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Toyjobs Posts Third Best Year

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

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

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

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

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

All the best,

Tom

By | January 28th, 2008|ToyJobs Blog|Comments Off on Toyjobs Posts Third Best Year

‘Tis the Season for Statistical Confusion

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

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

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

Bargain-Hunting Season    
Retail sales for November 2007    
 

Total November sales

 
Discounters

In millions

Chg. From year ago

Comparable stores chg. from year ago

Wal-Mart*

$31,718.0

+8.4%

+1.5%

Target

5,972.0

+16.7

+10.8

Costco**

5,720.0

+13.0

+6.0

Department Stores      
Macy’s

2,713.0

+13.9%

+13.4%

Kohls

2,023.2

+20.0

+10.2

J.C. Penney***

1,709.0

+5.8

+2.6

Nordstrom

804.9

+7.4

+8.7

Dillard’s

559.3

+2.0

+1.0

Neiman Marcus

360.0

+8.7

+5.8

Saks

347.6

+26.3

+25.7

Apparel      
TJX

1,800.0

+10.0%

+7.0

Gap

1,540.0

+11.0

0

Limited

858.7

-8.4

-7.0

Ann Taylor

209.2

+12.2

+3.9

Teen Apparel      
Abercrombie & Fitch

352.3

+25.0%

+2.0

American Eagle Outfitters

285.8

+16.0

0

Sources: the companies; WSJ Data Group    

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

 **Comparable sales for U.S. stores only

***Department stores only

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

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

Happy Holidays!

Tom Keoughan

By | December 10th, 2007|ToyJobs Blog|Comments Off on ‘Tis the Season for Statistical Confusion

Fall Toy Preview Successful . . . Industry Continues to Stumble

Although there was some back hall grumbling that “everyone under one roof” translates to “everyone pays the TIA” it seems that even those who were prepared (hoping) to hate the Fall Toy Preview felt that it was a huge success.

             

Yes, there were a few glitches such as a crazy numbering system which made it a little confusing to find your way around.  Also, cell phone reception was so poor that the only way to avoid dropping calls was to drop off the railing.  Such minor annoyances are to be expected at an inaugural show and should be easily fixable.

             

The TIA went all out and it was especially good to see them proactively seeking feedback from exhibitors and attendees.  I’m always a little suspicious of the raw numbers publicized by any trade show organizer.  Just as every exhibitor will tell you that business “is fantastic” and fudge his sales numbers up by twenty five percent; so too buyer attendance numbers are never to be trusted.  Did you see 775 buyers milling about?  I didn’t see 775 buyers milling about.  That said the show seemed to be extremely well attended by major (and not so major, but important, retailers).  Target seemed especially well represented.  It was a little strange that several of Walmart buyers didn’t make the trip considering that they’re just down the street.  The big manufacturers (Mattel, Hasbro and Lego) as usual did not really support the trade show even though they are permitted to dominate the TIA board.

             

For all the talk of the Dallas show’s success, several toy executives did point out that while the show itself was cheaper, if you add in the costs of the February show, then the cost of having a permanent showroom in New York that could have accommodated both shows plus other meetings throughout the year, would have been cheaper.  In an interesting twist, several senior executives were seen wandering the halls in the company of Dallas Market Center staff apparently looking at permanent showroom space.  Although I don’t think it will happen this year; it will be interesting to see if the TIA’s strategy backfires and the February Javits show eventually collapses.  Then again, that may have been part of their strategy all along.

             

In other toy news, lead paint recalls just keep coming.  Last Friday Mattel issued yet another major recall.  Was that their fourth major recall or their fifth?  It’s getting difficult to keep count.  Other smaller players have continued to issue recalls as well.  As we move into the holiday shopping season, it seems difficult to believe that continuing recalls at this late date won’t be on consumers’ minds. 

             

The other thing on consumers’ minds might turn out to be all the empty shelves.  With new testing regulations the safety labs are backed up and toy companies are having a difficult time getting their goods on the water.  The new testing policy, while a good thing, has been difficult to implement in year one.  The policy exempts orders placed before August 10 so that the majority of product made it just under the wire.  That said a lot of orders are finalized at the end of July and beginning of August and for those that missed the cutoff there will be trouble.  There will also be problems for any and all reorders.

