Once upon a time, in a land far far away and a long long time ago…..
…..there was a New York Toy Fair. It all kicked in on a Friday night with the Toy of the Year Awards. The night belonged to MGA Entertainment as L.O.L. Surprise was named Toy of the Year. In accepting of the award, company president Isaac Larian was surprisingly well behaved…mostly. L.O.L also garnered awards for Doll of the Year and Collectible of the Year. As usual, Mattel and Lego also had good nights each winning several awards although Hasbro was strangely absent.
I always enjoy seeing smaller and newer companies win and it was great to see WOW! Stuff’s Harry Potter Invisibility Cloak and Zuru’s RainboCorns Sequin Surprise take home the hardware. I also enjoyed seeing Playmobil take home an award as I can’t recall them winning one before.
The big innovation of the night was the shout out to toy creators and designers. These people are the soul of our industry and deserve much more recognition than they regularly receive. It was a good move to see them recognized on the screen but they should be put in the evenings program and anywhere else we can think of as well.
The Toy Association did its usual suburb job organizing and hosting the event. The only thing I’ll note is that we seem to be running out of room-we may need a bigger space. It’s a credit to the Toy Association that more and more people are attending this event every year.
As I hit the world’s hardest floors at the Javits Center on Saturday morning the word on everyone’s lips was “Shaq….” “Shaq…” “Shaq….” As the larger than life Shaquille O’Neal cut the ribbon at the opening ceremony. Kudos to Basic Fun for the landing him as the spokesperson for their Tonka brand. That coup should help them drive a lot of business.
I spent most of Saturday on the main floor and while attendance seemed a little light it was picking up by the afternoon. That had to be expected as travel restrictions and the closing of the China Pavilion meant that much of Asia was not in attendance. I spent much of Sunday in “the basement” and traffic appeared to be stronger.
It wouldn’t be a New York Toy Fair without the Women In Toys Wonder Women Awards dinner. Genna Rosenberg and Jennifer Caveza did a fantastic job as always. Everything appears to run so smoothly but there must be a lot of scrambling behind the scenes to put it all in place. Maybe I’m wrong about that. Maybe they just have it down pat. The event has grown to be so popular that like the TOTY’s they may need a bigger venue.
February 23, 2020: Women In Toys Wonder Women Awards at Pier 60, Chelsea Piers, New York, New York. (Photo by Edna Holifield)
Kudos to Ashley Mady on her Presidents-Award as she steps down from leading WIT for the last 6 years. The organization has added many new programs which have lead to substantial growth under her leadership. Incoming president Janice Ross will certainly do an equally excellent job.
Ashley Mady, Former President, Women in Toys, Licensing and Entertainment (WIT) poses at the 16th annual Wonder Women Awards, on Sunday, Feb. 23, 2020 in New York. (Photo by Diane Bondareff/Invision for Women in Toys, Licensing & Entertainment/AP Images)
Monday morning I was bouncing all over the place during my Monday Mop Up. Tuesday, at the crack of dawn, I hopped a flight for my annual “Escape from New York” trip to New Orleans where the weather was warm, the food was fantastic and the music was flowing.
I would like to congratulate Steve Pasierb, Marian Bossard and the entire Toy Association team for their excellent handling of the NY Toy Fair under difficult and constantly changing conditions.
Which leads up back to present day reality…..
The toy industry has been hit by a double whammy. First, the supply chain got whacked and now I am hearing that retailers are playing coy about finalizing orders. My extremely unscientific survey of the dozens of senior toy executives that I speak with each week has indicated that many/most factories started running again during the first week of March but with only about 30% of their workforce. Last week, I was hearing 50%-60% of workers had returned. That said, there are still problems with materials and components as the entire supply chain has been affected. Additionally, trucking to the ports has been disrupted by a shortage of drivers. Consensus seems to be that if the China supply chain isn’t somewhere approaching normal by early April the warning lights will go off and if they’re not there by May 1st the red alert will sound.
Retailers could help solve the second stage of the problem by starting to firm up orders as production comes online rather than playing their usual game of trying to push all of the risk onto their suppliers. They can’t expect to have both just-in-time inventory and just-in-time ordering.
Fortunately much of the toy industry is accustomed to navigating perilous waters. We’ve gone from product safety panics, to the financial crisis and from the collapse of Toy‘R’Us to the coronavirus. The toy industry is used to operating in troubled times and has learned how to quickly adapt. I think we’re also getting better at seeing crisis around the bend. Once factories are fully up and running – material costs will likely rise. For now, keep your head down and keep moving things forward as best you can. If we can put the Coronavirus behind us by mid-summer it is likely that an enormous wave of good feeling will wash across the land. The holiday sales season could be YUUUGE!
