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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 |2008-11-09T09:00:21-06:00November 9th, 2008|ToyJobs Blog|Comments Off on Bleak Times: Will Walmart Steal the Silver Lining in 2009

Toyjobs Files Suit Against A-Ha Toys

Toy industry recruiter Toyjobs has filed suit in the Superior Court of New Jersey against A-Ha Toys, Inc. and its president Ivars Sondors.  The complaint lists breach of contract, unjust enrichment, fraud and various other allegations.

Toyjobs president Tom Keoughan stated “Every four or five years we have a situation where a company contracts with us to find employees for them and they tell us that they aren’t interested in any of our candidates. That is, of course, their prerogative.  The problem arises if they then go behind our backs and hire our candidates without telling us or compensating us for our services”.

Keoughan further states “I don’t know what people who do this are thinking.  We’re out in the toy marketplace every day and we are going to find out about it.  We are certainly going to demand payment and go about collecting it to the best of our ability.  Filing suit is a time consuming and potentially costly undertaking that Toyjobs would not pursue unless we were absolutely confident of our position.  In twenty-seven years of doing business, we have never lost a case of this type.”

By |2008-10-07T09:00:50-05:00October 7th, 2008|ToyJobs Blog|Comments Off on Toyjobs Files Suit Against A-Ha Toys

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 |2020-11-20T08:51:04-06:00August 15th, 2008|ToyJobs Blog|Comments Off on It’s Crunch Time in the Toy Industry

Caution Remains the Word of the Day

Although it appears that we are not technically in recession and first quarter GDP numbers were actually revised upward, caution remains the word of the day.  Overall retail sales rose in April and again in May but the main beneficiaries were deep discounters like Wal-Mart and Costco while higher priced stores had a difficult time.  It seems that the Bush administration’s stimulus plan has had a positive short term effect but those $600 dollar checks will be long gone by September and the beginning of the holiday sales season.

So the economy is not quite as bad as the media has been proclaiming (bad news sells) but the toy industry would be facing some very difficult challenges even if this were the best of times.  Every year I hear “the retailers are ordering late, even later than last year” until I realized that in their minds the retailers are not ordering late at all.  It’s simply part of their overall strategy of pushing as much risk as possible on to their suppliers.  This is especially true when it comes to fashion businesses like the toy industry.

This “late ordering” has become even more of an acute problem because of delays in the manufacturing and distribution cycle.  In China there is a labor shortage, electricity shortage, fuel shortage, and chip shortage.  Factories are shutting down left and right.  There are delays obtaining materials and components and further delays due to the stricter quality control regime.  If you look at our main article US Port Law ‘will slow growth’, you will see that the US government is talking about creating even more delays by having every container headed to the US inspected before it gets here.  Talk about your logistical nightmares.

All this is made even worse by continuing cost increases for fuel, resin, labor and the rise in the yuan which is now up over 16% in three years.  Dow Chemical, one of the largest chemical producers in the world, has raised prices 20% across the board.  This will particularly affect polyethylene and plastic stabilizers (used in toys), as well as polystyrene and polypropylene.  Dow is such a huge player that this move gives every other supplier license to raise prices too.

The combination of cost increases and late ordering has the synergistic effect of slowing things down even more.  If I show you a product at a certain price today and you wait three months to pull the trigger then at that time I can no longer sell you that product at the previously quoted price.  The process then rolls over and begins again and the non-decision goes on and on and on.  The one thing that we’re pretty sure of is that there is going to be a Christmas and they are probably not going to change the date.  Perhaps some sort of scheme could be worked out so that products could be priced on a sliding scale based on oil prices, resin prices, the value of the yuan or some combination of the three.  I’m not smart enough to figure out how the formula would work.  Even thinking about it makes my brain hurt.

