TIA

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

Retail Zombies and Statistical Aberrations

The Human herds were out in droves like something out of a cheap zombie flick as the Thanksgiving weekend kicked off the holiday shopping season. Although the lack of “door buster deaths” could be considered a negative indicator; retail chains reported strong customer traffic and increased per capita spending. According to the National Retail Federation, the average shopper spent $365.34, up 6.4% over last year. Weekend web and Cyber Monday web sales also set new records.

After several years of relative thrift shoppers may be parting with their money more willingly simply due to pent-up demand which retail analysts have been calling “frugality fatigue.” That said, consumers have been trained to only shop for bargains. We may see the Thanksgiving weekend spike fade as shoppers wait to see if retail prices come down before buying, leading to a second spike right before Christmas. Let’s just hope that everyone buys more Dance Star Mickey’s and Squinkies than they do iPads and Microsoft Kinect Systems.

The toy industry is expected to have a solid up year and that should translate into increased toy industry hiring for 2011. Most observers were surprised by the increase, from 9.6% to 9.8%, in November’s unemployment rate and several economists have called it a statistical aberration after the positive jobs trends of September and October. It seems that after seeing the strengthening employment environment many people previously too discouraged to even bother looking for work – “entered the job market” therefore driving the percentage of unemployed job seekers even higher. However, if you look at a wider variety of indicators, the overall trend continues to show steady, if unimpressive, improvement.

Hours worked and wages have been rising (although they were flat in November). Both measures tend to foreshadow future job growth. As we have seen, consumer spending is up. Third quarter results from Visa, Mastercard and American Express showed US consumers spending approximately 13 per cent more than last year. Consumer sentiment rose in November to its highest level since June. November Job postings on Monster were up 22%. Lastly, the government revised jobs data for September and October to show stronger numbers than previously reported. It would not be surprising to see November’s numbers revised upward as well.

Anecdotally, here to Toyjobs, we have seen search starts pick up sharply beginning in the second half of October. My impression is that coming out of the depths of 2009, few companies budgeted for much, if any, hiring during the current year. When they found themselves in need of people they would start to look, they would interview, but would then find some way to postpone actual hiring. Now that the economy has stabilized and is growing albeit very slowly – they are looking to shore up their rosters and have that in their budgets for 2011. That does not mean that I foresee a wave of wholesale hiring but rather that companies are now looking to fill the holes that in 2010 they left vacant. This is the employer version of pent-up demand.

The US economy is firing on more (but still not all) cylinders and the recovery is just beginning to pick up steam. That said, there’s still a chance that it could disrail as many employers remain cautious about hiring due to the uncertainty over taxes, new health care and environmental laws, etc. Nancy Pelosi and Harry Reid appear to be oblivious to the “shellacking” they took in the recent elections. Fortunately most of the Democrats and President Obama (despite what he says publicly) seem to get it. It looks like in the next week or so we will see a compromise bill passed which will forestall any and all tax increases for a period of two years. Unless Congress acts, tens of millions of people could see their withholding taxes go up in January. That could dampen household spending and further weaken employment and the fragile recovery.

In the interests of full disclosure, I am an independent who has voted Democrat more often than not. I generally (but not always) admire Democrat’s social goals but often find myself concerned about the unintended consequences of their proposed actions. With the economy at a tipping point this is no time to be raising any kind of taxes on anything and definitely no time for continued uncertainty. If you’re going to make those kinds of changes, do it during “good times” so that the system can better absorb them. Once we get the economy steadily growing again, tax revenues will rise and it will be easier to attack the deficit. If you can get rid of all the agendas, dogma and histrionics (fat chance!) it pretty much becomes common sense – Econ 101. I’m going to shut my mouth now, before I get into any more trouble.

Muddling through,

Tom Keoughan

 

P.S. Sorry, I just couldn’t help myself from taking one last stir at the pot. In the last couple of weeks, Isaac Larian of MGA Entertainment had publicly accused the Toy Industry Association of being prejudiced against him and his firm. While I can’t speak either for or about TIA or MGA; I’m not sure that prejudice is always such a bad thing. I oftentimes find myself biased against working with nasty, unethical people and/or the companies they control. Is that wrong? I don’t think so.