The toy industry, the TIA (unfortunately it’s still necessary to separate those), the ANSI (American National Standards Institute) and the Chinese government are working to enact more stringent testing procedures and that is very positive….as far as it goes.  Anyone in the toy industry knows that what’s really strangling the business is retailers’ strict adherences to artificially low price points during an inflationary time.  While I hear a lot of people saying “Walmart will have to let us increase prices”, that remains to be seen.  In the midst of the toy recall crisis and with temperatures in much of the country still north of 80 degrees; Walmart slashed toy prices 10 to 50 percent on October 1.  As the price leader and the largest retailer Walmart’s actions drive pricing decisions throughout the retail landscape.  It seems clear that Walmart, which takes in about 25 cents of every dollar that consumers spend on toys, has no intention of altering its policy of using toys as (artificially) low priced loss leaders to drive foot traffic.  In a sign that he doesn’t quite get it TIA president, Carter Keithley was quoted “That expense could be passed along to consumers, but we hope not.  Hopefully the burden will spread around between all the parties involved.”  No! No!  No!  Pass it on to consumers!  That’s what a rational business does during a time of rising costs.

             

It could be quite beneficial for the toy industry if the TIA were to commission a study to see if consumers would be willing to spend a dollar or two more in exchange for safer, higher quality and yes, longer lasting toys.  I think we all know what their answer would be.  If done by the TIA for the industry as a whole and publicized to the hilt then major retailers would not be able to single out individual companies for retaliation.  The time to do this is when the toy business is in the glare of the media spotlight.  The time to do it is now.

By | October 30th, 2007|ToyJobs Blog|Comments Off on Fall Toy Preview Successful . . . Industry Continues to Stumble

Mattel v. China and the Blame Game

Mattel hasn’t made it any easier for themselves or anyone else in the toy industry.  When CEO Robert Eckert landed on the front page saying “the company discloses problems on its own time table because it believes both the law and the CPSC’s enforcement practices are unreasonable”; it was the height of the folly.  I’m not saying that I disagree with what he said.  After all, Congress has gutted the CPSC’s budget over the years and left it with a single lonely toy tester.  Even some of the Commission’s own buildings are embarrassingly not up to code.  That said, Mr. Eckert’s timing could not have been worse.  What was he thinking?  Clearly this was the time to take a constructive approach with the CPSC and an apologetic one with the public.  One suspects that after that quote Eckert got a lot of heat in the boardroom and that one of the directors probably gave him a whack with a rolled up newspaper before he was trotted off to Washington for his contrite appearance before Congress.

Mattel, however, was still playing the blame game and pointing the finger at Chinese manufacturers.  China is a pretty easy target since it has major quality control problems at an incredibly large number of factories manufacturing all sorts of consumer goods.  While Mattel was playing its China card it was soft pedaling the fact that the vast majority of its own recalls were the result of product safety issues (design problems) rather than manufacturing quality problems in China.  Nobody has bothered to really educate the public on the difference between a product safety issue and a quality control problem.  Certain Northeastern senators who are running for President seem congenitally unable to grasp the difference. 

Mattel had magnet issues.  The magnet problem in toys came to the surface in 2005 with a number of injuries and deaths resulting from children swallowing magnets from Rose Art’s Magnetix.  In October of 2006, several children were injured after swallowing magnets from Mattel’s Polly Pocket line of products.  Mattel issued a recall on the Polly Pocket products but they had a much bigger magnet problem stretching from Batman to Barbie and beyond.  At the time, Mattel did not recall these products and decided to, in gambler’s parlance, “let it ride”.  To be fair, there were no injuries from these products but the magnet issue was out there and it would have been much more responsible for Mattel to take the financial hit and issue a recall then rather than crossing its fingers and hoping that no children got hurt.  Only about a year later when Mattel was under the harsh glare of the spotlight did that recall finally come. 

China has not been happy about all the fingers pointing their way over its huge quality control problem.  Just as Mattel tried to scapegoat China and de-emphasize its own culpability, now China in demanding (let’s face it they demanded that apology) and receiving a very public apology from Mattel is trying to use Mattel as a scapegoat to deflect attention from the country’s massive quality control problem.  In just the last thirty days China has yanked the export licenses of 300 toymakers and shut down about 2,000 unlicensed toy factories.  Obviously they have a major problem.  Mattel has countered with yet another waffle and is now claiming that their apology has been “mischaracterized”.

The fingers have been pointing everywhere.  Everywhere that is except to the place that is the likely cause of at least the Chinese quality problem in the first place.  As for Mattel’s magnet recall, I’m afraid they own that one themselves.  Miraculously no fingers except for a few hushed industry insiders have been pointing to Bentonville, Arkansas.  The media hasn’t seemed to want to touch it.  The politicians (especially former board member Hilary Clinton who has her own China problem in the guise of Norman Hsu) certainly hasn’t wanted to touch it either.  U.S. toymakers remain mum about it because they’re fearful of retaliation when it comes time to sell next year’s product line.  Walmart and its fellow mass market retailers are the white elephant in the room that no one wants to discuss.  Finally, union backed WakeUpWalmart has started running ads on the topic.  Unfortunately, WakeUpWalmart is so hopelessly biased that they can’t be taken completely seriously  even when they’re right.