I’m no expert, so rather than listen to me drone on about COVID-19 I hope some of these articles are helpful and actionable.
Is it just me or does the reporting on 2019 annual toy sales seem a bit wonky. It’s a bit incongruous that annual U.S toy sales (as reported by NPD) would be down 4 percent while the National Retail Federation is reporting a 4 percent increase in overall holiday sales. In addition we’ve been in a favorable economic environment with strong employment numbers, rising wages and solid household balance sheets. As expected, weaker retailers such as Kohl’s, Macy’s, J.C. Penney, and Gamestop fared poorly but off-price chains like Costco and TJX hit it out of the park. Overall fourth quarter revenues at Amazon rose 21 percent and indeed online sales as a whole rose 19 percent during November and December. Of course, the high cost of doing business through Amazon means that vendors must absorb a margin hit. We are left anxiously awaiting reporting from retail behemoth Wal-Mart.
Target seems to be a special case. Some of their woes likely stem from inflated expectations. Why did they expect holiday sales to jump by 4 percent? Did the population increase by that much? I don’t think so. I suspect that the Toys ‘R’ us.com/Target tie up happened too late in the year to make much of a difference. With Disney’s recent movies pretty much tanking, Target’s Disney “store-in-store” promotions likely hurt Target toy sales. While those initiatives may not have had much success in 2019, I expect that they will have a much more positive effect longer term.
So What happened? Where did the billion dollars go? First off the shortened holiday selling season made for very tricky comparisons. Secondly while NPD tracks about 80 percent of toy sales perhaps something important happened in that missing 20 percent? Lack of a screaming hot product to draw people into stores certainly hurt. Even previous standouts like Paw Patrol and PJ Masks have started to slow. Honestly though, I suspect that the demise of Toys ‘R’ Us continues to be the biggest factor. TRU carried an incredible array of merchandise which drove increased impulse sales once they were able to get people into the stores. More importantly toy giants like Mattel, Hasbro and Lego etc. had acre upon acre of real estate to both drive incremental sales and act as billboards for their wares. In the near term there is no way for those major companies to replace those sales. They may remain the largest toy companies but they will be smaller largest toy companies into the foreseeable future.
Speaking of Toys ‘R’Us we have haven’t heard much from them since holiday selling ended. The Candytopia tie up has led to a lot of consumer criticism over exorbitant ticket prices which cost a family of four about $100 bucks just to go in – and that’s without actually buying anything. On the other hand, the two Toys ’R’ Us experience based stores received an extremely positive response. That said, a handful of stores isn’t going to move the needle for overall toy sales. Hopefully these two experiments were “funding pageants” for proof of concept in a hunt for outside investors who can provide capital for broad expansion. If that’s the case, the Candytopia experiment could simply fall by the wayside and efforts can be focused on the TRU/b8ta side of the equation. After all, there is an awful lot of empty and presumably cheap retail space available out there.
The biggest recent news in toy world was the signing of a Phase One Trade Deal between the U.S. and China. The deal is a de-escalation of the two year trade war with the U.S. committing to not impose any additional tariffs on Chinese made goods and also roll back some of the tariffs already in place. As for China, they will stop conditioning business licenses and permits on tech transfers to joint venture partners. They will also make it easier for U.S. intellectual property owners to prevent infringement and will impose stiff criminal penalties on violators as well as obligate the Chinese government to crack down on piracy and counterfeit goods. While that doesn’t include everything that the U.S. was demanding, it is much more inclusive than most people thought a Phase One Deal would be.
While President Trump says that talks on Phase Two will begin immediately few people expect anything concrete to happen before the U.S. elections. Phase Two is going to be the hard stuff, the stuff China is likely to say no to. It will include U.S. demands for China to cease subsidies to state owned enterprises. I can’t imagine that China will easily agree to change the way their economy is organized – especially since it’s been working so well for them. Other topics will revolve around the Made in China 2025 program designed to make China an advanced technology manufacturing powerhouse. I can’t imagine that China will agree to abandon that. What would we say if they asked the same of us. I suspect that the current status quo will hold until after the elections so the toy industry should be safe from the tariffs for the 2020 holiday sales season. Beyond that – who knows – it’s difficult to see clearly into the future when the world is changing 140 characters at a time.