By | December 8th, 2010|ToyJobs Blog|Comments Off on Retail Zombies and Statistical Aberrations

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

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

Mattel v. China and the Blame Game

Mattel hasn’t made it any easier for themselves or anyone else in the toy industry.  When CEO Robert Eckert landed on the front page saying “the company discloses problems on its own time table because it believes both the law and the CPSC’s enforcement practices are unreasonable”; it was the height of the folly.  I’m not saying that I disagree with what he said.  After all, Congress has gutted the CPSC’s budget over the years and left it with a single lonely toy tester.  Even some of the Commission’s own buildings are embarrassingly not up to code.  That said, Mr. Eckert’s timing could not have been worse.  What was he thinking?  Clearly this was the time to take a constructive approach with the CPSC and an apologetic one with the public.  One suspects that after that quote Eckert got a lot of heat in the boardroom and that one of the directors probably gave him a whack with a rolled up newspaper before he was trotted off to Washington for his contrite appearance before Congress.

Mattel, however, was still playing the blame game and pointing the finger at Chinese manufacturers.  China is a pretty easy target since it has major quality control problems at an incredibly large number of factories manufacturing all sorts of consumer goods.  While Mattel was playing its China card it was soft pedaling the fact that the vast majority of its own recalls were the result of product safety issues (design problems) rather than manufacturing quality problems in China.  Nobody has bothered to really educate the public on the difference between a product safety issue and a quality control problem.  Certain Northeastern senators who are running for President seem congenitally unable to grasp the difference. 

Mattel had magnet issues.  The magnet problem in toys came to the surface in 2005 with a number of injuries and deaths resulting from children swallowing magnets from Rose Art’s Magnetix.  In October of 2006, several children were injured after swallowing magnets from Mattel’s Polly Pocket line of products.  Mattel issued a recall on the Polly Pocket products but they had a much bigger magnet problem stretching from Batman to Barbie and beyond.  At the time, Mattel did not recall these products and decided to, in gambler’s parlance, “let it ride”.  To be fair, there were no injuries from these products but the magnet issue was out there and it would have been much more responsible for Mattel to take the financial hit and issue a recall then rather than crossing its fingers and hoping that no children got hurt.  Only about a year later when Mattel was under the harsh glare of the spotlight did that recall finally come. 

China has not been happy about all the fingers pointing their way over its huge quality control problem.  Just as Mattel tried to scapegoat China and de-emphasize its own culpability, now China in demanding (let’s face it they demanded that apology) and receiving a very public apology from Mattel is trying to use Mattel as a scapegoat to deflect attention from the country’s massive quality control problem.  In just the last thirty days China has yanked the export licenses of 300 toymakers and shut down about 2,000 unlicensed toy factories.  Obviously they have a major problem.  Mattel has countered with yet another waffle and is now claiming that their apology has been “mischaracterized”.

The fingers have been pointing everywhere.  Everywhere that is except to the place that is the likely cause of at least the Chinese quality problem in the first place.  As for Mattel’s magnet recall, I’m afraid they own that one themselves.  Miraculously no fingers except for a few hushed industry insiders have been pointing to Bentonville, Arkansas.  The media hasn’t seemed to want to touch it.  The politicians (especially former board member Hilary Clinton who has her own China problem in the guise of Norman Hsu) certainly hasn’t wanted to touch it either.  U.S. toymakers remain mum about it because they’re fearful of retaliation when it comes time to sell next year’s product line.  Walmart and its fellow mass market retailers are the white elephant in the room that no one wants to discuss.  Finally, union backed WakeUpWalmart has started running ads on the topic.  Unfortunately, WakeUpWalmart is so hopelessly biased that they can’t be taken completely seriously  even when they’re right.

By keeping its price points artificially low in an era of rising costs, Walmart puts margin pressure on U.S. toy marketers who in turn send that margin pressure down the line to Chinese manufacturers and suppliers.   It’s as if at each step in the chain everybody has his hand in the next guy’s pocket trying to steal his profit margin out of theirs until the last guy in the supply chain is left with razor thin margins along with rising costs.  This incredible pressure on the manufacturers is what leads to cutting corners and scrimping on both the quality and amount of materials used.  Add to this the fact that most Chinese factories of any type are staffed by basically impoverished people who might be more than a little inclined to take a quick backhander and it’s easy to envisage a system that is either just barely in or just barely out of control.   

