toy blog

Most toy industry executives are telling me that while they certainly would have preferred to still have Toys “R” Us as a viable entity, that they have mostly replaced the shelf space and think that the year will turn out alright. That said, they want to make sure that they are on firm footing before they start investing in additional staff. They would like to put behind them the uncertainty of whether new product placement equals new sell through.

The good news is that consumers still want toys. We just have to figure out how to best get those toys in front of them and make them take notice. From cell phones to video games to WhatsApp to Fortnite to over scheduling by parents: kids have a lot more things competing for and dividing their attention than the days when we would just go out and play. To complicate things further, the array of choices is changing at an increasingly rapid pace. The challenge for Marketers is how to get their wares noticed on a increasingly pixelated and changing pallete of potential diversions.

At the same time, the retail landscape is undergoing revolutionary change. E-commerce is booming but physical stores still do the bulk of consumer sales. Buy online and then get in the car and drive to the store to pick it up is also increasingly popular although for the life of me I can’t imagine why. Manufacturers have to figure out how to best operate in this changing environment. Complicating that further is that you can’t just change from A to B. The retail formula is changing constantly and more rapidly all the time. The only certainty is the ever-increasing velocity of change.

Thus far, the holiday shopping season appears to be off to a strong start. Foot traffic over the Thanksgiving weekend was down somewhat but retailers began offering deals earlier which pulled some sales forward. The Black Friday weekend is still a good indicator but consumers are broadening their shopping window so there is much less of a pronounced spike.

In the meantime, online sales have been exploding with approximate growth of 25% over the long Thanksgiving weekend plus Cyber Monday. We should expect a strong holiday sales season. The economy is humming, and the consumer is flush with lower unemployment, lower taxes, lower gas prices and as of the last few months higher wages. Event more importantly, the consumer is willing to spend. Top line numbers for retailers should be strong but profit margins for retailers of all stripes may be challenged by higher labor costs for brick and mortar locations and higher freight costs for items purchased online. Retailers may be willing to pass some of these cost increases on to consumers, but it is likely that for the larger portion they will be looking toward vendors.

While the overall holiday sales environment looks quite positive despite potential back end shearing by retailers, there is another big concern for toy manufacturers. That is a potential Trade War with China. As of now, it appears that Xi Jinping and the Trump Administration have made small concessions that permitted each other face saving gestures and agreed to a temporary cease fire.

That allows toy manufacturers to breathe a little easier for now but kicking the can down the road doesn’t alleviate uncertainty. In ninety days, when a full agreement still hasn’t been reached, tariffs on the $200 Billion of goods now set at 10% will be increased to 25%. The good news is that toys, as it stands now, still will not be affected. Unknown is what happens next. How long will the next negotiating window be? What will the consequences be if a deal is still not reached? Most likely, the next step of tariff escalation will include the toy business. Will the toy industry be able to ship goods for the holiday season of 2019 by, let’s say, June 1^st? Especially, when you realize that vendors and retailers may be at cross purposes. Manufacturers will be trying to ship products as early as possible to try to beat the clock while at the same time retailers tend to try to postpone commitments to buy as long as possible.

If there is any kind of silver lining in this fog uncertainty, it is that the toy industry is more agile and better equipped to navigate uncertainty than most other manufacturers. After all, even in a year that is all blue skies and smooth sailing (and I can’t remember that ever happening) we are in a seasonal fashion business. Turbulence is our middle name. We are used to it.

My view is one of cautious optimism – but that’s pretty much my default setting. Things tend to work out… eventually. The worry is how long will it take.

Crossing the River by Feeling the Stones.

Tom Keoughan

Day one, morning at the Dallas Fall Toy Preview was mostly grumbling as exhibitors complained widely that: “This place is empty.”, and “There’s nobody here.” Indeed, the main floors on 12 and 13 looked like a ghost town. I found it much busier down at the 4th floor Diverse and McManemin showrooms. That’s likely because with twenty to thirty companies crowded into each space there was a much higher population density.

Activity had picked up by evening and interestingly there seemed to be more people at the Tuesday night cocktail party than there were in the building all day. This led me to quip: “if they want to increase attendance, maybe they should serve beer.”

By Wednesday afternoon, the sentiment had changed. Most exhibitors I spoke with were saying “We had really good meetings”. Several companies stated that while they could skip the show and just travel to all the different retailers, they like that fact that with the Dallas showroom space they could put their entire line of product offerings on display.