We do know that the U.S. and China will continue to have conflicts in the future over broader security issues with or without Trump. The U.S. and a rising China will continue to battle over technological, security and ideological issues not to mention territorial issues in the South China Sea. Even while signing the Phase One Deal the U.S. has been seeking to limit the international expansion of Huaweii in 5G telecommunications while stepping up federal funding for U.S. 5G research. Toy companies would be well advised to continue to diversify their supply chains as conflict between the U.S. and China is far from over.
Diversifying the supply chain just got a whole lot harder with the advent of the Coronavirus. Chinese manufacturing is mostly shut down for the Chinese New Year holiday. The holiday period has already been extended but factory closures could run even beyond that. Transportation is being limited and moving around China will be very difficult for the next few weeks if not months. The good news is that the Coronavirus is much less deadly than SARS or MERS for now (viruses mutate) but, the bad news is that it is spreading much more rapidly. At the current time we don’t even know what we don’t know but the virus has started to show up in other Asian countries that might be prime candidates for supply chain diversification. Numerous airlines have suspended flights to China and if the contagion spreads that could affect other countries as well. I don’t want to sound alarmist but at this time medical scientists don’t know when they will get their arms around this. The one thing that seems clear is that things are not going to come under control quickly.’
Click through to John Hopkins Interactive Coronavirus map here.
In all of my years in the toy business I have rarely seen a period of extended smooth sailing. After all, we are in a seasonal fashion business – despite what Hasbro and Mattel may want Wall Street to believe. From product safety stumbles, to resin price spikes, to the financial crisis, to key retailer bankruptcies, it is one crisis after another. Technology has caused not only information but events to come at us at a faster and faster pace so that crises now seem constant. Only the cautious continue to survive over time. We’ve all seen many examples of “geniuses for a day” who quickly go down the tubes. Coleco anyone?
My best advice (not that anyone cares) to both companies and individuals is to adopt a defensive posture while looking for opportunities. Today’s champions are often tomorrow’s flotsam and jetsam. Rather than charging willy nilly into the fray, be fast followers keeping a wary eye on who ends up on the rocks and who makes it through the rapids. Then nimbly navigate the crisis du jour. ‘Tis nobler to finish second again and again and again than to come in first only to perish on the next go-round. There ain’t nobody handing out gold medals.
The Holiday Shopping Season is in full swing and sales are strong. U.S. shoppers increased spending over last year by 16% during the five day period between Thanksgiving and Cyber Monday. According to the National Retail Federation shoppers spent an average of $362 on holiday items compared with $313 a year ago.
Note: Seasonally adjusted Source: Labor Department via St. Louis Fed, The Wall Street Journal
Driving spending is a strong job market with an unemployment rate of 3.5%, it’s lowest level in fifty years. This has led to an increase in wages of 3.1% over last year. Wages for lower income groups have been growing faster than for those in higher income cohorts. The upper crust is also feeling better about things as the stock market continues to hit record highs. One gets the feeling that this could be a record breaking Holiday Sales year. That said, the numbers may turn out to be a bit wonky since there will be six fewer shopping days between Thanksgiving and Christmas but that is really more about how the counting is done than the amount of actual spending.
Source: Vivian Ngo, The Wall Street Journal
The economy continues to plug along at about a 2.1% GDP growth rate, down from 2018’s growth rate of 2.9%. I think we can chalk that growth rate decline up to one factor-tariffs and tariff worries. Current tariffs and concern over potential future tariffs have made it difficult for companies to plan ahead and have caused weakness in business spending on plants and equipment. The strong employment picture could be even better if companies were better able to predict what their profit margins and even prices would be moving forward. Toy companies are telling me that 2019 business is good and that they need to add people but that they are reluctant to do so until they have greater clarity on tariffs. I think this is likely true for lots of different business segments. If a trade deal with China is reached, I would not be surprised to see employment and economic growth numbers that are even stronger than they already are.
Hopefully we will have answers soon with tariffs set to be put on $150 billion of consumer goods made in China on December 15th. While much of the chatter seems to indicate that there will be a face saving partial deal at about that time there is also a lot of negative posturing being used as a negotiating tactic. Ever the cautious optimist, I am inclined to think that some sort of “skinny deal” will be announced where everyone gets to declare victory and kick the heavy lifting down the road but…..who knows? Even if a deal is announced it won’t be exactly built on bedrock. Anything can change on any given day with any groggy 4AM tweet.
In the meantime may everyone enjoy a strong “sell through season” and may you and your loved ones enjoy happy and peaceful holidays.
