made. Complaining quietly amongst yourselves doesn’t accomplish anything. I would recommend speaking directly with either Carter Keithley or your favorite TIA Board Member to ask how you can help.

Hoping I didn’t stir up too much trouble,

Tom Keoughan

By | October 25th, 2010|ToyJobs Blog|Comments Off on Product Safety Conundrum and a Fall Toy Preview Review

Fall Toy Preview: A Little Grumbling Despite The Full Dance Cards

My experience at the Dallas Fall Toy Preview was that the overall mood was “workmanlike”.  While I can’t say that people were exactly upbeat, there wasn’t the pervasive sense of gloom that we’ve seen at the last few trade shows.  Most people seemed to give off more of a sense of being survivors, of being beaten up but having made it through with the knowledge that the worst is over but that there are still some tough miles ahead.

In the weeks leading up to the show there was a lot of talk that Target and Wal-Mart (both extremely early price choppers this year) were not planning to attend.  I hear that before every trade show and, as always, Target and Wal-Mart sent buyers although not their entire contingent.  Even with that I still heard a lot of grumbling at the show despite the fact that most companies had very full dance cards.  My sense is that those people and companies who were disappointed were so because they had a false set of expectations.  If you go into Dallas thinking that you are going to write a Target order, I can guarantee you that you will be disappointed.  This is a great show for getting retailer feedback about your offerings, giving you a chance to tweak product, packaging and assortments prior to the all important Hong Kong Toy and Gamers Fair in January.  It’s also a great time to focus and have some quality meetings with second and third tier retailers.  As one VP Sales said to me “even if Wal-Mart and Target weren’t here at all, I have the opportunity to meet with fifty customers in just three days.  Where else would I want to be?” 

With Wal-Mart de-emphasizing the toy aisle those second and third tier retailers are becoming more important.  By stepping back, Wal-Mart has allowed other retailers to see opportunity in the toy business and many of them are responding aggressively.  Toys ‘R’ Us is stepping into the malls with eighty pop-up stores.  This will be their first year of doing this so their execution is a question mark but let’s face it, anything has got to be an improvement over the mess that was the KB Toys retail experience.  Sears is testing getting back into the toy business and, if successful, will make a bigger commitment for 2010.  Barnes and Noble and Borders, two retailers that definitely still get traffic, are putting a greater emphasis on toys and providing a lot more shelf space.  I suspect that other retailers will follow suit now that they won’t have to compete with Wal-Mart pricing on as many products.  Toy companies should be happy with the increased shelf space, diversification of customers, and the likely higher margins to be had from these retailers. 

What toy companies should be complaining about is the lack of trade show support from toy behemoths Mattel, Hasbro and Lego.  This lack of support has now spread to second tier players such as Jakks Pacific, Spinmaster and MGA.  Certainly this makes business sense for larger companies as they know they will get their face time with the retailers.  Obviously, they would prefer that buyers be totally focused on their product line rather than “distracted” by a hundred smaller competitors.  Alright, I get it, but the toy industry may want to consider whether they want these large companies dominating the TIA board.  Certainly, the TIA needs their dues but one of TIA’s main functions is to organize trade shows and industry events.  In choosing not to support trade shows, these companies’ dominant place on the TIA board is a clear conflict of interest.  One of a trade organization’s most important missions is to promote and protect the interests of it’s smaller and medium sized members.  The big boys have the ability to fend for themselves. 

In our isn’t that ironic file:  Mattel has reached a settlement in twenty-two class action suits over their widespread product recalls in 2007.  The recalls resulted in over-regulation which disproportionally affects small and medium size toymakers.  While Mattel can amortize testing costs and manpower over a gazillion products sold; the smaller companies are hit much harder by testing costs, time to market and eyestrain (from having to wade through all those crazy new regs).  Creativity has also been blunted because small companies can no longer produce a new and innovative product and take a flyer to see how it sells in the marketplace.  The new rules mean that a company needs pretty large presells to be sure that a product will at least break even.  Now do I think that Mattel intended this from the beginning?  Of course not, but the fact remains that Mattel is one of the biggest beneficiaries of their own quality and product safety failures.  If the court approves this settlement – it looks to me like they got off cheap. 