By keeping its price points artificially low in an era of rising costs, Walmart puts margin pressure on U.S. toy marketers who in turn send that margin pressure down the line to Chinese manufacturers and suppliers.   It’s as if at each step in the chain everybody has his hand in the next guy’s pocket trying to steal his profit margin out of theirs until the last guy in the supply chain is left with razor thin margins along with rising costs.  This incredible pressure on the manufacturers is what leads to cutting corners and scrimping on both the quality and amount of materials used.  Add to this the fact that most Chinese factories of any type are staffed by basically impoverished people who might be more than a little inclined to take a quick backhander and it’s easy to envisage a system that is either just barely in or just barely out of control.   

This is where the TIA could step up and do something useful.  As a responsible toy industry spokesman (yes, quite a new role for the TIA) it could bring very public pressure to bear on retailers to lift price points which will not only increase the retailer’s own profit margins but let everyone in the supply chain breath a little easier.  If they were to do this as an industry-wide spokesman then retailers would not be able to retaliate against individual suppliers.  They could commission studies to determine if consumers are willing to pay a dollar or two more for a toy if it meant a higher level of quality and safety for a product that they are going to give to their children.  Personally, I believe that a mother purchasing a toy for $7.99 is more than willing to pay $8.99 for it anyway.  I think we all know this to be true.  If the TIA were to commission such a study and make it very public it would gut the mass market retailers’ monotonous cry of “we need our prices that low because the consumer demands it.”   

Obviously, the toy industry needs to change its quality control procedures as well and that seems to be happening.  In a sense, that’s really only treating the symptoms.  By going after the roots of the problem as well, a better long term solution for everyone can become reality. 

See y’all in Dallas. 

Tom Keoughan

By | September 25th, 2007|ToyJobs Blog|Comments Off on Mattel v. China and the Blame Game

The Toy Industry Needs Boots On The Ground

China is not the only culprit in the recent recalls of everything from toys to toothpaste and a wide variety of other consumer products.  Shoddy manufacturing and quality control practices are endemic to the system that provides American consumers with low priced goods.  America’s mass market retailers, led by Wal-Mart, drive this by using toys as a loss leader to attract foot traffic into their stores during the holiday shopping season.  In order for their loss leader strategy to work they need to charge extremely low prices.  This is a problem in an environment of rising prices for oil, resin and transportation.  Retailers relentlessly squeeze the profit margins of American companies who in turn beat up on Chinese manufacturers and their suppliers for even lower prices.  At every stage of the supply chain from retailers on down each company has his hand in the next guy’s pocket trying to extract his profit margin out of theirs.  This puts those on the bottom rung, Chinese manufacturers and their suppliers, under tremendous pressure.  China, Inc. has been shouting to anyone willing to listen (and it isn’t many) that the overwhelming majority of their products are safe.  The trouble is that if 90 to 95% of their products are safe then the consumer doesn’t know which ones are and which ones are not and may choose to stay away from them all.

It’s easy to foresee many more recalls as toy companies rush to inspect their products.  The Chinese government recently announced that 15% of food products had failed quality checks in the first six months of the year.  It also seems that the U.K. is experiencing problems with widespread forgery of product safety certificates by Chinese factories.  Anybody who just assumes that their stuff is okay is whistling past the graveyard.  What this means for the coming holiday season remains unknown.  Many consumers will behave just as before but many will become more vigilant.  Toy companies who manufacture their products in other locales will slap “Made Elsewhere” stickers on their packaging and they will certainly be helped.  That said, I don’t see “Made in Vietnam” as having much of a qualitative difference.  High quality specialty toy companies could receive a substantial boost.  It wouldn’t be surprising to see Playmobil have a banner year.  Nimble companies could do well in the short run by filling shelf space left barren by ongoing recalls.  If toy companies act fast by publicly announcing recalls as well as emergency procedures for this year and overhauled quality programs for the future, then Christmas can be saved.  If recalls continue into October, sales of mass market toys might be greatly impacted. 

