Toyjobs

Feeling Better but Proceeding With Caution

The stock market has been racing ahead even as progress in the real economy has been much more muted.  The market, after all, runs on emotion in the short run and tends to look about six months ahead.  I’m as glad as anyone to see it go up but have the feeling that this is really just a rebalancing after having overshot to the downside.  In these financially perilous times it is prudent to rein in one’s “irrational exuberance”.

 

Meanwhile, back in the real economy, green shoots are heavily mixed with weeds. The consumer, who represents 70% of the U.S. economy, is broke.  Housing prices continue to decline, although at  a more gradual pace. People can no longer use their homes as ATM machines. Their 401Ks are down thirty to forty percent.  They have little or no savings and credit card limits are being cut.  At the same time, people are worried about their jobs.  The unemployment rate fell in July, dropping 0.1 percentage points to 9.4 percent. That still leaves us with U6 (a better picture of unemployment and underemployment) of 16.3 percent.  That means that one in nine Americans is unemployed, underemployed or for the time being has just given up looking for a job.  Another underpublicized number is that about a quarter of the improvement in job losses in July was due to government hiring.  In the private sector, companies are simply cutting heads more slowly.  Although the worst appears to be over that doesn’t mean that anything is getting better quickly.

 

With the consumer being so weak it should be no surprise that retail sales have continued to slide.  What about cash for clunkers you ask?  First of all, at best this is a one time boost.  It also represents a little sleight of hand for the government’s consumer spending numbers.  For example, I traded in a twenty year old Jeep that we only used off road and in the snow.  It could barely reach 50 mph and the floorboards were beginning to “Flintstone”.  I couldn’t have gotten a hundred dollars for that car.  I traded it in for a Subaru Outback.  Obama paid the $4,500 down payment and I got 0.0 percent financing over five years. Strangely the entire $24,000 cost of the car will be counted in the government’s August consumer spending numbers.  Wow.  I guess we should look for an artificial bump in consumer spending for August and September.

 

We should also consider a number of other problems which will loom large in the not too distant future.  One in eight U.S. households with mortgages is either in foreclosure or in arrears.  And there are even more mortgage resets coming in the next fifteen months than have happened to date.  Add to that mounting credit card losses and the coming commercial real estate debacle and it’s easy to see that we still have a long bumpy road ahead of us.

 

Despite all that, I am not a gloomster.  I would characterize myself as cautiously optimistic but a believer that things are going to take another year before they really get better.  Of course, I have no way of knowing that for sure.  Nobody does.  I can’t tell the future and neither can any of the talking heads you see on television.  What we do know is that someday somewhere in the future things will be better even if we don’t know when that will be.  What businesses and households can do is to look at the possible scenarios and budget in such a way that it is most likely that they will survive until better times are realized.

 

The different types of recovery that we are likely to see are: L, W, U or soup bowl, square root or V.  The L shaped scenario has only been seen once in U.S. history.  It is an extreme and if it happens again we won’t be worried about our budgets, we’ll be foraging for canned goods and bullets.  The government led by Ben “I’ll throw money from helicopters” Bernanke have promised to do everything in their power to avoid that grim future.  If it happens, there is little we can do about it outside of stockpiling krugerrands and Campbell’s soup.  So, let’s not even worry about that.

 

The W, U and square root models of recovery are the most likely scenarios while a V shaped one is unlikely for all of the reasons stated above.  Let’s start with the U shaped recovery (which I think is most likely, although that means very little).  In a U shaped recovery, after the roller coaster ride to the bottom that we saw in October 2008 and again in March of this year, there is a longer than usual period of no or slow growth before the economy begins to pick up again.  In this type of scenario businesses and households should budget very cautiously although not to the point of complete austerity.

 

With a W shaped recovery we would see a sharp upswing only to come crashing down again later before a real sustained recovery begins.  It’s important not to fall for a head fake like we could be currently seeing in the stock market but are yet to see in the actual economic data.  By budgeting for a U shaped recovery we are covering ourselves in case it really turns out to be a W and in fact can use the brief spike in the W to replenish cash reserves.