Toy industry hiring continues to slowly improve.  It’s certainly not good but it’s better than it was six or even three months ago.  My continuing forecast is that hiring will continue to be weak at least until the August/September (and it may take longer) time frame.  For most of 2010 hiring will be slow although not as bad as 2009.  Some very important meetings are coming up in December and January. Those meetings are not with retailers and not in Hong Kong but with banks.  Banks slashed loans and lines of credit in 2009.  With banks still reluctant to lend, regardless of Holiday sales numbers, I can’t imagine that seasonal fashion businesses will be at the top of their lending lists. 

Muddling thru,

Tom Keoughan

By | October 30th, 2009|ToyJobs Blog|Comments Off on Fall Toy Preview: A Little Grumbling Despite The Full Dance Cards

“Less Bad” is the “New Normal”

Clichés spring like “green shoots” from the mouths of journalists, TV talking heads and mush mouthed politicos.  The media seems to have abandoned its age old “bad news sells” model with the sudden realization that too much bad news may put them out of business.  They have joined with beltway types to try to talk up consumer confidence in the hopes that a return to shopping will jump start the economy in a way that the current stimulus package will not until 2011.

In many ways it seems to be working.  The rate of new layoffs is slowing even though I would like to see a couple of more months of data before declaring it a trend.  The headline unemployment number is 9.4% and that is very scary but perhaps not as scary as it seems because it is a cumulative number which includes everyone who was laid off prior to the most recent month.  On the other hand, the official unemployment number is not what we should be looking at in the first place.

 

A broader statistic which gives us a much more realistic view of the unemployment picture is U6.  U6 includes people who have been looking for a job for so long that they have either given up in disgust or decided to just sit back and wait for things to get better before they even try.  They are not actively looking for a job but they would take one if it was offered to them.  The “regular vanilla” unemployment figure does not include these people.  U6 does.  It also includes people looking for full time jobs who have only been able to find part time jobs but really want full time jobs.  The “regular vanilla” unemployment figure does not include these people.  Huh.  U6 does.  U6 for May was 16.4%.  Whoa!  16.4% is a HUGE number!  More than one in six Americans is either unemployed or underemployed (do you want fries with that?).  It suddenly becomes very clear why the government talks about the “regular vanilla” unemployment figure and why you have never heard of U6.

 

So, things have indeed gotten very bad although for the time being they have ceased getting worse.  It has to be considered very good news that the global financial system is no longer teetering on the brink of total collapse.  That said, we still have a severe recession to work through.  To paraphrase Warren Buffett (I’d quote him but I can’t write that fast) “The financial climate is much improved from the October through March period which sets up the stage for the economy to grow stronger.  That hasn’t happened yet but we’ve reached the point where it can.”  Many are predicting a soupbowl shaped recovery.  The economy came down hard and will drag along the bottom for quite a while before it starts back up the other side.  That sounds just about right although I have no way of knowing.  In fact, I’m still a little leery of other shoes yet to drop (commercial real estate, credit card debt, and we still haven’t exactly gotten rid of all that toxic waste yet, have we?).  If I seem to be prevaricating and slowly feeling my way along like a blind man in the dark, well, I am.

This leads everybody from consumers to manufacturers to retailers to remain extremely cautious.  For their part, retailers are taking longer than ever to finalize orders.  Of course, they don’t see themselves as being late.  They just want to push as much risk as possible onto their vendors (ahem, “partners”).  With so many Chinese factories having closed, so many laid off Chinese workers, and the lengthened quality regimen, we are fast approaching the point when manufacturers will be physically unable to deliver goods by the time that retailers want them.  Later commitments don’t mix well with longer cycle times.  The prevailing retailer attitude seems to be “We don’t care – get it here or somebody else will fill our shelves.”  But who?  And with what?  Why, the big boys, of course.  Mattel, Hasbro and Lego (do we still consider Leapfrog a big boy?) can afford to tool up and manufacture earlier because they get to amortize costs over a gazillion units sold.  They also get earlier commitments from retail than the rest of the toy industry.  This means that the shelves will be filled with less variety this year.

