Toys 'R' Us Archives - Page 2 of 3

Economy and Employment Continue Gradual Improvement

U.S. consumers continued to increase spending in July as the economy continued to grind out a slow but steady expansion. The Commerce Department last week announced that retail sales for July climbed a seasonally adjusted 0.2%. They also adjusted the June growth rate upward from 0.4% to 0.6%.

People are seeing the value of their homes and retirement accounts rise, which has begun to create a “wealth effect.” Also, Americans have spent the last few years struggling to shed debt. Total consumer debt is now 12% lower that at its peak in the fall (just before “the fall”) of 2008. Lending and spending are on the rise, especially for the big ticket items like homes, cars, furniture, and my favorite – barbecue grills.

Consumer confidence is increasing and is at its highest level in years, which economists attribute to the gradually improving employment picture. Toyjobs concurs that, at least in the children’s product business, hiring has increased dramatically. On the jobs front, things seemed to turn the corner in 2012 after three dismal years. In 2013, hiring has been much more robust. Even the annual summer doldrums period has seen more hiring than in any of the last five years.

[See Toyjobs Success Stories)

That said, there is a puzzling disconnect behind the rise in overall consumer spending and the weak recent showing of many retailers. Wal-Mart, Kohl’s, Nordstrom’s, and Macy’s last week, posted poor second quarter results and cut their profit forecasts for the year. Aeropostale, American Eagle Outfitters, and Abercrombie & Fitch also lowered their sales and profit outlook.

Part of the problem may be that spending for cars, houses, and home improvement may have eaten up dollars that would have been spent on clothing, accessories, and general merchandise. The hope is that once this pent-up demand is sated that spending will trickle down to retail more broadly. After all, one can only buy so many cars and washing machines before you have all you can use.

Holiday spending, in the aggregate, can be looked at as one big ticket item which bodes well for toy manufacturers. However, consumers will likely chase sales and hunt for value, thereby causing margin pressure on retailers. The question is will retailers eat those margin hits or will they beat it out of their suppliers in small Bentonville rooms.

On the “good news” side of the ledger, Toys’R’Us, which has been reeling as of late, has announced that it plans to add 100 stores internationally by the end of the year. There will be 19 new or reconfigured stores in the US and a total of 51 stores in China by year end. This is good news for two reasons. First, there will be more shelf space to fill which should translate into more goods sold in to the retailer. Also, it appears that ownership of the private entity is investing for growth rather than backing off after recent poor results. We wish them all the best as a strong Toys’R’Us makes the toy industry stronger.

All told, the economy is slowly gaining ground and increasing momentum like a train leaving the station. That said, we should not forget that we currently live in a bifurcated society. Most people have jobs and, for them, things are slowly getting better. However, U6 (the number of people either unemployed or having to accept only part time jobs) is still at 14%. So while 86% of us are doing alright, at least 14% are still struggling.

Fortunately, increased consumer spending on big ticket items should start to trickle down to improve retail sales as a whole. As this couples with increased consumer and business confidence, it should lead to a much better employment picture. This is already beginning to happen. We should all hope that as the train chugs out of the station and begins to pick up speed that the long term unemployed and the under employed will be able to climb aboard. As employers, we should try to haul them aboard when we can.

See ya’ll in Dallas,
Tom Keoughan

PS – Dallas Alert! Dallas Alert! If you want to upgrade your sales team for the 2014 sales season, you better get cracking. You should have started two weeks ago!

By ToyJobs|2020-11-20T08:51:01-06:00August 20th, 2013|ToyJobs Blog|Comments Off

Toy Fair: Return of the Snows

After two snow-free years, the weather hit back with a vengeance at the 110th American International Toy Fair. While New York City itself only received eight inches or so the rest of the Northeast was hit hard by the Snowpocalypse.

Things kicked off Saturday night with the TOTY awards. As always, Carter Keithley and his Toy Industry Association (TIA) team led by Stacy Leistner organized a terrific affair. The food was superb and everyone seemed to be having a good time.