It was good to see several TIA Board members actively starting discussions and eliciting feedback about the future of the show. As usual, there was talk of moving the show to Los Angeles. There are two insurmountable problems with that. First, the large LA based companies don’t really want their nimbler competitors around trying to “distract” retailers with their often more creative wares. If the show was moved to Los Angeles in an attempt to consolidate what has turned into four October trade shows, then the big LA based companies would simply change their dates thus defeating the whole purpose.

Second, a lot of companies have opened showrooms in El Segundo but they can be anywhere from a couple of blocks to a couple of miles apart which necessitates leaving the building and often getting into a car and dealing with LA traffic. I seemed to be the only who thought that could be solved by running a continuous string of shuttle buses. Then the real answer came out. “Buyers don’t like it. They don’t want to travel from block to block and building to building.” That’s it. Retailers are the ones we want to attract and convenience. If we want to change the Dallas format in in such a way as to attract more buyers, we can’t do it in a way that they have already told us they don’t like. For the time being, at least, LA is out.

Company owners told me they like Dallas because it is convenient, it’s centrally located, and both travel and hotels are relatively inexpensive. They also like the ability to put their entire product line on display. Their complaints were: “More Buyers”, and that renting booth space was very expensive.

From where I stand, I like the show as it currently is. I can fly in and stay in an inexpensive hotel and spend two days meeting with fifty toy company owners and Presidents because they have a lot of free time on their hands. That’s great for me but I’m acutely aware that y’all aren’t having the show for my benefit. If the show doesn’t make financial sense for toy manufacturers, then it will cease to exist. So, here’s my two cents on possible ways to improve the show for my clients:

1. More Buyers. It was great to have Wal-Mart, Wal-mart.com, Target and Target.com in attendance but booth space is expensive so if more mid-tier retailers are represented that helps to justify the costs. It would be particularly helpful if Sales Execs could use the show to avoid an additional schlep to Menomee Falls, Wisconsin or Grand Rapids, Michigan. What can we do to attract broader retailer participation?
2. Condense the Show in Space and Time.  Most manufacturers had two or three appointments on Thursday morning but also had plenty of downtime on Tuesday and Wednesday. The show could easily be compressed into two days. I confess that I have no knowledge of how this would affect the T.I.A.’s financial considerations but my understanding is that this show isn’t a big money maker for them anyway. Also, the show could easily be fit on just the 12th and 13th floors. That would create a busier and buzzier environment. How could the showrooms on the 4th floor and what’s left of the 8th floor be motivated and compensated to move upstairs?
3. Serve Beer. But maybe don’t start until lunch. 😊

The big buzz in Dallas was various announcements about the potential rebirth of Toys “R” Us. Phase one will be a shop within a shop launch of Toys “R” Us private label brands at “a prominent Midwest based retailer.” Meijers? Kohls? That sounds like a Hail Mary pass to me. I can’t imagine that the public is exactly riveted by brands like Fastlane or Animal Alley.

Much more interesting is the prospect of opening 200-300 stores in 2019 under the Toys “R” Us banner. At this point, plan specifics are preliminary and unsurprisingly very sketchy. That said, we should remember that Toys “R” Us was a viable business if it hadn’t been loaded with all that debt. Now that debt is gone, they are mostly off the hook to vendors for 2017 shipments, they have wriggled out of their leases and there is an awful lots of inexpensive retail space to let.

A lot of people had the immediate reaction, “Why would companies want to deal with them again?” Really? I can’t imagine a single toy manufacturer that wouldn’t happily line up for a retailer with 200-300 doors – provided that the terms were right. That said, the new owners of Toys “R” Us should come to realize that there is a lot of bad blood between vendors and a certain Sr. Merchandising Executive who actively chased in shipments that he had to have known weren’t going to be paid for. TRU’s owners may have needed him to hold things together thus far, but if they want to re-establish trust with their vendors, he will have to be jettisoned. All trust there is gone and is unlikely to be repaired. It may be time for the man in the Geoffrey mask to go.

As I write this, Sears/Kmart is back on the ropes and wobbling badly like an aging prize fighter. They have announced they will close roughly 150 stores with an additional 250 stores put under review while about 300 stores that are considered more viable will remain open. Many toy companies continue to sell to Kmart while keeping receivables on a very tight leash, but I can’t help but think that I’ve seen this movie before… and I’ve seen it just recently.