Through all this ToyJobs is still managing to have its best year ever.  I completely expect that hot streak to end in July.  I thought it would end in June but we some how managed to pull it off for another month.  There are definitely less jobs available out there but we’ve been filling most of the searches we get pretty quickly.  We have been fortunate in that several of our clients are doing pretty well and have been stocking up on talent at a time that they don’t have to compete for it.  Candidates aren’t getting job offers from multiple companies the way they do during better times. We have even had two companies that liked the people that we sourced for them so much that they each hired two candidates for a single search.  A third company gave us a single search and ended up hiring three people. 

Many companies that I speak with tell me that they have holes in their organization that they need to fill but they have to be cautious (there’s that word again) and wait until their final retail orders come in.  So demand is out there but a lot of companies are playing it careful, as they should.  This seems to point to a slow summer for hiring followed by rebound in late August or September.  I should add, however, that if your company is doing well and you know that it’s doing well, this is a pretty good time to upgrade your staff.  There isn’t a lot of competition out there.

All the best,

Tom

By |2020-11-20T08:51:04-06:00June 17th, 2008|ToyJobs Blog|Comments Off on Caution Remains the Word of the Day

Toyjobs Takes Off to Its Best Start Ever

Toyjobs has gotten off to the fastest start in its twenty-seven year history.  Unfortunately, I don’t think that is likely to continue.  This is counter to the economic climate and I would certainly agree that there are fewer jobs out there and less toy company hiring.  This seems to be what’s going on.

When times are good, most toy companies are pounding the table for “five more Brand Managers!”  With everyone looking to hire the same people inevitably many of these jobs remain unfilled or at least take longer to fill.  In more cautious times, the companies that are looking to hire are generally looking for just one or two high impact players, say a Marketing Vice President or a Vice President of Wal-Mart Sales.  In March we had our best single month ever, placing six people including two Vice Presidents and two Directors.

Another factor is that we spend less time and energy on searches that later get put on hold.  Companies that aren’t hiring know that they aren’t hiring and are much less likely to spin their, our and the candidate’s wheels and then not pull the trigger.  The companies that are looking to hire a high impact player are generally pretty committed to doing so.

Over the last six months we have been able to fill an even higher percentage of jobs than are normally high fill ratio and we have been able to fill them pretty quickly.  Now that this year’s initial burst of hiring is winding down, I would look for things to slow until late August when toy companies have a clearer picture of how their year is going to go.

We have begun to see a trickling style of layoffs unlike the wholesale dislocations we saw in 2001 and 2002.  I think this is because we are not coming off a bubble economy like the late nineties and 2000 so that companies don’t have as much fat to trim from their payrolls.  The toy industry’s ever thinning margins means there’s not much fat to trim at all.

All the best,

Tom

By |2020-11-20T08:51:04-06:00April 15th, 2008|ToyJobs Blog|Comments Off on Toyjobs Takes Off to Its Best Start Ever

Toy Fair Outlook – Cautious

The February Toy Fair seemed to go pretty well. The Javits Center maintained its world record of having the hardest floors on the planet. I did notice that several mass market companies were not “showing” although some had representatives lurking in the aisles. Mass market companies that grumbled beforehand that this would be their last one all seemed satisfied and said that they would be back. Specialty toy companies were having a field day and seemed to be a much more jovial group. I think a company’s sense of success at the show was very much driven by their expectations coming into it. It’s an excellent show for specialty manufacturers but also a very good place for mass market companies to focus on second and third tier retailers. Over the last couple of years, most of the toy company executives I have spoken to at Toy Fair have been cautiously optimistic but this year I would characterize their mood as just – cautious.

Of course, there is good reason to be cautious with big recession thunderclouds on the horizon. I don’t get the sense that recession has hit yet. Despite anecdotal evidence of empty store aisles, retail sales were strong in February. Wal-Mart’s total sales were up 8.9%, Target up 5.9% and Costco up 11%. That said, everyone from businesses to consumers seems to be standing around very quietly wondering why they’re still on their feet. It’s like waiting for a tornado. The press may not be talking us into a recession but they are certainly hastening its arrival. It’s also a little unnerving that the balance sheet of a single company could throw us all into crisis. If MBIA receives a ratings downgrade all hell is going to break loose. I suspect there would have to be some sort of government intervention.