 

Another onerous note is that Wal-Mart is reducing its toy space by more than half.  The toy department itself has never been all that profitable for Wal-Mart.  Instead it has been used as a loss leader to drive foot traffic during the last four months of the year.  Over the last five or six years, Wal-Mart has committed heavily to the grocery business.  Grocery is also a low margin business but one where Wal-Mart has an advantage because it is not unionized . . . . . yet.  The move into grocery has worked out brilliantly as a traffic builder.  The average Wal-Mart customer now visits their stores once a week rather than once a month.  The toy aisle is no longer needed to drive traffic.  Of course, they’ll keep their hand in and stock the obvious big company items backed by big advertising dollars but they’re not going to think too hard about the toy industry anymore – no more guessing on what will be a hot seller.  They’re just going to focus on moving merchandise – like big jars of pickles.  This will obviously benefit big toy companies who are able to make big TV advertising commitments.  Toys ‘R’ Us also stands to benefit – if they are able to execute.  It’s as if Wal-Mart is taking its foot off of TRU’s throat after nearly destroying them.  It’s certainly not an act of good will, it’s just that toys aren’t that important to Wal-Mart anymore.

 

As for toy company hiring, we are still going through a dark period where there have been many layoffs and very little hiring.  As I have said in this space before, most companies tell me that operationally they need people but their banks won’t let them hire anyone.  Most companies operate on lines of credit, letters of credit and bank loans.  This year many banks have said something on the order of “we’ll give you seventy percent of your usual line of credit but you’ve got to cut costs by twenty percent”.  Due to the seasonal nature of the toy business this has pushed many companies to the brink of solvency.  Many companies are meeting with their banks every two weeks to be told which bills they are allowed to pay.  It’s almost as if the banks think we don’t know who caused the financial crisis in the first place.  It would be nice to see them get their own houses in order before making judgments about others.

Toyjobs has noticed that the hiring climate has grown tricklingly better during May and early June.  I would anticipate that by the end of the second quarter retailers will have mostly finalized their orders and toy companies will be able to approach the banks with a better story to tell.  This leads me to believe that by late August/September toy industry hiring will have improved noticeably although it will still be a long way from good (it’s easy to improve noticeably from zero).   2010 should be better as we move along the gradually inclining slope of the soupbowl curve.  Unfortunately, retailers will continue to push off purchasing commitments as long as possible.  Toy companies won’t be able to breathe easier until July/August meaning that it likely won’t be until late August/September that there is a true resurgence in hiring.

Muddling thru,

Tom Keoughan

By | June 8th, 2009|ToyJobs Blog|Comments Off on “Less Bad” is the “New Normal”

Poor Economy Continues to Dog Toy Industry

The economy remains stagnant as continued layoffs and tight credit have left consumers cautious. Even the currently employed have stopped spending and are hoarding cash because it seems that on any given Friday anybody can be laid off.

Retail sales continue to be poor and have even worsened after the brief January, February upturn which followed a dismal autumn. March retail sales fell 1.1% from February and were down 9% from the same month year ago. The only bright spots were the usual suspects, discounters Wal-Mart, Costco, the Dollar stores and drug chains.

On the brighter side the financial situation does seem to be stabilizing although still not recovering. The LIBOR rate (the interest rate at which banks lend to each other) is now in close to normal territory and the stock market has been recovering as bargain hunters have appeared. Of course, all evidence of “stabilization” could evaporate in a day and we could be back in the freefall zone of last autumn.

The employment situation continues to be bad with lots of people looking for work but few available jobs. Companies are still saying that although operationally they need additional people they are not hiring due to financial concerns and banking restraints. In “the tiniest glimmer of hope” department, Toyjobs has just recently noticed a slight uptick in the number of new search starts. It seems as if during the first quarter 98% of companies had a hiring freeze but now that we’re in the second quarter only 85% do. That is not exactly overwhelmingly good news but we can hope that it becomes a trend that continues.

In a humorous note, Reuters reported on April 17th that Isaac Larian of MGA has offered Mattel an opportunity to pay MGA for the Bratz line after the court awarded Mattel $100 million from MGA and ordered MGA to stop making Bratz, which the court determined was misappropriated from Mattel in the first place. That order was later suspended until the end of 2009. Toyjobs only comment is: “Gee, what a kind and generous offer from Mr. Larian. Bless his heart.”