By now, the Dallas Fall Toy Preview follows a familiar script. We arrive and everybody grumbles, “There’s nobody here” and “This place is empty,” but by the time that the Opening Night cocktail party gets underway, everybody realizes that things are actually going pretty well.
This year there was strong retailer presence with very few new no shows aside from Big Lots (shrug). That said, I did notice that a few additional substantial manufacturers were not exhibiting and that the 8th floor had all but disappeared.
There were the usual questions and concerns about having three trade shows in three locations over the same two or three week period. “How will the Toy Association fix this?” Personally, I’m resigned to the view that they won’t. Mainly because most of the toy manufacturers involved are reasonably happy doing what they’re doing. Companies showing in Los Angeles are happy showing in Los Angeles and are equally happy that half of the industry isn’t there diverting attention away from their product lines. Companies showing in Dallas like showing in Dallas as long as the buyers show up. It would, however, be helpful if Kohl’s and Meijer would attend so we can avoid treks to Grand Rapids, Michigan or Menomonie, Wisconsin. From what I’ve been told there was much less of an early October presence in Hong Kong. It’s probably too early to call that a trend, especially since it’s difficult to tease out the deterrent effect of the ongoing Hong Kong street protests. We should be able to get a better read on that next year.
By Thursday afternoon, most toy manufacturers in Dallas were telling me that they had very productive meetings with retailers. They also said they were able to create additional interest by laying out their entire product range. Additionally, I heard about a lot of positive surprises coming from walk-ins. The Dallas Toy Preview remains an exercise in quality over quantity. Continued success of the show will depend on The Toy Association maintaining and preferably increasing the breadth of retailer participation.
Recently, consolidation has been in the forefront of toy industry news. Jazwares has bought Wicked Cool Toys and Just Play is closing in on a purchase of Jakks Pacific. It’s interesting to note that most of the major players involved are former Jakks employees. Michael Rinzler and Jeremy Padawer were long-time Jakks employees who quickly built Wicked Cool into an exciting and innovative company. Both Geoffrey Greenberg and Charlie Emby previously sold toy companies to Jakks and then worked for them for a spell. They founded and built Just Play into a toy industry powerhouse. All this makes one wonder what Jakks might have become if it wasn’t saddled with such inept senior management.
Toys ‘R’ Us continues to create headlines but I suspect little else. Last time out, we discussed their 6 store “Flea Market” model where they will rent space and then in turn rent it out to toy manufacturers to try to sell their wares. With that they will also provide “powerful analytics” but since those will be based on such a small sample they aren’t of much real value.
They have now partnered with Candytopia on a two store “experience” model. Reported entry ticket prices look like they will be deal breakers for consumers. Reportedly it will cost $20 per child and $28 per adult to enter “the experience.” That means it will cost a family of four $96 before even thinking about purchasing a “shut up” toy on the way out. This is the opposite of the old Italian Restaurant model where everyone leaves happy after a free shot of Sambuca. Instead, it sounds like a lot of unhappy kids walking out the door with a roll of Smarties. Paying $96 to end up with a car full of crying kids doesn’t sound like an exciting prospect. Maybe families will go once…maybe.
Lastly, TRU has announced that it has essentially outsourced its startup e-commerce business to Target. That sounds to me like the actual owners of TRU Kids Brands won’t give management the money necessary to build or buy their own e-commerce platform. If the owners of the company don’t have any confidence in the holdover management from the Toys ‘R’ Us’ collapse, why should we? TRU should have had a first mover advantage in kids e-commerce twenty years ago and have flubbed it numerous times since. Unless they can come up with some spectacular content that isn’t available anywhere else (put me down as skeptical), I don’t see them becoming the hot go-to location.
TRU Kids Brands “strategy” looks like a shotgun approach of schemes by a company that has no money, doesn’t want to spend any money, but wants to convince both toy manufacturers and consumers to give them money while they milk their brand for what they can, while they can. Even before this new reincarnation, the Toys ‘R’ Us brand had been badly damaged by shoddy stores, bad management, and undercapitalization. I don’t see anything different here except a fresh coat of paint.
That said, it’s good to see Target really stepping up and looking to grow its toy business. The Toysrus.com deal should help them to jumpstart that, at least in the beginning. After a few years I expect that Target will have eaten whatever lunch TRU has left. Putting miniature Disney stores into its locations should be a much more powerful long-term growth driver. Unfortunately, with Target one must always bear in mind the words of Mark Tritton that will forever ring in infamy: “We will refuse to accept any new cost increases related to tariffs on goods imported from China.”