The best long term solution would be to treat the cause, not the symptoms.  This would mean convincing Wal-Mart and its brethren to loosen their overly strict adherence to particular price points.  Personally, I believe that a mother going into a store to buy a toy will purchase it regardless of whether the sticker price is $9.99 or $11.99.  This would allow the retailers themselves to make better profit margins as well as letting everyone in the supply chain from US marketing companies to Asian manufacturers breathe a little easier.  I’m not going to hold my breath waiting for that to happen.

American companies could try to induce Asian manufacturers to indemnify them against quality based recalls.  Good luck with that.  We could do nothing and wait for a real regulatory culture to develop in China but that could take decades.  Yes, China has just announced the formation of a new cabinet level panel which will study ways to address the country’s quality problems, but on the very same day they banned state media from covering a deadly bridge collapse.  At least when American bridges collapse we make it public and politicians blow hot air, if little else.

The best solution is to have boots on the ground – American boots.  It’s the Wild West (or Wild East) over there and in a land of the impoverished workers, conflicting loyalties and thick envelopes; the answer is not hiring locals and expecting them to remain loyal just because they are on your payroll.  We also need these people to be over there on a full time basis.  It obviously has not been enough to send someone to Asia four or five times a year as is now customary and expect that everything will run the same way when your back is turned.  Yes, sending in expats can be expensive but it is arguably less expensive than the financial, logistical and public relations nightmare of either recalls or lawsuits involving injured children.  This is the price that needs to be paid when manufacturing is done in a country where quality problems are a normal occurrence.

There are plenty of Quality Control people around (think the automobile industry) and while they might not qualify to be your Vice President of Product Safety, they can certainly be retrained to administer the quality control procedures necessary for a toy manufacturing line.  I’m willing to bet that they would rather be living in China on expat pay then sitting unemployed in Detroit waiting for their houses to be foreclosed on.

Tom Keoughan

By | August 10th, 2007|ToyJobs Blog|Comments Off on The Toy Industry Needs Boots On The Ground

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 | November 15th, 2006|ToyJobs Blog|Comments Off on Fall Toy Preview: A Success…But

Running Harder to Stay in Place

While the rest of the world has spent the summer focused on Lebanon, bomb plots, heat waves and Mel Gibson, toy industry hiring has continued at a rapid pace.  After the expected summer slowdown, Toyjobs is currently tracking to have its second best year out of twenty-five.  This is not because 2006 seems to be such an extraordinary year for the toy business, although “Pirates” is doing extremely well and “Dora” continues to be strong.  The year seems best characterized by “running harder to stay in place.”  The best explanation I can give is:  retailers are demanding more and more specials, custom jobs and private label products; they continue to put off actually committing to those demands until the last possible second; as such companies need more capable pairs of hands just to get the work done.  Another big reason for heightened hiring is that in difficult times it’s always easy to blame and change your sales team whether it’s their fault or not. 

With Mattel’s purchase of Radica, one w`onders what will become of Radica’s Texas offices and staff.  I’m sure that Mattel is telling everyone that they are part of some big future plan and that their jobs are secure but that is standard practice for a purchasing company whether it is true or not.  My take is that Mattel is mainly interested in acquiring Radica’s ability to develop technology or the electronic guts of things.  That part of Radica’s product development is based in Asia.  What happens to Texas over the next two years remains to be seen.  Another big rumor that is bouncing around these days is that Mattel is looking to acquire Leapfrog.  Certainly at its current stock price, Leapfrog is a lot cheaper than it used to be.  The purchase would also give Mattel a lot of additional space on retailers’ shelves.  It is important to keep in mind that while the Leapfrog Class A shares are publicly traded, the Class B supervoting shares continue to be owned by Knowledge Universe and its affiliates who also control the Board.  It’s unlikely that they would be willing to let the Company go at anywhere near the current price.   

Kudos to Ted Kieswetter for a very successful career and a successful exit strategy.  For over thirty years, he has built International Playthings into the strongest company in the specialty toy business.  He has always carried himself honorably and with both a sense of humor and a touch of class.  He has been a great ambassador both for International Playthings and the specialty toy business as a whole.  He will be greatly missed. 

I also feel compelled to mention a disservice done to another longtime toy industry standout.  In early August, Action Products issued a press release stating that Larry Bernstein (Big Larry) had been ousted as President and that Chairman Ron Kaplan would be stepping in to run daily operations.  The release stated that the reason for Bernstein’s ouster was that sales were down from $3.8 million to $3.2 million during the first half.  Just to illuminate things, Larry Bernstein only started at the company in November of 2005.  Any of the products that weren’t selling in early 2006 were developed before he got there and under Kaplan’s stewardship.  If sales suddenly take off in 2007, I don’t suppose that Mr. Bernstein will get credit for the products developed during his watch.  Action Products has blown through numerous short term Presidents (Ron Tuchman comes to mind) since Ron Kaplan took over from his parents.  I guess my point is:  It’s your company and you can do what you want, but you shouldn’t go taking potshots at a guy who parachuted in to try to save your bacon, when it is likely that it is you yourself who is the problem.  You may be able to fool yourself but people who know the toy business…know better.  Before I get off my soapbox; I’d like to add that I fully expect that my brief outburst will result in yet another self serving Action Products press release.