The evening awards program, organized by Jamie Gallagher of Faber Castel and Shirley Price of Funrise was fun and kept everyone engaged. The night belonged to Lego and Leapfrog who each garnered several awards. That said, it was good to see awards won by several small companies such as: Just Play, Plasmart, and Cloud B. The boys category was dominated by Teenage Mutant Ninja Turtles from Nickelodeon/Playmates.

Traffic seemed a bit off on Sunday, most likely due to weather-related travel disruptions. Countless war stories were shared by sleep deprived refugees from New England and Toronto. At the end of the day, action shifted to the Women in Toys (WIT) dinner. Genna Rosenberg and Ashley Maidy again did a great job organizing the annual event at The Lighthouse at Chelsea Piers. The evening was presided over by the always glamorous WIT president Joan Luks and it was good to see an award given to “The Queen of Toy Fair” Gail Jarvis. Particularly fun was the presentation of capes to the award winners.

Confidential sources tell me that someone looking very much like a cape wearing Nancy Zwiers was spotted over the next several days dancing around the Javits Center 🙂 Congratulations to all Wonder Woman winners and nominees.

Toy Fair traffic picked up substantially on Monday and Tuesday. Between bouts of “Javits feet”, Toyjobs was able to pick up on several young, under-exposed companies with exciting product lines. Some of these will undoubtedly be amongst our “sudden surprise” toy manufacturers of the future.

On Wednesday, we headed down to New Orleans for a few 65 degree days of good food, good music, and an evening glass of wine or three. We at Toyjobs will never drink anything out of a large Dayglo plastic toy – nor should you.

On the economic front the toy industry continues to have its challenges. Leftover retail inventory will likely mean that the first half of 2013 will be even slower than usual as little restocking needs to be done. Also, due to the management shuffle at the top, one has to believe that Toys ’R’ Us will be stuck like deer in the headlights for a considerable period of time. In addition, we continue to have a condition of torpor in Washington D.C. – nothing seems to move except their mouths. That said, total retail trade sales continue to trend cyclically upward. Warren Buffet, in last weekend’s shareholder letter said “ignore short term uncertainties, the immediate future is uncertain; America has feared uncertainty since 1776…American business will do fine over time”.

That’s the spirit that we’re seeing from our vantage point. As is usually the case, we were given a large number of search assignments in late December and January but those searches generally don’t close until the toy industry finishes cycling through trade shows in Hong Kong, London, Nuremburg and New York. Here at Toyjobs, we’re expecting to have an excellent
March as companies start to pull the trigger. In addition, search starts have been accelerating since the close of New York Toy Fair. Should this trend continue it bodes well for the industry as a whole. After the usual summer slowdown, I foresee hiring to come back even stronger in the fall as the headwinds of retail inventory and Washington gridlock abate and the economy continues to strengthen. Let us all hope it is so.
More light at the end of the tunnel,
Tom

By ToyJobs|2020-11-20T08:51:01-06:00March 5th, 2013|ToyJobs Blog|Comments Off

Brief Rain Delay – Waiting for Takeoff

While the headlines blared “Retailers’ Holiday Sales Disappoint” this was based on same store sales which were up but not as much as anticipated. Those projections seemed to be based on mostly wishing. However, same store sales is a retail metric meant to measure a retailer’s health. If you “make stuff” that you sell through retailers, a more meaningful metric is total sales, which measures all the “stuff” sold in all of a retailers’ stores. If a retailer builds more stores and in total sells more “stuff” as “stuffmakers” it’s not our primary concern that the retailer didn’t sell quite as much as they wanted in each store. We want to know how much “total stuff” of ours they sold.

Same stores Sales increased by 4.5% according to Thomson Reuters but this was skewed upward due to Costco being the most heavily weighted company in their index and Costco knocked it out of the park. Same store sales minus Costco increased 2.8%. Those aren’t break out the champagne numbers, but they’re not too shabby. Total Sales should be up by more. Unfortunately, the best chart I could find only runs through November 2012. New data will be available on February 13 (Click Here For Chart). We will also publish the new chart new chart next month.