Add to economic backdrops the particular challenges that the toy industry is facing now – rising costs, the rising Yuan and stingy retailers only allowing prices to rise 5-8% – and you have the making of thinner margins and a very difficult year.

Because of the string of January and February Trade shows it is always difficult to get a read on toy company hiring at this time of year as companies are typically too busy to “pull the trigger.” I can say that search starts have been strong during the period and I have every indication that many of these will close during the coming month. I should be able to pass on a more definite outlook on the subject in my next communiqué. I just hope that it’s not coming from a bunker.

All the best,

Tom Keoughan

By |2008-03-21T09:00:14-05:00March 21st, 2008|ToyJobs Blog|Comments Off on Toy Fair Outlook – Cautious

Toyjobs Posts Third Best Year

Toyjobs posted its third best year out of twenty-six for 2007. It was a crazy and confusing period. With 2006 being our second best year coupled with 2006 toy sales being up 4 to 5 percent (rather than the usual down 4 or 5%) I figured we would start strong in 2007, but that’s not the way it happened. There were not a lot of toy company jobs available in the early going and in fact our sales were only at about fifty percent of normal through the end of June.

August brought not only the beginning of toy safety recalls but toy company hiring exploded. I would have thought with toy recalls, the housing market meltdown, the sub prime crisis and weak retail sales, that hiring would be subdued, but the frenzy continued until the very last day of the year. After twenty six years as a toy recruiter, I am usually able to divine some sort of rhyme or reason between toy industry conditions, the economy and hiring trends but I can’t even begin to fake an explanation for what went down in 2007. When hiring conditions were ripe, no one was hiring and when things looked their bleakest, companies were filling toy jobs hand over fist. It’s not that companies began hiring a raft of product safety people either. Toy companies were too busy fixing the crisis at hand. It was only after Thanksgiving that we started receiving a lot of calls from toy companies about hiring product safety professionals for the next manufacturing cycle.

Toyjobs is approaching 2008 with caution. With the exception of Walmart (up 8.4%) and Costco (up 10%), total December sales were pretty poor across the board. Costs continue to skyrocket. We still have high oil, resin and transportation prices. Add to this, rising wages and fuel riots in China, not to mention the rising yuan. Chinese factories are demanding 10-30 percent increases to manufacture goods. Although I have often heard “everyone’s costs are rising, so retailers will be compelled to let us raise prices”, I haven’t believed a word of it. Retailers have forced prices down for the past ten years even as costs continued to rise. Prices need to correct but retailers aren’t letting it fully happen. The toy industry executives I have been speaking with tell me that they are getting increases of 5-8 percent. With Chinese factories either standing firm or going out of business in ever increasing numbers, that means the extra cost increases will likely come out of US toy company margins. To their credit, I have spoken with several toy industry executives who have been walking away from potential business because of onerous pricing or terms (something we have long practiced at Toyjobs). Unfortunately, there will always be some genius who will sell product at a loss and try to make it up in volume. He may not last long but there seems to always be another bozo to take his place.

For 2008 there will be winners and losers and about half the companies I’ve talked with are gung ho while the other half are pulling in their horns. If I look at late December and January search starts, Toyjobs is up over our historical averages, so we are starting 2008 strong even as the press and the pundits are trying to talk the country into a recession.