 

With a “square root” recovery, we again take that roller coaster ride to the bottom followed by more gradual growth rate.  Growth won’t be as rapid as a V shaped recovery but will begin far sooner than our U shaped model.  If we again budget for the U scenario, the downside is we maybe should have ramped up business investment a little sooner but on the upside we will have been sleeping at night.

 

What our back of the napkin game theory tells us is that although we really don’t know what the future looks like we can make intelligent budgeting choices which are likely to see us through until the economy improves.  Therefore, businesses, households and certainly Toyjobs should budget for a U shaped recovery and if things turn out to be better than that – great.

 

Whew.  Enough of that!  Obviously it’s been sitting and stewing in my head for quite a while and I feel much better now that it’s OUT!  Anecdotally, over just the last three or four weeks toy company hiring is beginning to get a little stronger.  The key words here are: “beginning” and “a little”.  Hiring is far from robust but it’s a lot better than the total job drought of the previous nine months.  As discussed above, businesses are “feeling” a little bit better about the future even if the actual economic numbers reveal only that things are no longer getting worse.  The seasonal nature of the toy industry impacts hiring as well.  Retailers confirm their orders later and later even as manufacturing and shipping cycles grow longer and longer.  More toy companies find that they don’t know how their year is going to turn out until July or August. That usually causes an increase in toy industry hiring from late August until the end of the year.  This time around, the usual August bump coincides with people generally feeling better about the economy at large so that this year I expect the usual trend to apply albeit on a more muted basis.  Unfortunately for job seekers in the toy industry, next year the usual seasonal hiring pattern will also apply.  I see toy industry hiring through the end of the year being better but not as strong as usual.

 

Toy companies will hit their reset button in January.  There will be continued uncertainty in the economy.  Retailers will continue to hold off on order confirmations until just after the last possible second.  My best guess is that we will see another year of weak (although not as bad as this year) toy industry hiring until we hit that early August time frame.  Then, as usual, it will improve.  How much will it improve?  It will depend on the real economy and real economy factors like:  unemployment, GDP growth, retail sales, etc.  I wish I could chart a clearer course but I’m smart enough to know that I’m not smart enough to tell the future.  That light at the end of the tunnel just might be an oncoming train.

 

Muddling thru,

Tom Keoughan

 

P.S.  Disney’s takeover of Marvel looks like a great strategic deal for Disney as it can drive Marvel’s product portfolio across all of its business platforms.  It will also have the opportunity to build Marvel’s myriad underdeveloped brands. Marvel’s shareholders make out well in receiving both cash and shares in a less volatile growth vehicle.  Although Disney paid full price (a 29% premium), in the longer term Disney shareholders should benefit by obtaining a strong strategic match that is large enough to move the earnings needle.  That said, there are some current licensing entanglements with rival studios that Disney may prefer not to have.  They will have to either wait them out or buy them out.  It appears that, aside from the usual backoffice consolidation, most Marvel employees will remain although that can always change over time.  Oh, in case you were worried about him, fear not, Ike Perlmutter makes out quite well as usual.  In addition to reaping a handy $600 million he will become Disney’s second largest shareholder, just behind the equally cuddly Steve Jobs.

 

P.P.S. (Driving the admins crazy!) Our final China Report Article – “The Yin and Yang of U.S. – China Relations” is pretty much a must read.

 

Have a great holiday weekend!!

By | August 1st, 2009|ToyJobs Blog|Comments Off on Feeling Better but Proceeding With Caution

“Less Bad” is the “New Normal”

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

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

 

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

 

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

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

 

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

 

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

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

Muddling thru,

Tom Keoughan

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

Poor Economy Continues to Dog Toy Industry

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

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

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

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

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

Muddling Thru,
Tom Keoughan

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

New York Toy Fair: “Better Than I Thought It Would Be”

Despite the giddy pronouncements of some in the trade press I would sum up the New York Toy Fair with one word – subdued. It was better than I thought it would be. It seemed like people were just too tired of complaining to complain anymore. There was a realization that the only way to stay in business was to just go out and work it, even if business stinks. A lot of the people walking the aisles were “consultants” which in this case was code for “looking for a job”. There was pretty good foot traffic on Sunday. The rest of the time things seemed fairly slow except for a sudden surge on Monday from 2 p.m. to 4 p.m. Where did they come from? Where did they go? As for final attendance numbers, it’s all a bit uncertain. Asking a trade show promoter (TIA) about attendance numbers is a little like asking the barber if you need a haircut.