Fortunately, other retailers are picking up the slack, Wal-Mart is increasing its toy department by 30% and Target is doubling its toy selection. Kohl’s and Penney, Five Below and Best Buy are all increasing toy sections for the holiday sales season and other retailers are following suit, Party City will open up to 50 pop-up stores for the holiday sales season and if successful, I would have to think that Spencer Gifts will follow suit with its Spirit Halloween division next year.

               U.S. unemployment rate, seasonally adjusted. Source: Labor Department

This along with the lowest employment rate in fifty years, the highest consumer sentiment in 18 years and rip-roaring consumer spending should help toy manufacturers in 2018. The National Retail Federation expects that holiday sales-excluding autos, gas, and restaurants – should be up to 4.3 to 4.8 percent over 2017.

Most toy company executives are telling me: “though we would have done better without the demise of Toys “R” Us we think we will do okay.” They also say that they want to make sure that they are going to be okay before they start investing in additional staff. Toy industry hiring which was dead in the first half of 2018 picked up nicely in June but has not been as robust as it should be. I suspect that it will continue at the “better but not normal” rate until we make it through the holiday sales season and the January/February trade shows.

Steady as She Goes,

Tom Keoughan

The sudden demise of Toys “R” Us has been very disruptive to the toy hiring market. It’s crazy out there. Many companies have laid people off but lots of companies are hiring as well. Oddly enough, many companies are doing both as they reorganize their rosters for the changes and challenges ahead.

By the beginning of 2018, most toy manufacturers expected that Toys “R” Us was going to be a bit shaky moving forward and had instituted plans to limit any potential damage by shipping less, later and tightening payment terms. They were hedging their bets but remained confident that business would continue amongst constant reassurances by Toys “R” Us Execs to: “Remain calm. All is well.” Then shortly after the completion of the January and February Toy Shows, Toys “R” Us declared bankruptcy. While everyone knew that things were wobbly, nobody expected Toys “R” Us to fall so far and so fast. After all Kmart has been wobbly but still standing for over a decade.

In a typical year, very little toy industry hiring gets done in January and February as Toy Execs are overbooked and over busy crazily traveling the globe to attend anywhere from three to five shows. Not only are they too busy to hire they also would prefer to wait and see how retailers react to their wares before opening their wallets to add to staff.

Usually, about two weeks after the final trade show in New York, manufacturers put the finishing touches on plans and projections and the phones begin to ring here at Toyjobs World Headquarters. With the sudden and unexpected demise of Toys “R” Us, manufacturers had to reconfigure their expectations. Publicly there was a lot of finger pointing, magical thinking and gnashing of teeth. After about two months, forecasts were changed and plans were redrawn and search starts picked up in early May leading to increased but not overwhelming hiring in June, July and August.

Toy hiring follows toy sales and I would imagine that toy sales and will be somewhat lower in 2018 as  manufacturers search and battle for shelf space to replace their Toys “R” Us acreage. I would think that challenge will continue but to a lesser extent into 2019 as Toys “R” Us begins to fade into the rear-view mirror. I envision that toy sales and therefore toy hiring will remain disrupted but steadily gaining strength over the next year and a half.

I realize that is very much at odds with recently published NPD data. Toy industry grows its sales by 7 percent in the First Half!! Yeah, but … Consumers were lured into the Toys “R” Us stores by the trumpeting of huge markdowns which didn’t really look all that “yuge” once you were in the store. I know mothers who went to Toys “R” Us every couple of weeks in search of big bargains that barely existed. After all, if you’re going to lie to your employees and lie to your vendors why not lie to the public as well. Probably because traffic, even disappointed traffic, equals increased sales. Unfortunately, those sales didn’t help the toy industry all that much. They were sales of previously shipped and unpaid for merchandise. I would envisage that most of the proceeds went into the pockets of the bankruptcy attorneys rather than toy companies. So I see that 7% Toy Industry Sales Growth as a very flawed number in this period. Sales of toys off retailers shelves was indeed a very different things than sales by toy manufacturers.