Muddling Thru,
Tom Keoughan

By | April 14th, 2009|ToyJobs Blog|Comments Off on Poor Economy Continues to Dog Toy Industry

Bleak Times: Will Walmart Steal the Silver Lining in 2009

The Dallas Toy Show began amidst the throes of the credit crisis.  The stock market was plunging on a daily basis while the economy was having a severe heart attack.  No wonder then, that most people’s attitude was initially, to put it mildly, trepidatious.  The Christmas sell through season was looking bleak.  Retailers had been reluctant to make large inventory bets and everyone from retailers to toy companies to Asian manufacturers were having difficulty obtaining the capital necessary to fund operations.

Many, if not most, small and medium sized toy companies are not self-financing and operate on bank loans and lines of credit.  We had just seen both Dolly Toys and Sababa Toys fold and MegaBrands was arguably (I’m sure that they would argue that they were not) teetering.  Banks were and are tightening up on business loans and reducing lines of credit.  They are also reducing credit card limits to consumers.  The scariest quote that I read comes from The Wall Street Journal on October 17, “Credit has gotten so tight in recent weeks that companies contemplating a bankruptcy filing can’t find the cash needed to go through the process.”  We can’t even afford to go bankrupt anymore.  Whew!

Fortunately as the show went on the mood visibly improved.  Most of the important retailers were there (with the conspicuous exception of Costco).  The majors (Wal-Mart, Target) may have only been making short, almost social, stops but toy company executives were telling me that they were having very productive meetings with second tier retailers.  This should inform toy companies how to approach the show in the future.  Wal-Mart, Target and Toys ‘R’ Us aren’t going to give you much more than a little face time here.  Accept that and be prepared to make the most of it.  This isn’t the time to sell them, but rather, know in advance what questions you want to ask and what answers you need to positively affect your business.  As for second and third tier retailers; this is the time to sell the hell out of Walgreen, Shopko and Books-A-Million.

The general mood improved as companies realized that either sitting around moaning or being paralyzed by fear was a sure road to ruin.  The only way to survive, and that survival is not guaranteed, is to go out and do business – so get to it.

Speaking of sitting around moaning; the one very justified gripe that I heard over and over again concerned the new product quality regime.  It seems like no one with any real industry experience had anything to do with developing it.  While its final goals are admirable, it is not physically or financially feasible.  Also, the smaller and medium sized firms are hit disproportionately as they have to amortize the costs over a fewer number of goods sold.  The unasked question in the room is this: What portion of everybody’s testing bill should the main offender, Mattel, pay?  It’s appalling that this works in their favor by putting undue pressure on smaller companies, mainly due to Mattel’s many screw ups.

In other news of big bullies acting to the detriment of the entire toy industry: Wal-Mart launched all of retail into a toy discounting spiral on the spectacularly early date of October 1st.  What’s next?  Christmas in July?!  This, even though it conflicts with consumer behavior which shows that shoppers are purchasing closer to the time of need.  For all the hoopla over Black Friday and the Saturday after Thanksgiving, in recent years the biggest shopping spike has been the weekend before Christmas.  Wal-Mart’s annual attempt to push the Christmas shopping season ever earlier fails with consumers but the discounts can be viewed as a very effective kill the competition strategy.  Those discounts have got to hurt seasonal retailers like Toys ‘R’ Us and KB Toys.  KB has been tottering for years and with the economy in shambles one has got to wonder whether they’ll make it through this time.

Wal-Mart is also hitting Chinese suppliers with a slate of stringent environmental and safety mandates, just as manufacturers are facing rising costs and dwindling demand for their products.  Thousands of factories in southern China have closed this year due to soaring costs and tougher environmental and labor standards.  We’re all for safe products, fair labor practices and a cleaner environment; the problem is when the big bully, whether it’s Wal-Mart or the federal government, mandates costly procedures and then doesn’t help pay for them but rather just pushes the costs onto others.