The holiday sales season was characterized by heavy online shopping in November and early December followed by strong bricks and mortar purchases at discounted prices during the two weeks leading up to Christmas. Toy sales followed this pattern and were flattish overall with a weak November and strong late December.

Why is this man smiling?

Leapfrog was a huge winner with four of the top ten toys of 2012. Costco, Kohl’s and Macy’s did very well on the retail side. Amazon sales were quite strong but, as always, profitability is suspect. Times were tough for Hasbro who experienced weak holiday results and is planning to cut 10% of its workforce. Toys ‘R’ Us posted poor results both in the US and internationally. Sears/Kmart remained wobbly.

Both TRU and Best Buy accused Wal-Mart of posting online bait and switch ads. They claimed that the retailing giant would run internet ads claiming lower prices but then their stores would have either different models or be out of stock. Wal-Mart’s rather disingenuous response was “our ads don’t claim to compare identical products.” Wal-Mart had been accused of similar tactics back in the old print ad days of the mid-nineties. We’ll have to wait and see how this plays out.

As Toy Executives return from Hong Kong, I’m hearing that while late December toy sales were very strong that they didn’t make up for the rest of the holidays sales season. Retailer’s are carrying too much inventory which is compromising open to buy dollars and little early year restocking will be necessary. This will hurt toy company’s in the first half which has always been a difficult period for them anyway. The other thing I’m hearing is that in 2013 Teenage Mutant Ninja Turtles are going to be huge

Looking forward, we’re a long way off from Christmas 2013 but the elimination of the payroll tax cut could hurt consumer spending since in the current economy many households are living paycheck to paycheck. Europe is in recession which will impact the largest toy companies and smaller ones at the margin. That said, the economy has stabilized and continues to improve. Bipartisan shenanigans in Washington will continue to dampen economic growth during the first part of the year. That, as well as, the European situation and existing retail inventories should cause things to continue to muddle through until May or June. As we move past those headwinds, the economy should gain strength in the second half. I then see blue skies in 2014 although it’s really much too early to make a firm call.

Toy industry hiring should follow these economic trends which, for now at least, seem to match up well with the toy world’s annual business cycle. Look for companies to be cautious but to add where they have to in the first half and regain confidence and increase hiring as the year moves forward. Let’s keep our fingers crossed

Seeing lights at the end of the tunnel,
Tom Keoughan

By ToyJobs|2020-11-20T08:51:01-06:00January 28th, 2013|ToyJobs Blog|Comments Off

He’s baaaaaack!…Neil Friedman Returns

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

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

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

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

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

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

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

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

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

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

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

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

All the best,
Tom Keoughan

By ToyJobs|2011-04-27T10:02:00-05:00April 27th, 2011|ToyJobs Blog|Comments Off

From the Yuan Wars to Toy Company Jobs

As November’s very heated election approaches in a continuing climate of economic malaise, desperate politicians are pointing the finger of blame anywhere and everywhere but at themselves. The nation is rightly disgusted with its banksters but is growing immune to the long and continuous public bludgeonings of their ilk. In search of another scapegoat the thundering congressional herd lurches eastward – “Blame the Chinese! – after all they don’t vote in our elections.”

Chinese workers have been striking (or just not showing up) and demanding higher wages. Frankly, good for them – they were being paid a pittance and many had pretty lousy living conditions. I’m all for an increase in the purchasing power of Chinese factory workers. That said, a dramatic upward currency revision, as many in Washington are calling for, could have all sorts of unintended consequences.