That said they toy industry is reacting to and recovering from the Toys “R” Us debacle amongst a very bright backdrop. It’s better to face challenges in an increasingly robust economic environment. After all, this isn’t 2009 and the world isn’t going to end tomorrow. Rising employment, wages and tax cuts have consumer spending on a tear and US GDP rose to 4.1% in the second quarter, Wal-Mart just hit it out of the park. CEO, Doug McMillon was quoted last week as saying “Customers tell us that they feel better about the current health of the U.S. economy as well as their personal finances. They’re more confident about their employment opportunities.”

The evolving retail landscape toward online shopping continues but many brick and mortar retailers like Wal-mart, Home Depot, Nordstrom, and Coach have recently been reporting strong numbers while others (JCPenney, Bon-Ton, Claire’s) are either closing stores or going bankrupt. Weaker competitors are being weeded out and clearing some of the over capacity that has plagued retail. As a result, the remaining chains are growing even stronger.

The good news is that consumers still want to buy toys. Toy manufacturers will just have to be ever more nimble in getting their products in from of them.

Say what you will about Trump’s antics but the economy is humming. I’m still wary about Trumpian trade issues. I suspect, but can’t know for certain, that things will get worked out with Mexico, Canada, and Europe. That said, playing a game of chicken with China is a very different deal. Eventually, after much dickering, we will probably end up with face saving half measures (or more likely quarter measures) … eventually.

Free product idea for a Skill and Action Game:

The Game of Chicken: Trump, Trade and Tariff Edition

“Crossing the River by Feeling the Stones”

Tom Keoughan

New York Toy Fair kicked off on Friday night with the 2018 Toy Of The Year Awards. Held at Ziegfeld Theatre, this was a fantastic event as always. The Toy Association staff led by Steve Pasierb has really got this down. I’d like to give a shout out to Marian Bossard, Kimberly Carcone, Robyn Gibbs, John Klein and the entire Toy Association staff for doing such a great job not only with the TOTY Awards but with New York Toy Fair as a whole.

Two trends seemed to emerge among the award winners that night. First, collectibles continue to be a very hot category with WowWee’s Fingerlings and MGA’s L.O.L. Surprise! sharing top honors as “Toy of the Year.” In addition, Funko’s Mystery Minis won the “People’s Choice Award” which is chosen by tallying the votes of consumers.

The other big trend was that about half of the twenty awards were won by small and medium-sized companies. These companies have to run faster and jump higher with less resources (both human and financial) backing them up. They also have to be more inventive than the typical brand behemoth. I think this bodes well for the health of the industry which for a while in the early aughts seemed to be more about slapping licenses on sippy cups. Congratulations to the entire teams of all award winners for keeping kids smiling.

Sunday night was Ladies’ Night with the always wonderful WIT Wonder Women Awards Gala. As usual, it was held at The Lighthouse at Chelsea Piers. Please don’t move it. It’s a great venue. Event Co-Chairs Genna Rosenberg, Janice Ross, Jennifer Caveza and their entire Host Committee made it look easy despite what must have been an awful lot of work above and beyond their day jobs. Congratulations to all the Award Winners and to all the wonderful women of the toy industry.

New York Toy Fair as a whole seemed well attended and very upbeat. It also seemed that international attendance was quite high. The toy executives I spoke with exuded confidence and were bustling about their business. Now if we could just do something about those Javits Center floors.

Notable Toy Fair news included the election of Bob Wann of PlayMonster to Chairman of The Toy Association. Bob has toiled for both big industry players like Fisher-Price and Hasbro as well as smaller companies like Sababa Toys and now PlayMonster. He may be just the guy to balance the very different interests of those two groups. Maybe….. maybe he can even solve the annual October multiple location Toy Show mishegoss.

In other news, Hasbro was named the global master toy licensee for Power Rangers. That might not impact the toy industry as much as Bandai losing what had been a long-time licensee. Lastly, Basic Fun announced that they had bought K’nex. K’nex has always been one of the most inventive and versatile construction toys in the pure product sense but never seemed to have been brought to market in the right way. Jay Foreman and his team should be able to change that.

Moving forward, with the exception of two monkey wrenches, both business and hiring trends look good. The toy industry only grew by 1% in 2017 but that was after three consecutive years of better than average 4-5% growth. The industry can afford to take a breather and still be able to move that trend line up and to the right. Buoying the economy is a strong labor market with unemployment holding at a 17-year low. Top-line wages are beginning to creep up AND, due to the new tax plan, take home pay is on the rise. Additionally, there is a growing wealth effect where consumers “feel” wealthier due to rapidly rising home prices and the stock market being near an all time high, despite February’s fluctuations. All this has led to skyrocketing consumer confidence, which indicates that consumers will open their wallets wider.