In 2008, toy manufacturers’ costs soared 25-30% but retailers led by Wal-Mart only allowed price increases of 5-8%.  2009 promises to be an even more difficult year in terms of sales volume.  The potential silver lining is that lower oil prices should translate into lower resin prices and transportation costs and thus higher margins.  Unfortunately, I heard at the Dallas show that Wal-Mart is already angling to grab back those margin increases from toy manufacturers.  In a recessionary environment, Wal-Mart is going to want to set very low prices and they are NOT going to want to pay for it.  They will want to take it out of the hides of their already margin squeezed suppliers.  In order for other retailers to compete they will need to mimic the practices of the sales volume and low price leader.  I’m afraid it’s going to feel like they’re kicking you in the ribs while standing on your throat.  Sorry to be so “cheery” but I calls ‘em like I sees ‘em.

Trepidatiously yours,

Tom

By | November 9th, 2008|ToyJobs Blog|Comments Off on Bleak Times: Will Walmart Steal the Silver Lining in 2009

It’s Crunch Time in the Toy Industry

The annual summer doldrums for the economy at large and the toy industry in particular are beginning to come to a close. Toyjobs’ fast first half start which had us on track to have our best year ever fell off precipitously in late June, July and early August. Both search starts and search closes slowed to a crawl. However, just over the past week I have noticed that things have begun to pick up. Suddenly we are having a lot of discussions about new search starts and should be beginning a number of new searches shortly. All of this is pretty predictable and is part of the annual hiring cycle for toy company jobs. Same as it ever was.

Typically in the last two weeks of August a lot of retail buyers turn all their “happy talk” into actual written orders. A few toy companies experience joy, most companies grumble even while emitting a sigh of relief and a few toy companies are left staggering like punch drunken boxers. The business is even crazier than usual this year due to wildly fluctuating costs as well as the longer lead times needed between order taking and shipping. “So, you have finally confirmed your order now that pricing has changed, and by the way we can’t get the goods to you by the time you would like them”. Most toy companies will be “okay” but will have spent the year running even faster for less sales volume and lower margins. Not exactly progress.

Crunchtime is accompanied by an annual tumult of some toy companies laying off, some companies elatedly hiring, some companies buying each other and some toy companies just collapsing entirely. In 2008, this is exacerbated by problems with the economy at large and the whirlwind is likely to be even more acute than usual.

From a toy industry recruiters perspective, it seems as if the toy industry as a whole breathes a deep sigh of relief and then suddenly is jolted to attention by the realization that the next toy selling season is only eight weeks away. A burst of hiring begins as toy jobs appear and toy companies seek to beef up their sales teams for the next campaign. Of course, just as retailers haven’t given companies enough time to produce, inspect, ship and deliver goods by a specific date; now toy companies haven’t given themselves enough time to staff up and fill those jobs by the Fall Toy Preview. Even with resumes already on their desks, most companies won’t be able to execute hires that quickly. Some will. The message here is “Don’t Wait!” Every year it’s a mad scramble and that scramble has already begun.

Even as business continues through this stormy period, there are beginning to be a few brief patches of light. Sales at Walmart and a few other retailers (Walgreen, BJ’s) are doing well even as overall retail remains sluggish. More importantly oil prices have begun to ease which should translate into lower resin and transportation costs and if retailers allow toy company price hikes to stick – wider margins next year. Our short term forecast is for a rebound in toy company jobs this autumn but not as big of a rebound in toy jobs as usual.

With the Olympics underway, all eyes are focused on China (albeit with brief glances to the Caucasus). We have lots of non-Olympic China news in this month’s China Report. Now that we know that spyware has been installed in many Chinese hotel rooms and in Chinese taxicabs, our main feature focuses on a few methods to combat this increasing threat (we’ll post it on our website for future use). Toy industry executives certainly travel a lot in China but you might want to consider adopting some of these strategies here at home especially now that in Los Angeles a U.S. Court has determined that in the toy industry, intellectual property theft even occurs on U.S. soil. Who woulda thunk it? Here at Toyjobs we have revamped our website and added a few new features. We hope you like it and find it useful. Please feel free to send our comments and/or the usual blistering critiques.

Wishing for more toy company jobs,

Tom

By | August 15th, 2008|ToyJobs Blog|Comments Off on It’s Crunch Time in the Toy Industry

Fall Toy Preview Successful . . . Industry Continues to Stumble

Although there was some back hall grumbling that “everyone under one roof” translates to “everyone pays the TIA” it seems that even those who were prepared (hoping) to hate the Fall Toy Preview felt that it was a huge success.