China is NOT sucking up as many U.S. jobs as is touted by the pandering vote grubbers. Low end (toys, sneakers, small appliances, et al.) manufacturing left our shores long ago and is not coming back. You can’t make these goods in the U.S. and still meet “the Wal-Mart price”. Even in these dire economic times no one will accept a wage low enough to make widespread U.S. consumer goods production feasible. Well, except maybe in Detroit. “What about cars?” you ask. “Building cars isn’t low end manufacturing.” Yes, they are building cars in China but they are not shipping them here. Those cars are for Asian consumption. By the way, part of “they” is “us”. U.S. auto manufacturers are building cars in China for Asian consumption as well.

If the U.S. political class is able to harangue China into a significant upward revision of their currency, it will cost U.S. jobs. American companies who have their products manufactured in China will have higher costs, and because it is very difficult to budge retailer’s price points, will therefore have smaller margins. An environment of diminishing margins is not likely to spur additional hiring. Companies will not be looking for additional sales marketing or product development staff. This is especially true of smaller private companies where owners tend to view the cost of each additional employee as coming straight off the bottom line – which translates to straight out of their pockets. A rising yuan doesn’t support these small businesses which are supposed to be the engines of American job growth.

In taking a country from the 12^th century to the 22^nd in the span of a mere fifty years, China’s leaders have to deal with far bigger problems than the U.S. Congress. They are going to move slowly and do what they think is right for them – whether what they think is right, actually is right or not. Them, of course, being the Communist Party, which is committed to maintaining power whether the country is communist or not. What we will likely see is a few small gestures such as the past two weeks 1% rise in the yuan in an attempt to mollify the situation until after the U.S. elections (now only six weeks away) when everyone’s attention will be focused elsewhere.

One of the factors that is really holding up job growth in the U.S. is uncertainty. Business owners like predictability. They determine what profit margin they want in order to make an enterprise worthwhile. Then they try to project sales (always tricky) and try to set costs at a level that will give them that margin or better. Costs are supposed to be the easy side of the equation to figure out. Unfortunately, we are currently in a situation where no one knows what health care costs will be or what climate change legislation costs will be. No one even knows what the tax rate will be. The tide may turn either for or against the business community but once we know what the rules are we can decide what to do about them. Until we know the costs we can’t even do the calculations, therefore many things are being put on hold . . . like hiring.

In the current economic climate it’s time to scrap blindly chanting ideology and focus on the pragmatic. Just so you know where this is coming from – I consider myself socially liberal and fiscally conservative but most of all a pragmatist. “People can believe in whatever they want, I want to do what works.” I know, I just painted a huge target on my back and expect to be pelted from all sides by Nerf missiles when I arrive in Dallas for the Fall Toy Preview. In any case, what seems to be pragmatic in that it would help the economy and can also actually be passed and signed into law is to extend all Bush tax cuts for a period of two years and then review them two years on. This is not the time for a 700 billion tax increase. I think it’s likely that is what will happen. Obama doesn’t have the votes to do what he wants and everybody realizes it will be disastrous if taxes increase for everyone at the end of 2010.

Upcoming tax certainty isn’t the only positive as the economy continues to slowly (very slowly) improve. There are other “reasons to be cheerful”. Despite the hot summer doldrums, retail sales for July and August slowly but steadily increased, coming in ahead of expectations. August saw an acceleration in manufacturing in both the U.S. and China. Growth was slow but again it was positive. However, we should temper our enthusiasm on this particular metric. It is completely natural for production to ramp up in July and August as seasonal goods are manufactured for late August/September pre-holiday delivery to retailers. While sell in is good, the ultimate question is sell through.

Average hourly earnings – which decide how much money people have available to spend – were up by 0.3 percent. There was also a rise in temporary employment which is often a prelude to the creation of permanent jobs. A better than expected 67,000 private sector jobs were added in August and there were upward revisions to data for the previous two months. True, the government shed 114,000 temporary Census workers but that was expected.

The September stock market has been strong and most economists are de-emphasizing the chance of a double dip recession. Warren Buffett last week stated: “I am a huge bull on this country. We will not have a double-dip recession. I see our businesses coming back almost all across the board.” After all the gloom and doom of the summer it seems that we find ourselves in a situation where the economy is not collapsing but rather heading in the right direction though at too slow a pace to drive unemployment down.