On the other hand, we have our two monkey wrenches. The first is Toys ‘R’ Us. During the New York Toy Fair, I asked everybody I spoke with about Toys ‘R’ Us. The venerable retailer had already announced that it would close 180 stores. That’s a lot of shelf space that won’t need to be filled. Most companies said that they had put Toys ‘R’ Us on a tighter payment schedule and had already forecast lower shipment levels to the retailer. Many said that they were done and weren’t going to sell to Toys ‘R’ Us anymore. I’m not sure that I believed all of them. Others cited that they would be moving to diversify their customer base. I’ve seen evidence of that. In the last year, Toyjobs has completed a lot of searches for Sales Execs specializing in mid-tier chains, E-commerce and the value channel.

Then on February 21^st, the day after Toy Fair closed, The Wall Street Journal reported that Toys ‘R’ Us would be closing an additional 200 stores beyond the original 180. There were also rumors of laying off a quarter of the corporate staff. I’m sure that this news has sent toy executives scurrying back to their spreadsheets. Almost nobody had this baked in. Numbers will have to be crunched and decisions will have to be made. I’m guessing that many more companies will decide not to do business with Toys ‘R’ Us. Others will tighten the payment leash even further – cash on the barrelhead – a la Kmart. Competition for shelf space at other retailers will intensify. Bricks and mortar isn’t going away, just finding it more difficult to grow. Many heritage retailers had very strong 2017s. While E-commerce sales are skyrocketing, they are still less than 10% of total US retail sales. I also expect that toy manufacturers will start to really professionalize their E-commerce efforts.

The bottom line is that consumers still want toys but the way to get those toys in front of consumers is changing. It’s way above my paygrade but ultimately toy companies should think about banding together and creating their own mega E-commerce hub which will both attract consumers and keep manufacturers from getting sheared on their way to market. Think like a big media company. Content AND Distribution is far more powerful than Content or Distribution. The toy industry may be too small and fragmented for each company to do this on their own but banding together could turn out to be a “Grand Bargain.” Of course, the devil will be in the details. “Who pays for this? Who owns that?” but motivated people have a way of working things out.

As for the second monkey wrench, it goes by the name of Trump. On Thursday, March 2^nd, Mr. Trump announced that he was going to institute a 25% tariff on steel and one of 10% on aluminum adding to his previously announced tariffs on solar panels and washing machines. The danger is that, if enacted, these will escalate into a full-blown trade war. Now that the economy is up and humming, this would be a very odd and counter-productive thing to do. Mr. Trump’s pronouncements aside (“trade wars are good, and easy to win”); a trade war is in nobody’s interest. It’s especially not in your interest to throw the economy into turmoil when it has been gaining strength while you have been President and you have mid-term elections quickly approaching.

The only thing consistent about Mr. Trump is that his proclamations are much more extreme than his actual actions. I suspect that last week’s news burst was his way of opening negotiations since Chinese Trade Minister Liu He was just arriving in Washington. It is interesting to note that China doesn’t really export much steel, solar panels or washing machines into the United States. Steel exports have dropped rapidly over the last few years due to China’s own internal construction boom. They do ship a fair amount of aluminum here. That lends credence to the idea that these are really shots across the bow…. negotiating tactics. Would Donald Trump enjoy an international spectacle with him at the center? Surely he relishes the idea of global players rushing to him in order to curry favor. That said, the presence of Peter Navarro and Wilbur Ross in the Administration is troubling. So are we entering a trade war? Will he or won’t he? …..only his hairdresser knows for sure.

Wrapping up, the overall terrain for business and hiring looks to be quite strong but we have two monkey wrenches coming at us fast. For Toys ‘R’ Us, toy companies can potentially ameliorate the crisis through planning, forecasting, tightening, diversifying and/or just deciding not to play. It will be a tricky navigation but presumably we should be able to come out the other side. As for Trump, there’s little to do but watch and wait to see if this is just negotiating bluster or if he has really decided to shoot himself in both feet. Hmm, I guess I’m cautiously ecstatic. Is that possible?

May you live in interesting times,

Tom Keoughan