I used to be able to explain everything but for now I’m just going to work hard and not plan any overexuberant spending either professionally or personally. Look for me to start shooting my mouth off when I’ve figured it all out again.
See you in February,

All the best,

Tom

By |2020-11-20T08:51:05-06:00January 28th, 2008|ToyJobs Blog|Comments Off on Toyjobs Posts Third Best Year

‘Tis the Season for Statistical Confusion

It’s time again for the annual swirl of confusing numbers emanating from retailers and Wall Street’s retail analysts.  Retail traffic was up on “Black Friday” and the post holiday weekend, but the average consumer spent less, an average of $347 down from $360 a year ago.  Surveys showed that the average person had completed 36% of their holiday shopping which is equivalent to last year.  All this seems to indicate that this year we had a better gauge due to a larger statistical sample which seemed to show that consumers will be spending less this Christmas.

But all the hype and hoopla which surrounds the day after Thanksgiving exaggerates the extent to which it predicts total holiday sales.  There are plenty of people, like me, who wouldn’t be caught dead anywhere near any retail establishment (with the possible exception of the wine shop) at any time during the entire weekend.  “Black Friday” and the following weekend are the shotgun start to the high shopping season – not a predictive bellwether. 

Here’s where things get really confusing.  If you look at the following chart, it’s easy to see that total November sales were very strong.  Unfortunately, comparisons are difficult.  There was an extra “shopping week” at the end of November which skewed total sales numbers higher and that extra “shopping week” will be lost when we examine December sales.  Also both store traffic and sales volume dropped off after Thanksgiving weekend.  We should also consider that due to the long “indian summer”, throughout much of the nation, that a significant portion of the spending went toward warmer clothing.

Bargain-Hunting Season    
Retail sales for November 2007    
 

Total November sales

 
Discounters

In millions

Chg. From year ago

Comparable stores chg. from year ago

Wal-Mart*

$31,718.0

+8.4%

+1.5%

Target

5,972.0

+16.7

+10.8

Costco**

5,720.0

+13.0

+6.0

Department Stores      
Macy’s

2,713.0

+13.9%

+13.4%

Kohls

2,023.2

+20.0

+10.2

J.C. Penney***

1,709.0

+5.8

+2.6

Nordstrom

804.9

+7.4

+8.7

Dillard’s

559.3

+2.0

+1.0

Neiman Marcus

360.0

+8.7

+5.8

Saks

347.6

+26.3

+25.7

Apparel      
TJX

1,800.0

+10.0%

+7.0

Gap

1,540.0

+11.0

0

Limited

858.7

-8.4

-7.0

Ann Taylor

209.2

+12.2

+3.9

Teen Apparel      
Abercrombie & Fitch

352.3

+25.0%

+2.0

American Eagle Outfitters

285.8

+16.0

0

Sources: the companies; WSJ Data Group    

  *Comparable sales for U.S. stores only, excluding fuel sales

 **Comparable sales for U.S. stores only

***Department stores only

What people are buying is of particular concern to toy manufacturers.  There were an awful lot of “Guitar Hero” games and Nintendo Wii’s (do we count those as toys?) moving out the doors.  Generally consumers seemed to be focused on AWAP (Anything with a Plug).  There doesn’t seem to be any “gotta have it” product driving people into the toy aisles this year and that controversial last minute Ecology Center study trumpeting that over one third of toys contained dangerous chemicals certainly didn’t help.

So where does all this leave us.  It seems that thus far, total holidays sales appear to be strong BUT a larger percentage than normal of total holiday sales has been counted.  Sales seem to be slowing BUT we still have the two crazy final weeks of holiday shopping to go.  I think its best to cross your fingers, close your eyes and hold on tight.  There’s not much we can do about it now and soon enough we’ll find out where we’re heading.

Happy Holidays!

Tom Keoughan

By |2020-11-20T08:51:05-06:00December 10th, 2007|ToyJobs Blog|Comments Off on ‘Tis the Season for Statistical Confusion

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 |2007-10-30T09:00:37-05:00October 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 |2020-11-20T08:51:05-06:00September 25th, 2007|ToyJobs Blog|Comments Off on Mattel v. China and the Blame Game
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