This is where the TIA could step up and do something useful.  As a responsible toy industry spokesman (yes, quite a new role for the TIA) it could bring very public pressure to bear on retailers to lift price points which will not only increase the retailer’s own profit margins but let everyone in the supply chain breath a little easier.  If they were to do this as an industry-wide spokesman then retailers would not be able to retaliate against individual suppliers.  They could commission studies to determine if consumers are willing to pay a dollar or two more for a toy if it meant a higher level of quality and safety for a product that they are going to give to their children.  Personally, I believe that a mother purchasing a toy for $7.99 is more than willing to pay $8.99 for it anyway.  I think we all know this to be true.  If the TIA were to commission such a study and make it very public it would gut the mass market retailers’ monotonous cry of “we need our prices that low because the consumer demands it.”   

Obviously, the toy industry needs to change its quality control procedures as well and that seems to be happening.  In a sense, that’s really only treating the symptoms.  By going after the roots of the problem as well, a better long term solution for everyone can become reality. 

See y’all in Dallas. 

Tom Keoughan

By | September 25th, 2007|ToyJobs Blog|Comments Off on Mattel v. China and the Blame Game

The Return of the Texas Two-Step

First of all I would like to thank everyone for the overwhelmingly positive response to my last Toyjobs Executive Monthly article. The only negative comments came during a highly charged Friday afternoon phone call from the TIA Board Chairman. For my part, I also view that response as positive.

Besides all the positive feedback, many of you offered strong suggestions about industry tradeshows and the current showroom impasse. If you are desirous of positive change within the industry, I suggest applying pressure through public letters to various toy industry forums. The industry has seen where watching and waiting and sidebar conversations gets us. I would also strongly recommend getting involved and standing for election to the TIA Board. Unfortunately, it seems that to run for the TIA Board you have to be nominated by a current TIA Board member. Hmm…not exactly a mechanism for positive change. Still, you can volunteer to pitch in and help out and not take any position on any question until after you’re elected. After all, that’s the way our national politicians do it.

As for me, I hope the October show in Dallas is a raging success. I hope that everyone is selling more toys and hiring more toy people; but we should keep in mind that a Dallas Toy Show has failed before. There are also a lot of manufacturers saying that they won’t show in Dallas, but I suspect that they’ll eventually come around. The toy industry is just about the metooingest business there is. Nobody will commit to anything until they see who else has committed to it first. I suspect that once a critical mass of toy manufacturers and buyers commit to the Dallas show, that most everyone else will begin to fall into line no matter how angry they are. Of course, people have every right to be angry. The TIA Board Executive Committee overruled the TIA Board and went against the wishes of much of its membership. They effectively torpedoed the ability of toy manufactures to work out of showrooms in a toy building or small group of buildings even though that is the way most manufacturers prefer to work. Their publicly stated reasons for doing so were specious. One gets a little tired of hearing that buyers were complaining about having to travel to showrooms scattered all over the place. Buyers can easily control that by telling manufacturers “I am going to A and I am going to B. If you want to meet, you will be in one of those places.” The one positive is that we can be pretty sure that the TIA will do everything in its power to make the Dallas show a huge success if only to avoid the finger pointing, howling from the rafters and boatloads of “I told you so’s.”

See y’all in Texas,

Tom Keoughan

By | May 15th, 2007|ToyJobs Blog|Comments Off on The Return of the Texas Two-Step

TIA Moves October Show – Betrays Toy Industry

Before venturing to the February Toy Fair, many of the industry executives that I spoke with told me that this was the last February event that they were going to show at.  In fact, some companies didn’t even show this year.  The thinking was that this was primarily a specialty show and many of the mass market buyers were not going to attend…and besides, “we just saw them in Hong Kong anyway.”

The big surprise turned out to be that the February show was the most successful one in recent memory.  Most of the buyers did indeed come.  By the end of the show, most of the execs who said this would be their last one were singing a different tune.  There are always buyers threatening not to come to this show or that show, but at the end of the day, most of them do attend.  I did hear complaints from some of the toy companies that scattered themselves at various showroom locations and hotel rooms around Manhattan.  Buyers were late, buyers were no shows.  One toy company was even trying to shuttle buyers to New Jersey – what were they thinking?!  The moral of the story is that if there is a toy show, most of the buyers will come and if you’re a toy company, you should be there, but if you’re going to be at the show – BE AT THE SHOW; not at some random location somewhat near the show. 

