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It Wouldn’t Be Toy Fair Without Snow

The New York Toy Fair brought both the annual snowfall and a sense of realistic optimism which was far more encouraging than last year’s dour face fest. The mood was upbeat but realistic and mostly devoid of trade show happy talk (We’re doing great! Everything’s fantastic!) although a few other toy industry commentators did suffer from a little “irrational exuberance.”

Traffic was very strong on the three days that I was there. I even saw smiles in the “basement of gloom” as downstairs traffic was much improved over last year. Several toy industry executives commented that the quality of the traffic was quite high and that there were a lot of mass market buyers in attendance. Exhibitors also said that smaller specialty stores were writing a lot of orders.

I’ve lost some weight so that my feet weren’t as sore as usual as I traversed the world’s hardest floors. There were a few clients and prospective clients that I didn’t get to see because they were always busy with customers. I don’t look at that as a bad thing: sell away, grow your businesses, add more employees – I am very happy with that.

There were a sizable number of mass market toy manufacturers not “showing” but still skulking through the aisles and taking meetings in the food court and other clandestine corners. Personally, I miss that room on the 13th floor of the toy building that had all the big leather comfy chairs. It was down the hall from “the mayor of the toy building” Bob Gellman’s showroom. It was great to see Bob at the Javits Center in 2010.

One complaint that I heard from several attendees and would like to echo myself is the demise of the printed Toy Fair directory. This was a very handy and useful tool that sat on or near the desk of many a toy executive, me included. Although billed as part of a “green initiative” this was clearly a cost cutting measure. One booth attendant told me “we tried to move it online but most of the companies didn’t sign up.” I do applaud “the virtual tote bag” program. What could I possibly do with another Homer Simpson key chain? Doh! We should try to differentiate between useful and just plain waste.

Part of the reason for Toy Fair’s optimistic tone was likely due to Wal-Mart’s strong showing for both the fourth quarter and the year. As the world’s largest retailer Wal-Mart’s financial reports are a closely watched barometer of the economy as a whole. For the fourth quarter total sales rose 4.6% with a 22% increase in profit. On an annual basis, Wal-Mart’s total sales rose only 1% (we all need to remember how awful the first seven months of 2009 were) and profits were up 7 percent. While the fact that same store sales (which don’t include the effects at Wal-Mart cannibalizing it’s own stores) for the fourth quarter were down 1.6% may be of interest to Wall Street analysts; as suppliers the toy industry is much more concerned with how much total stuff moved off total shelves. So, not a bad year for the world’s largest retailer in the midst of the worst economic climate since The Great Depression.

In other Wal-Mart news, toy industry executives were initially concerned with the announcement of a global sourcing partnership with Li and Fung. The unit will be called WSG and Wal-Mart has the option to take full control of it in 2016. Initially, that sounded a bit ominous to everyone but it appears that WSG will be focused on non-branded private label merchandizes. Due to Wal-Mart’s shrinking of the toy department, that’s not really what they’re buying for the toy aisle anymore anyway. In the short to mid-term though, I can envision Wal-Mart putting together direct to retail deals between licensors and its WSG unit. This could easily affect things like kids licensed backpacks and stationary and other items not requiring much tooling (or risk) and could possibly be expanded down the road.

As far as toy industry hiring, we are beginning to get some job offers. New search starts are continuing but at a slower pace than the first of the year new budget bump. I continue to see this as a recovery year where hiring will continue to gradually improve especially in the second half. It’s still not good out there but it is much better than last year. We all have to muddle our way through and hopefully by 2011 things will be mostly back to normal.

Muddling through,

Tom Keoughan

By | March 3rd, 2010|ToyJobs Blog|Comments Off on It Wouldn’t Be Toy Fair Without Snow

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 | January 25th, 2010|ToyJobs Blog|Comments Off on Toyjobs.com: Review and Forecast

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

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

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

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

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

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

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

Muddling thru,

Tom Keoughan

By | October 30th, 2009|ToyJobs Blog|Comments Off on Fall Toy Preview: A Little Grumbling Despite The Full Dance Cards

“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”

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

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

Toyjobs Takes Off to Its Best Start Ever

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

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

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

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

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

All the best,

Tom

By | April 15th, 2008|ToyJobs Blog|Comments Off on Toyjobs Takes Off to Its Best Start Ever

Toy Fair Outlook – Cautious

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

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

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

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

All the best,

Tom Keoughan

By | March 21st, 2008|ToyJobs Blog|Comments Off on Toy Fair Outlook – Cautious