The sad saga of former Walmart Vice Chairman Tom Coughlin has finally (hopefully) come to a close.  Late last week, the judge sentenced him to twenty-seven months which can be served in home confinement due to poor health.  The Wall Street Journal reported that Coughlin, who was all tearful apologies in the court room, changed his tune as soon as he got outside and again claimed that he had been reimbursing himself for a clandestine scheme to fund anti-union activities.  I am sure that the judge was not pleased with his performance.  While I would have little trouble believing that Walmart has fought the unionization of its stores covertly as it has done openly, if Mr. Coughlin wishes to try to regain his reputation he will need to provide documentation.  Without that I have to believe that it’s just a load of hooey.  Of course, a little problem he has is that providing such documentation could easily lead to federal criminal charges for violating labor laws and racketeering.  Hopefully, Mr. Coughlin has more than just that one Celine Dion CD to listen to and that one jug of vodka to drink during his two plus years of home confinement.  If he runs low on provisions, he can always send someone down to the local…Walmart.  He had better bring cash though; I don’t think they’re going to be accepting any gift cards. 

Finally, on to more important matters.  So, is the Eleventh Avenue Toy Center going to work out?  It’s up to you readers to decide.  One common complaint is that it’s in a pretty bad area but I think you have to move past that.  Their aren’t a lot of great choices available.  Not many great choices are likely to become available.  I know you don’t want to pay the price per square foot that a great choice, even if it were available, would entail.  On the location’s positive side:  it is pretty close to the Javits Center and there is plenty of parking nearby at the Intrepid Aircraft Carrier. 

A much bigger problem is that there has been a degree of bungling in what is being offered.  When a company would request 1,000 square feet of space it would get 600 square feet of usable space plus 400 square feet of hallways and common area to pay for.  This effectively drove the price per square foot from $40 to approximately $70 AND you didn’t have all the showroom space you needed.  Every building has common space that needs to be paid for but from what I understand; 200 5th Avenue was more like 25%.  Bumping it up to 40% is a big bite.  Those better be really nice “luxury” hallways.  At the very least, communication could have been handled better so that both renters and rentees were talking the same language about what their space requirements were.  I don’t know if the value proposition works out for you or not.  I don’t need any space and as such don’t have any skin in the game.  I think it is important that the toy business has a home and is able to come together in one building.  If the numbers work for you, then it’s time to get moving.  Spinmaster and Mega Bloks/Rose Art have signed on and as fairly large players, can provide an anchor for the building.  So get your calculators calculating and your bean counters bean counting because time is of the essence. 

All the best, 

Thomas Keoughan  

P.S.  The following article has absolutely nothing to do with the toy business, but it makes fascinating reading.  Please feel free to skip it or take it to the beach.  Call it a light summer read.

By | August 15th, 2006|ToyJobs Blog|Comments Off on Running Harder to Stay in Place

Torrid Toy Hiring Despite Challenges

Toy industry hiring has started off at a torrid pace.  Here at Toyjobs we are currently on track to beat our best year ever (2000).  It’s still early, and we haven’t hit the summer slowdown yet so realistically we are unlikely to eclipse the old mark.  Frankly, we don’t even want to.  Having a year like that takes a heavy physical, mental and emotional toll.  Friends and family begin to get cranky – and I begin to get cranky too.  As long as we keep raising the bar on our second (2004) and third (2005) best year’s, I’m a happy camper.  It seems quite likely that we will be able to do that despite all the continued challenges facing the toy industry. 

Oil, resin, transportation, labor and Chinese electricity costs continue to be high and this is keeping pressure on margins even as retailers continue to play hard ball on pricing while buying less goods.  Toys ‘R’ Us store closures mean less shelves to fill and Walmart is actively cutting its inventory.

The results of this can be seen at some of the larger toy companies.  At Mattel, Barbie continues in her death spiral (down 8%) while Hot Wheels and Matchbox also slowed (down 4%).  Even American Girl which had been a star performer had sales weaken by 9%.  The only bright spot was Fisher Price where sales were up 12%.  I wonder if Neil Friedman is beginning to get all misty eyed while day dreaming about Buffalo winters.  Hasbro did marginally better but still lost money in the first quarter.  It looks like Rose Art sold out just in time with 5 Magnetix lawsuits to date.  Over the years, Larry Rosen has been described using many adjectives (not all of them printable here) but to be fair; shrewd should always be counted among them.