The toy industry has several things going for it. Most toy companies have focused this year on producing low cost goods. While retail sales have been creeping upward, shoppers have been hesitant to purchase big-ticket items like autos, furniture, appliances. In fact, electronics retailers are revamping their aisles to focus on handheld gadgets to try to excite consumers who have grown weary of their traditional big-sellers: televisions and personal computers. After all, how many big-screen TV’s do you need? Handheld devices are still pricey compared to toys. The toy industry may find itself in the pricing sweet spot for the 2010 holiday season.

The growth of Toys’R’Us pop up stores is also exciting. Last year Wal-Mart only had to deal with the competitive impact of 90 somewhat hastily assembled Toys’R’Us Express locations. This year Toys’R’Us is planning 600 express stores with 300 of the locations already up and operating. More locations, more shelves to fill and more competition for a Wal-Mart whose toy department will be 25% smaller this year, are all positives for toy companies.

As for toy company jobs, the annual late August/September hiring bounce has been somewhat muted for a number of reasons. Retailers continue to order late in an attempt to shift as much liability as possible onto toy manufacturers. The trouble is that factories have been relocating inland and north. It takes longer to get goods to the coast, there has been a shortage of shipping containers and also massive traffic jams on roads leading to the ports. Later ordering combined with longer lead times is not a recipe for success. Over my three decades in the business, I have noticed that toy companies feel better about themselves and start hiring once their goods hit the retailer’s loading docks. Later shipping has caused many companies to delay pulling the trigger on hiring decisions. Also, all of the uncertainty over government rules, regulations and taxes has been a considerable factor. Make no mistake about it some companies have begun hiring and we have begun a number of searches, but there are also a lot of companies talking about their staffing needs but dragging their feet rather than getting going. Like the economy, things are moving in the right direction but slowly, slowly.

Still Muddling Thru,

Tom Keoughan

P.S. Wow, sorry about the long tirade. There must have been some “pent up demand”. I guess the main difference between me and the Washington gasbags is that I have not yet learned how to talk in bullet points. See y’all in Dallas.

By ToyJobs|2020-11-20T08:51:04-06:00September 22nd, 2010|ToyJobs Blog|Comments Off

Toyjobs.com: Review and Forecast

Same store retail sales eventually rallied after a late December snow dump to rise about 3 percent. Of course, this was compared to the very weak year earlier period. It’s also difficult to discuss retail sales trends without including Wal-Mart, but Wal-Mart doesn’t report monthly sales data anymore. As a shareholder, I like that but as a chronicler it’s a pain in the neck. I would assume that in the current economic climate they did well but we should also keep in mind that their December ’08 numbers were better than most which will skew current comparisons downward.

During the past year retailers seemed to get it just about right. They navigated the tough economic terrain by discounting just a few items and offering other promotions but by keeping prices relatively steady for much of their inventory. Of course in the toy aisle, Wal-Mart did its usual October price slashing which was then followed by much of the retail community. NPD reports that overall US toy sales were down by 2 percent. Obviously that isn’t good but it is far from being catastrophic.

While the congress fiddled (yes, the Nero illusion is intended) with a healthcare plan that almost nobody wanted, the rest of the country focused on jobs. The economy began to grow in the second half of 2009 but the jobs market lagged behind with businesses still being reluctant to hire. Although the December headline (U3) unemployment number was unchanged at 10% from November, the broader measure of U6 – which includes those forced to work part time or discouraged from seeking work – rose from 17.2 to 17.3 percent.

Here at Toyjobs we had our worst year ever. The overall number of searches was way down and many of the searches that were started were canceled or put on interminable holds. Waxing philosophically, “Some days the fish are there and some days they are not but I’m out there fishing hard in either case”. Perhaps a quarter of all search firms went out of business last year but thanks to three decades of success Toyjobs is in strong financial shape and I will be out there fishing well into the future.