             

Yes, there were a few glitches such as a crazy numbering system which made it a little confusing to find your way around.  Also, cell phone reception was so poor that the only way to avoid dropping calls was to drop off the railing.  Such minor annoyances are to be expected at an inaugural show and should be easily fixable.

             

The TIA went all out and it was especially good to see them proactively seeking feedback from exhibitors and attendees.  I’m always a little suspicious of the raw numbers publicized by any trade show organizer.  Just as every exhibitor will tell you that business “is fantastic” and fudge his sales numbers up by twenty five percent; so too buyer attendance numbers are never to be trusted.  Did you see 775 buyers milling about?  I didn’t see 775 buyers milling about.  That said the show seemed to be extremely well attended by major (and not so major, but important, retailers).  Target seemed especially well represented.  It was a little strange that several of Walmart buyers didn’t make the trip considering that they’re just down the street.  The big manufacturers (Mattel, Hasbro and Lego) as usual did not really support the trade show even though they are permitted to dominate the TIA board.

             

For all the talk of the Dallas show’s success, several toy executives did point out that while the show itself was cheaper, if you add in the costs of the February show, then the cost of having a permanent showroom in New York that could have accommodated both shows plus other meetings throughout the year, would have been cheaper.  In an interesting twist, several senior executives were seen wandering the halls in the company of Dallas Market Center staff apparently looking at permanent showroom space.  Although I don’t think it will happen this year; it will be interesting to see if the TIA’s strategy backfires and the February Javits show eventually collapses.  Then again, that may have been part of their strategy all along.

             

In other toy news, lead paint recalls just keep coming.  Last Friday Mattel issued yet another major recall.  Was that their fourth major recall or their fifth?  It’s getting difficult to keep count.  Other smaller players have continued to issue recalls as well.  As we move into the holiday shopping season, it seems difficult to believe that continuing recalls at this late date won’t be on consumers’ minds. 

             

The other thing on consumers’ minds might turn out to be all the empty shelves.  With new testing regulations the safety labs are backed up and toy companies are having a difficult time getting their goods on the water.  The new testing policy, while a good thing, has been difficult to implement in year one.  The policy exempts orders placed before August 10 so that the majority of product made it just under the wire.  That said a lot of orders are finalized at the end of July and beginning of August and for those that missed the cutoff there will be trouble.  There will also be problems for any and all reorders.

The toy industry, the TIA (unfortunately it’s still necessary to separate those), the ANSI (American National Standards Institute) and the Chinese government are working to enact more stringent testing procedures and that is very positive….as far as it goes.  Anyone in the toy industry knows that what’s really strangling the business is retailers’ strict adherences to artificially low price points during an inflationary time.  While I hear a lot of people saying “Walmart will have to let us increase prices”, that remains to be seen.  In the midst of the toy recall crisis and with temperatures in much of the country still north of 80 degrees; Walmart slashed toy prices 10 to 50 percent on October 1.  As the price leader and the largest retailer Walmart’s actions drive pricing decisions throughout the retail landscape.  It seems clear that Walmart, which takes in about 25 cents of every dollar that consumers spend on toys, has no intention of altering its policy of using toys as (artificially) low priced loss leaders to drive foot traffic.  In a sign that he doesn’t quite get it TIA president, Carter Keithley was quoted “That expense could be passed along to consumers, but we hope not.  Hopefully the burden will spread around between all the parties involved.”  No! No!  No!  Pass it on to consumers!  That’s what a rational business does during a time of rising costs.

             

It could be quite beneficial for the toy industry if the TIA were to commission a study to see if consumers would be willing to spend a dollar or two more in exchange for safer, higher quality and yes, longer lasting toys.  I think we all know what their answer would be.  If done by the TIA for the industry as a whole and publicized to the hilt then major retailers would not be able to single out individual companies for retaliation.  The time to do this is when the toy business is in the glare of the media spotlight.  The time to do it is now.

By | October 30th, 2007|ToyJobs Blog|Comments Off on Fall Toy Preview Successful . . . Industry Continues to Stumble