The tough industry climate is also reflected in the fact that the toy business is now homeless.  The TIA has to be viewed as the main villain here.  They took an exorbitant amount of time to come up with a single option that was acceptable to almost no one but themselves.  It was incredible to see that a working group consisting of mostly the same people as the TIA search group was able to come up with three or four new possibilities in the blink of an eye once they were free of TIA oversight.  Unfortunately, what I’m hearing (not confirmed) is that all of those options have slipped through the industry’s fingers because it took too long for everyone to get their act together.  It’s not easy herding cats.

The always opportunistic TIA in its seeming role as a for-profit trade show management firm, rather than that of the toy industry advocate that it should be is now charging an arm and a leg for Javits space that was made necessary by their own incompetence in finding a new home for the toy industry.  Also keep in mind that there will be additional costs of building an appealing and closed trade show booth unless you want to get knocked off by everyone with a cell phone camera and an Asian connection.  Once you have spent the money on that sleek new booth it will be easier for the TIA to overcharge you for space again next year…and the year after that…and the year after that…

Finally, we get to Walmart.  It’s always fun to throw a few rocks at the big bully as long as you can run away and hide before he beats you up.  According to CEO Lee Scott, “Walmart is making real changes.”  Let’s look at them in order:

  1. Walmart will increase surprise inspections at foreign factories in an effort to make sure that its suppliers uphold labor and environmental standards.  Gee, this is almost too easy.  Apparently, Walmart will NOT be conducting any inspections of its own stores which have been under severe publicity pressure due to its poor treatment of store employees and weak environmental record.
  2. Walmart will increase diversity in its workforce.  Yes, Walmart will constantly be on the lookout for any group of people it can employ at lower wages and with fewer benefits. 
  3. Walmart will expand its share of the Hispanic market.  Duh, Walmart will try to sell more goods to more people.  It will also try to employ more Hispanics at lower wages and then sell products to them at “everyday low prices.” 
  4. Walmart will sell more environmentally friendly products.  Apparently Walmart believes that gasoline price squeezed consumers will be more anxious to spend $2 on an energy efficient light bulb than 19 cents on a standard one. 
  5. Walmart will help competing local companies stay in business.  Uh-huh…and pigs will fly.

The only “real change” that I see at Walmart is that CEO Lee Scott is heading off on a one month paid vacation.  I would like to see any of Walmart’s store employees try to do that.  In a related (?) story, a Walmart customer who was experiencing difficulties with a self-checkout system not working properly was arrested for allegedly punching it out.  Always remember that a weaker Walmart, which still sells tons of goods but is less able to bully its suppliers, is not such a bad thing for the toy business.

All the best,

Tom Keoughan

By | May 2nd, 2006|ToyJobs Blog|Comments Off on Torrid Toy Hiring Despite Challenges

Toy Industry Hiring Remains Robust Despite Icy Showrooms

Toyjobs had its third best year out of twenty-five in 2005.  It easily could have been the second best, but a few placements spilled over into early January.  We continue to see robust toy industry hiring for the year ahead.  Our continuing forecast is that during the 2001-2003 economic slowdown, companies cut back more than fat, they cut muscle and bone.  The economy rebounded in 2004, which helped all sorts of businesses, but the toy industry to a much lesser extent.  The reason for this is that it’s not the consumer who is the toy industry’s nemesis, but rather our “partner” the retailer.  I could go on a whole long tirade as to the “why’s” and “wherefore’s” of this as I’m sure you could, but I’ll spare us both and give you the “long story short” version.

In using toys as loss leaders in order to drive traffic, major retailers’ constantly demand “new” product, delivered on shorter lead times at cheaper prices and at lower margins.  They also increasingly want the product to be customized AND they like to make lots of picayune changes, especially late in the day.  This leads to all sorts of frenetic activity and requires more people to get it done.  Business is certainly not great and companies don’t really want to be hiring, but they need a couple of extra hands just to get the work done.

In the “business is certainly not great” department, while the overall holiday shopping season was a success, it was heavily skewed toward high ticket items and luxury goods.  This can set up a scenario where even though total holiday spending rises, money spent on toys decreases.  With such a large portion of holiday budgets being spent on flat screen TVs, iPods and XBoxes, there is a much smaller portion left over for less expensive items like toys.