Recent discussions with toy execs returning from Hong Kong reveal that the mood at the Hong Kong Toy Show was mostly buoyant. Retailers were pretty clean on inventory and were looking to buy. That said, toy companies may want to temper their enthusiasm. Wal-Mart and Target are cutting back on toy space, SKUs, and vendors.

In Wal-Mart’s case, toys have never been all that profitable and have primarily been used to drive foot traffic during the fourth quarter. The “groceryization” of Wal-Mart has worked out so fantastically – with the average customer visiting the store once a week rather than once a month – that toys are 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 business anymore – no more guessing at what will be a hot seller. They’re just going to focus on moving merchandise. Don’t expect them to take any chances. I’m not sure of the thinking behind Target’s strategy (no grocery to drive traffic), perhaps it’s just a case of me-tooism.

This trend will obviously benefit big toy companies who are able to make big TV advertising commitments. It also allows other retailers to create a larger toy footprint without having to compete with Wal-Mart’s crushing margins. Sears has been testing getting back into the business. Barnes and Noble and Borders, two retailers who generate a lot of traffic despite Amazon, are putting a greater emphasis on toys. I suspect that other retailers will follow suit now that they won’t have to compete with Wal-Mart’s pricing. Not initially, but over the longer pull, toy companies should be pleased with the ability to diversify their customer base and at higher margins.

The biggest beneficiary of the Wal-Mart/Target downsizing of the toy department should be Toys ‘R’ Us. People like to shop specialty stores because of their broader product offerings. Toys ‘R’ Us is also taking big steps to counteract their Achilles heel – the fact that they have traditionally been standalone – separate trip stores. During the past holiday shopping season they opened more than 80 pop-up stores in malls and shopping centers. The concept may have been quickly conceived and erratically executed but they should have it nailed by 2010 or 2011. Toys ‘R’ Us has also been working hard to turn itself into a destination by placing its Babies ‘R’ Us and Toys ‘R’ Us stores side by side. Babies ‘R’ Us can function similarly to Wal-Mart’s grocery business by bringing in customers for their weekly needs (diapers, wipes, etc.) and acting as a feeder for Toys ‘R’ Us. We should all hope that this strategy works as the toy industry surely needs a stronger Toys ‘R’ Us.

Here at Toyjobs, search starts jumped significantly in mid December as companies anticipated a new year with new budgets. It is still too soon to tell if this improvement will be sustainable throughout the year or if it is just a new budget bump. It is also too soon to tell if these search starts will turn into actual hires or be canceled or put on hold as so many were in 2009. I should have a much better handle on that by the time of our post New York Toy Fair issue. I can tell you that the air is different than it was even six months ago. It “smells” better. Certainly some companies are still having problems and most companies are still cautious but the palpable sense of fear is gone and has been replaced by a feeling of “we’re working through it”. My sense is that this will be a recovery year much like 2003. It won’t be a good year but it will be increasingly better than last. I just hope that we only have ONE recovery year rather than two or three.

Muddling thru,

Tom Keoughan

By ToyJobs|2020-11-20T08:51:04-06:00January 25th, 2010|ToyJobs Blog|Comments Off

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

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

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

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

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

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

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

Muddling thru,

Tom Keoughan

By ToyJobs|2009-10-30T10:47:22-05:00October 30th, 2009|ToyJobs Blog|Comments Off

“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 ToyJobs|2020-11-20T08:51:04-06:00June 8th, 2009|ToyJobs Blog|Comments Off

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 ToyJobs|2008-11-09T09:00:21-06:00November 9th, 2008|ToyJobs Blog|Comments Off

Fall Toy Preview: A Success…But

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

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

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

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

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

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

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

All the best,

Tom Keoughan

By ToyJobs|2020-11-20T08:51:05-06:00November 15th, 2006|ToyJobs Blog|Comments Off

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