That said, most mass market toy execs that I spoke with would much prefer a showroom to the Javits Center.  Maintaining a showroom year round is less expensive than doing two shows at Javits and you get a New York office to do occasional business in to boot.   The people that I spoke with don’t like rushing to set up, rushing to tear down and rushing to pay a Teamster a couple of hundred bucks to plug an electrical cord into a socket sometime, hopefully today.  For most mass market companies a showroom in very close geographical proximity to a lot of other toy company showrooms seems to be the preferred way of doing business.  Let’s also remember that until the whole 200 5th Ave. fiasco (originally sparked by the TIA in the David Miller era), everybody spent most of the week in the Toy Building and would head over to the Javits Center and try to blow through there in a day.  Things worked pretty well for a very long time and it seems to me that a combination of showrooms in one building or two buildings that are very close to each other along with the Javits Center could work very well again.  Some companies prefer the Javits and some prefer showrooms, it seems reasonable to be able to offer both. 

Jay Foreman’s concept of a toy district sounds a little scattered but my guess is that if you asked him (and I haven’t) that what he’s suggesting is two or three buildings in very close proximity which house clusters of toy showrooms.  That could very easily work, but I would suggest a “coat test.”  If the buildings are close enough to just skip a few doors down in February without putting on a coat, fine.  If buyers (and everybody else) have to repeatedly put on and take off and possibly check and uncheck coats all day and all week, then things will likely begin to break down. 

Unfortunately, the possibility of a toy building or district has been torpedoed by the TIA’s decision to move the October Toy Show.  With only one trade show in New York the economics of a permanent showroom no longer makes sense.  First, let’s remember that the October Toy Show was first started by the Toy Building and was only hijacked by the TIA (another revenue raising opportunity!) after the building was sold.  After much rancor and debate, the entire TIA Board initially voted to keep the October show in New York.  There were apparently some complaints about scattered show sites by buyers, and I don’t doubt that there were, but just how many or how loud those complaints were has not been revealed.  One TIA board member told me that the criticism was not as forceful as people have been led to believe.  I would add that the retailers can solve this problem very easily by telling toy companies that they will be going to A and going to B (and perhaps C) and if you want a chance to meet with us you will have to be in one of those locations.  “We ain’t going to some half baked hotel room in Jersey City.”  Basically, if you are going to be at the show – BE AT THE SHOW!  Toy companies would fall into line pretty quickly.  After all, it’s in their own best interests.

Unfortunately, in an incredible display of hubris the five members of the TIA Executive Board took it upon themselves to make this decision for the entire industry.  The decision was very much out of the blue.  In fact, a quick poll taken by Playthings.com indicated that 44% of the industry was “angry.”  That’s not unhappy or disappointed or surprised, but “angry” about the decision.  It also seems strange that after the earlier vote by the entire TIA Board to keep the show in New York, that the five member TIA Executive Board hijacked this vote and unanimously elected to move the show to Dallas.  Hmmm.  There is much speculation about the motives of TIA Board Chairman Danny Grossman, a Californian and his Californian predecessor Arnie Rubin, but since this seems to be based mostly on gossip and rumor I am not going to comment here.  We do know that Mr. Grossman was quoted in Playthings as saying “The 10 largest companies don’t want showrooms in New York.”  We also know that statement is inaccurate because Jakks Pacific, through its spokesman Jay Foreman, has made it very clear that they do want a showroom in New York.

As for Mattel and Hasbro, they represent only their own interests.  For years they have not had show rooms in the Toy Building nor have they supported Toy Industry trade shows.  They know they are going to get their face time with the buyers and would prefer not to have that face time at a trade show where buyers will be distracted by their competitors. 

Danish company Lego has never really integrated with the American Toy Industry.  They do things their own way, and in fact, thinking back to my 26 years in the toy business, I don’t think they have ever hired anyone from another toy company.  All of that is fine, but is that one of the five votes you want representing the industry as a whole?  As for Robert Pasin of Radio Flyer, I just don’t know enough to comment.

One thing that does seem clear is that most of the mass market Toy Industry prefers to work out of showrooms in close proximity to each other – preferably in New York.  Leadership in the Toy Industry will not come from Mattel or Hasbro or need I mention MGA (egads!) – they have very different interests from the industry as a whole.  Leadership needs to come from the second tier companies who are big enough to have some clout but young enough to remember what it was like to be a little guy.  Spinmaster, Jakks Pacific, Mega Brands, RC2 – it’s time to stand up and take charge!