I wouldn’t hold my breath waiting for all those gift cards to be redeemed either.  Most gift cards are redeemed within six to eight weeks when some of the heaviest post holiday discounting occurs, and it’s no mystery whose margins those discounts are coming out of.  Also, although gift cards may be the perfect present for fickle teenagers or young adults, I really can’t imagine giving a “toy age” kid (2-8 years old) a gift card to open on Christmas morning.  It sort of takes the mystery and joy out of the whole thing.  Not to mention that the best present for the gift giver is seeing the excitement in their little faces.

All this talk of retail brings us to the Tom Coughlin–Walmart saga.  Former Walmart Vice Chairman Coughlin has pleaded guilty to wire fraud and tax evasion charges in connection with the misappropriation of between $350,000 and $500,000 from Walmart through fraudulent expense reimbursements and improper use of gift cards (so that’s where all those gift cards went).

The most explosive aspect of the case thus far remains unresolved.  Mr. Coughlin has claimed that he was reimbursing himself for a secret scheme to fund an antiunion spy operation.  Many of Walmart’s antiunion activities are well known and it has been quite amusing to hear Walmart repeatedly state something on the order of “We have not found any evidence that we, Walmart were involved in any such scheme.”  Well, duh.  The FBI thus far has also not uncovered any evidence that there was any clandestine intelligence operation directed at unions, but it remains unclear whether Coughlin has cooperated with the FBI on that investigation or is making the whole thing up or is saving ammunition for the civil suit in which Walmart is trying to strip him of over $10 million in retirement benefits.  A case in which Walmart is not doing too well, at least so far.

My personal favorite part of the case is Mr. Coughlin’s visit to a Walmart store where he spent $1,000 in gift cards to purchase three 12-gauge shotguns, Stolichnaya vodka, a large Polish sausage and a Celine Dion CD.  Sounds like a big night in the Arkansas hills.  The Celine Dion CD has got to be a bit of an embarrassment, though.

Closer to home, the 2006 Fall Toy Show has been set for the Javits Center, home of the hardest floors on the face of the earth.  This will necessitate that toy companies build custom curtained booths since no one is likely to put their product on a table display where anybody with a camera phone and an Asian manufacturing contact can knock them off in three weeks.  While this has been billed as a temporary measure, it has raised suspicions that the TIA will have an easier time selling Javits as a permanent solution once everyone has paid to have those booths made.

The imminent February Toy Fair has been threatened by the current Toy Building ownership talking about cutting off heat and electricity to individual showrooms.  One way to shine some light on this very nasty business is to remember that Toy Fair used to be a big media event.  It might be a good idea to work the phones and drum up a strong media presence.  When they arrive to see all the hot new toys and find a major trade show operating at icy February temperatures, it should generate a lot of coverage.

I look forward to seeing you there–with long johns on.

All the best,
Tom Keoughan

By | January 23rd, 2006|ToyJobs Blog|Comments Off on Toy Industry Hiring Remains Robust Despite Icy Showrooms

Happy Talk Returns to Fall Toy Preview

The buzz around the Fall Toy Preview was generally very positive.  Most of the senior toy executives that I spoke with said they had very productive meetings with retailers and that business looked strong going into 2006.  This was a marked departure from the last couple of years when the mood was very downbeat and most toy execs were mainly grousing and complaining.  Of course, it’s important to keep in mind that no one was writing orders.  Retailers were making “happy talk” with manufacturers and manufacturers, in turn, were making “happy talk” with me and anyone else who would listen.

All of this “happy talk” strains credibility.  Walmart was beginning to discount even before Halloween consumers have been squeezed by high gas prices and will likely be squeezed again by the high price of home heating this winter.  Manufacturers’ costs have increased due to high resin and transportation prices as well as the Chinese government’s challenging allocation of electricity.  Large retailers, for the most part, have not allowed manufacturers to pass these higher costs on.  For 2005, at least, it looks like lower sale volumes and tighter margins.  Let’s not forget that 15% of the country has been blown into the sea.  This could easily lead to a Christmas of clothes, shoes and necessities sprinkled with a few token toys.  Still it is encouraging that rather than doomsday scenarios “happy talk” has returned.

Neil Friedman has been elevated to run most of Mattel.  He has done a terrific job with Fisher Price, but one has to wonder if this is a promotion that he entirely wants.  Barbie as been a disaster in the last few years and will be extremely difficult to turn around in the short term, if that’s even possible.  Mr. Eckert pretty much set up Matt Bousquette to take the fall this time but if the slide continues he will likely find it difficult to dodge the bullet next time around.  The silver lining for Mattel’s California employees is that Neil Friedman is a true gentleman and will likely put an end to the Stalag El Segundo atmosphere that flourished under Bousquette.