Most mass marketers that I spoke with had their dance cards pretty full with retail appointments but reminded me that this is the “Happy Talk” season and that little was actually being accomplished. Specialty manufacturers fared better, in that, although less of their smaller retail customers were in attendance, those that were there were in an order-writing mood. The grumpiest group was anybody who had paid good money to try to peddle their wares in the “Basement of Gloom”. No traffic, no happy faces.

In many of my discussions, senior toy industry executives are telling me that they need to add people from an operating perspective. However, most companies are not self-financing and rely on bank loans and lines of credit to finance operations. In the current financial climate (which was caused by banks) banks are cutting loans and credit lines and, in some cases, even eliminating them altogether. They are telling companies that if they want financing they will have to cut expenses by 15-20%. The quickest way to do that is through a reduction in headcount. Some companies are laying people off of their own volition while others are being forced to by their banking “partners”.

It’s not like there is any less work to be done and in the toy industry, people weren’t exactly slacking off to begin with. This means that there is a lot of opportunity for consulting work out there. Banks tend to focus on fixed costs (like employees) but if an expense can be shifted to the variable cost part of the ledger (like consulting) it’s much more likely to pass muster. So for all you newly minted “consultants” out there: Work Your Network! It may not be optimal but it can pay the bills until the economy recovers. When will that be? I have no way of knowing, nobody does. My best guess is not before August – October 2010. It won’t happen sooner but it certainly could take longer.

The severe tightening of credit supply means that if you’re in the market to buy a couple of toy companies, you’re in luck. When the economy is in the tank, owners of marginal companies often want to sell their businesses. This is, of course, exactly the wrong time to sell your devalued asset. During these periods there are typically lots of talks but few actual deals. That’s because business owners typically try to price their companies at a multiple of “good times” earnings when they are, in fact, trying to sell because they are barely squeaking through bad times. This time it’s different (I never like saying that). This time banks are choking off credit so that there will likely be a lot of forced sellers. Some companies will have to sell even at a low price or just shut their doors.

Last Friday’s headlines shouted “Retail Sales Show Signs of Life” and “The Consumer Returns” but it was a really a false dawn and not much of one at that. The entirety of the same store sales increase was attributable to the super discounters: Walmart, Costco, BJ’s, Big Lots and the Dollar Stores. Outside of those few, the numbers were negative. Let’s not forget that 40% of Walmart’s sales are from the low margin grocery business. Costco’s grocery percentage is even higher. “People gotta eat! Now they’re eating cheaper!” That’s not exactly a rallying cry for a stronger retail sector.

Open and Shut

Muddling thru,
Tom Keoughan

 

Open and Shut
By | March 9th, 2009|ToyJobs Blog|Comments Off on New York Toy Fair: “Better Than I Thought It Would Be”

Toyjobs Wins Judgement Against A-Ha Toys

The Superior Court of New Jersey has awarded Toyjobs a default judgement against A-HA Toys.  The court is expected to rule on Toyjobs’ suit against A-HA president, Ivars Sondors, shortly.

Toyjobs’ president Tom Keoughan said “Whenever I hear about a company not paying its vendors, I become very reluctant to do business with that company.   I always wonder how companies that don’t pay their vendors will be able to deliver goods to their customers.