All the best,

Tom Keoughan

By | March 20th, 2007|ToyJobs Blog|Comments Off on TIA Moves October Show – Betrays Toy Industry

Fall Toy Preview: A Success…But

I always dread the Javits Center:  home of “the world’s hardest floors,” so with all of the Fall Toy Preview pre-show negativity, I started out expecting the worst–but that’s not the way it turned out.  When I arrived on Friday, everyone seemed to be having a good time.  I don’t know if it was good for business or not, but the open forum led to a clubby old home week feel with a lot of backslapping and storytelling including more than a few amusing but outrageous lies.  It was sort of like a cocktail party without the drinks; which surely came later.  That was Friday and it was a lot of fun, but by Sunday…and Monday…the whole thing was wearing a bit thin.

About half of the companies I spoke with said that the show was an incredible waste of time and money.  The other half thought that the show was great.  I’m not sure what the “differentiator” was, but maybe it was that some companies came in with the proper expectations and knew how to work that kind of show.  Those companies with open booths did get significant walk-up trade (I asked) while those who had completely closed booths did not.  I saw more than one buyer circling those ugly white walls trying to find an entrance.  Hopefully, they didn’t just give up.  With knockoff anxieties running high in this age of cell phone cameras, a hybrid booth seemed to work out the best.  A good example was Radica which had a small open section with their well known and well liked Sr. VP of Sales standing out front attracting buyers, industry notables and others (like me) thereby generating a small crowd and a bit of a buzz and then funneling the buyers “inside” to meet with his sales troops.  Before the show, all I heard was that none of the major retailers were coming, but I saw some pretty good looking dance cards.  Walmart, Target, Toys ‘R’ Us, Meijers, Borders, Walgreen, etc.  Hey, that’s not bad business.

Toy companies who located away from the Javits Center fared less well.  The toy building was a dark, dismal, dusty, empty and echoey affair and the seven or eight companies showing there should thank Playalong for drawing buyers to the building.  From companies located in hotel rooms and other locations, I mostly heard tales of late appointments, missed appointments and a lot of time spent standing around bored.  Each company can decide for themselves if it makes sense to attend the show, but the moral of the story is “if you’re going to be there…be there!”

It was a great show for me with the open atmosphere and a lot of senior toy executives standing around without a whole helluva lot to do much of the time.  I figured that all of the curtains and doors were meant to keep me away from their Brand Managers.  Fortunately for me, that didn’t really work all that well.  So while I had a great show, I somehow suspect that the industry as a whole shouldn’t base its decisions on making me happy.

Mostly what I heard is that although this show worked out much better than expected, the Javits Center is difficult to deal with, expensive to deal with and at the end of the day if you exhibit at two shows, no cheaper than maintaining a showroom year round.  The consensus was that the TIA should commit to keeping both tradeshows in New York and should commit to the Javits Center for three or four years thereby giving the industry time to find a sound and properly priced building or group of spaces in adjacent buildings.  In Manhattan, space does become available and it makes a lot of sense to wait, watch, evaluate and then pounce on a sound, viable option rather than trying to force a bad decision down everyone’s throats due to artificially created time constraints.

The ability of the toy industry to get together and “pounce” is sure to give rise to more than a few derisive chuckles and worse (please include me as a chucklehead).  What the industry needs is leadership, and not from Mattel or Hasbro.  It is not in Mattel or Hasbro’s best interest to be part of a toy center.  Buyers are going to come and see them wherever they are and Mattel and Hasbro want to dominate those buyers’ attention and time.  Leadership needs to come from the second tier companies:  Jakks, Spinmaster, Megabloks, etc.  If they can come to a decision and commit, then all the small and medium sized companies can feel comfortable about making what would be a very productive decision to follow.

The Toy Industry…pouncing…yeah it’s pretty funny stuff.

All the best,

Tom Keoughan

By | November 15th, 2006|ToyJobs Blog|Comments Off on Fall Toy Preview: A Success…But

Happy Talk Returns to Fall Toy Preview

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

By | November 9th, 2005|ToyJobs Blog|Comments Off on Happy Talk Returns to Fall Toy Preview