Walmart continues to take its lumps in the publicity wars.  First, a confidential memo from their EVP of Benefits leaked out which pretty much recommends age discrimination as a company policy.  It goes further to suggest that retail employees with seniority be squeezed out because they earn more than junior employees and are no more productive.  To discourage unhealthy and more mature job applicants (and one has to believe to ease current senior retail employees toward the door), it is suggested that Walmart arrange for “all jobs to include some physical activity (e.g. all cashiers do some cart gathering).”  Walmart also acknowledged that 46% of the children of its 1.33 million U.S. employees were uninsured or on Medicaid.

Next up, an Arkansas judge dismissed Walmart’s suit against former Vice Chairman Thomas Coughlin which clears him to receive over $17 million in retirement benefits which were being held back by Walmart.  Apparently at the time of his retirement, Coughlin and Walmart signed a general release from liability agreeing not to sue each other.  A federal grand jury continues to investigate allegations that Coughlin misappropriated up to $500,000 from the company through misuse of corporate gift cards, falsification of expense accounts and vendor invoices.  One has to believe that Walmart has extremely smart lawyers.  Those lawyers knew what was in that agreement and knew what it meant.  They probably wrote it.  Walmart decided to file suit against Coughlin knowing that winning was a very, very long shot.  What’s interesting is that they decided to file that suit only after Coughlin announced that his defense in the federal probe would be that the allegedly misappropriated funds were in fact reimbursement for monies he paid to employees of various unions to provide him with lists of Walmart employees who were involved in union organizing activities.  (This all smacks of something out of the 1930’s).  Only then did Walmart begin to go after Coughlin in the courts.  This story is far from over.  Just this week, Robert Hey who reported to Coughlin from 1997 through 2004, pleaded guilty to three counts of wire fraud in the case and is cooperating with the federal investigation (i.e. he cut a deal).  This will likely lead to charges being filed against Coughlin.  If Coughlin uses the so called “union project” as his defense and can provide documentation of that, it could be a major crisis for Walmart.  If one peers far down the highway it could end up with the unionization of Walmart which would significantly reduce their competitive advantage particularly in the grocery business which is their main traffic driver.  A somewhat less powerful Walmart is not necessarily a bad thing for toy manufacturers. 

Lastly in Walmart World, documents from a separate federal investigation suggest that several senior Walmart executives knew that its cleaning contractors used illegal immigrants who worked as many as seven days a week at less than minimum wage.  Significantly, one Walmart exec also instructed a multistate cleaning contractor to set up multiple companies so that the contractor could continue to clean stores if one company was found to be hiring illegal immigrants and had to be dropped by Walmart.

All of this is only a quick review of Walmart activities which have come to light in just the last month.  It clearly displays a continuous pattern of ruthlessness which, as Walmart suppliers, you know all too well.

At last, we get to the continuing saga of the toy building.  Now you see it, now you don’t.  Let’s start by saying that the relocation committee has a very difficult job with very few reasonable options.  Furthermore, anyone who really thinks about it has to agree that one building is preferable to many buildings and shuffling around in the February snow.  After checking out the Church Street location, I would have to agree with the TIA that it will be a good spot … in ten years after the area is rebuilt.  But what do we do in the meantime?  What happens once all the construction begins … a logistical nightmare.  I don’t know why after mounting an aggressive campaign to present Church Street as the best of all available options, the relocation committee decided to reopen its building search only two days later.  It could have been due to a chorus of toy industry complaints, but it’s probably more likely they reached an impasse in negotiations with the Church Street owners.

The main problem and cause of much confusion (aside from the fact that the toy industry will be out on the street come March 2006), is that over the last ten years the TIA has seemingly not represented the toy industry.  Instead they seemed to operate as a private, for profit, trade show promotion company.  This has meant that even when they have something constructive to say, no one trusts them.  The relocation process is an opportunity for the TIA to both refurbish its image and return to its original mission of representing the toy industry as a whole.  Whether this opportunity will be taken remains to be seen.  That the Church Street location was, for whatever reason, not ramrodded down the throats of the toy business certainly helps.  The Conley “resignation” is probably productive, but I can’t help noticing that they are still not promoting the real dates of the February Toy Fair.

Anyway, that’s my two (or eight) cents.

All the best,

Tom Keoughan

By | November 9th, 2005|ToyJobs Blog|Comments Off on Happy Talk Returns to Fall Toy Preview