By | February 28th, 2009|ToyJobs Blog|Comments Off on Toyjobs Wins Judgement Against A-Ha Toys

Toy Industry: Bleak Forecast 2009

In 2008 the toy industry and indeed everybody had to endure the worst holiday sales season since 1992.  This was truly an awful year where both comparative sales and total sales were down sharply for most retailers.  In some recent years we have seen weak comparative store data even though total sales were fairly strong.  I’ve always argued that comp store sales is a flawed indicator because it fails to take into account the cannibalization of sales that occurs as large retailers continue to build more and more stores closer and closer together.  Think Wal-Mart or Starbucks.  In 2009, we may see a “reverse cannibalization effect” as retail chains shut down large numbers of stores and entire chains go out of business.  It’s my feeling that total store sales is an obviously better measure of how much total “stuff” is sold by a retailer to consumers.  In any case, 2008 was a horrible year for retail when measured by either yardstick.  Only the deep discounters like Wal-Mart, drug chains and the dollar stores had good or even decent years.  Surprisingly, even the warehouse clubs did poorly.

The combination of a terrible holiday sales season and the credit crunch economy proved too much for several weaker retailers who were forced into Chapter 11 or even liquidation.  KB Toys, Circuit City, Linen & Things, Office Depot and Gottschalks all went under.  The retail death watch continues with Dillards, Claire’s, Duane Reade, Talbots, Bon-Ton Stores, Pier One Imports and even Borders all rumored to be teetering close to bankruptcy.  In addition to outright failures many retailers will close a significant number of stores.  It is estimated that 200,000 stores will close by year end.  Fewer stores means less shelf space to fill which translates to less overall sales for toy companies.  As always there will be winners and losers.                           

Most companies are not self financing and rely on bank loans or lines of credit to finance operations.  In the current financial climate where banks reticent about lending even to the strong, I would expect weak and marginal companies to struggle.  Starting this past September we began to see toy companies either fail or be bought out by stronger rivals.  I would look for the trend of acquisitions and company closings to continue and even accelerate.       

With the news that several key retailers were not going to attend the January Hong Kong Toy and Gamers Fair, toy executives spent the month of December scrambling to get the 2009 sales season rolling with those major retailers that weren’t going to attend.  Once in Hong Kong, some complained about the retailers who weren’t in attendance and some even said that the show was a waste of time.  Other, more optimistic types saw it as an opportunity to really focus on second and third tier customers.  It was also noted that the international retail presence was particularly strong.              

I was both curious and concerned that with oil, resin and transportation prices coming down that retailers might try to claw back the already less than adequate price increases they allowed toy companies in 2008.  The word back from Hong Kong was “they asked but they didn’t demand.”  Toy companies were able to cite high safety testing costs as a reason why prices shouldn’t be rolled back.  Also discussed, was that with so many Chinese toy factories closing (more coming after Chinese New Year?) that U.S. toy companies had little negotiating leverage left with those factories that remained.  Price stability will be crucial in 2009 as both lower sales volumes AND tighter margins would be a recipe for disaster.  That said, my best guess is that 2009 will be the toy industry’s most difficult year since I started out in 1981.                

Toyjobs had a respectable year in 2008.  After getting off to our fastest first half ever, we entered the third quarter and unfortunately, there pretty much wasn’t a third quarter.  We were lucky that we had, what for us was, an average fourth quarter.  That said more than half our fourth quarter placements came from a single client who was hiring due to a corporate relocation.  Overall we were about 15% off of our average for the year.  That’s not bad because our average is pretty good.  I’m happy with our results in 2008 but I am even more happy that the year is over.  The only thing that I’m not happy about is the outlook for 2009.  I foresee that by the end of the year there will be fewer retailers, fewer toy factories, fewer US toy companies and yes, fewer toy recruiters.  I hope that when it’s all over everybody reading this will still be standing.   We, here at Toyjobs, certainly intend to be.   

 

See y’all in New York, 

Tom Keoughan

By | January 27th, 2009|ToyJobs Blog|Comments Off on Toy Industry: Bleak Forecast 2009

Bleak Times: Will Walmart Steal the Silver Lining in 2009

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

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

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

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

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

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

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

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

Trepidatiously yours,

Tom

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

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 | October 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 | August 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 | June 17th, 2008|ToyJobs Blog|Comments Off on Caution Remains the Word of the Day