Which brings us to tariffs. Late Friday, the US and China reached a truce on trade war escalation. While an all-encompassing trade deal would be better than a partial deal, a partial deal is better than no trade deal at all. Since the details still haven’t really been worked out, it’s better to view this as a cease-fire rather than even a partial deal. But that’s still better than continued trade war escalation.
Next week’s planned increase in tariffs to 30% from 25% on $250 billion in Chinese imports has been put on hold. In return, China will greatly increase purchases of U.S. agricultural products. However, planned December 15th tariff increases on a wide array of consumer goods remain on the table at this time. Both parties are said to be discussing Chinese intellectual property rights, forced joint ventures, and technology transfers and increased U.S. access to Chinese markets. Those negotiations will be hard fought, and the devil is likely to be in the details. For a final deal to be struck, the Trump administration is going to have to give up its demands that China end its support for state-owned enterprises. The Chinese are not about to change the way their entire economy is organized – especially when for the last thirty years, it has been working very well for them. Also, the U.S. will have to cease demands that China dismantle its Made in China 2025 New Technology initiative. That demand is ludicrous. Its not hard to imagine what the U.S. would say if China demanded that of us.
I have no special knowledge or shining track record of predicting the future, but if I were to prognosticate – my guess is that there will be a series of “skinny deals” which will both allow a number of declarations of victory as well as eat up the calendar moving toward Election Day 2020. Only after the election will the U.S. reduce its China 2025 and state sponsored entity demands. In other words, I believe that the process is to a degree being staged managed. That doesn’t mean that the players have complete control over it and it doesn’t mean that things can’t still go wrong. It also doesn’t help companies making plans for business year 2020. Proceed with caution. Steady as she goes.
The toy industry dodged a bullet, at least temporarily, as President Trump postponed his on again off again tariffs until December 15th… probably. Strangely, he can now take credit for “Saving Christmas” which is a bit like taking your foot off someone’s neck and claiming that you “saved their life”. Christmas was likely to come anyway but, at least for now, toy manufacturers profit margins seem to be safe and secure.
If Trump’s current stance holds, the toy industry could have quite a lot of breathing room. Not only will we have until the end of the year for US/China trade negotiations to hopefully reach some sort of conclusion but toys for the 2020 holiday sales season won’t begin to ship until next summer. Of course, the smaller volume of spring and summer goods may still be affected. Also, first quarter restocking may be quite tricky for retailers. It’s difficult to know what to reorder before your current inventory gets sold.
As if the trade negotiations themselves weren’t hard enough we have a major wild card situation in Hong Kong. Xi Jinping appears to know that a Tiananmen Square style crack down will globally damage his own reputation as well as that of China and of Hong Kong as a top tier business hub. That said, the Chinese military is sitting in Shenzen and the protestors don’t appear to be backing down. For both the trade negotiations and the fragile stand off in Hong Kong the concept of Saving Face-for Xi, Trump and the protestors turn an already volatile situation into a multi-dimensional chess match where if anyone appears to lose then everyone loses. This is complicated even further by the 2020 U.S Presidential election.
All of the geopolitical uncertainty has caused Wall Street jitters and oversized swings in the stock market. Also weighing on market sentiment is an inversion in the yield curve which has historically been one indicator of an upcoming recession. While some pundits have been out there banging on pots and pans-I can only imagine as part of their never-ending battle for additional eyeballs- this indicator doesn’t really become viable until the yield curve is inverted for a far longer period than a couple of days. Even then a yield curve inversion is a forward looking signal which traditionally has predicted that a recession will happen in a year and a half or so.
Meanwhile the economy, at least in the U.S., while advancing more slowly than it was continues to exhibit solid growth. The employment picture continues to be strong, wages are rising and consumer spending has been growing nicely. Wal-Mart hit it out of the park last week. Yes, Macy’s did issue a profit warning but Marcy’s has it’s own company and channel specific problems. At this time holiday spending appears as if it will be solid.
That said, our ability to predict the future with confidence has shortened up considerably. Part of this is due to technology and the internet. Information is now shot around the world instantly and that is causing people to be hyperreactive. Some of this is also caused by President Trump. It wasn’t so very long ago that there wouldn’t be anything in the news that you had to pay attention to for weeks on end. Trump has driven the news cycle to the point where you need to pay attention each and every day. It’s like a pilot who has so many gauges, lights, and switches in front of him that it distracts him from what’s coming up ahead. It will likely take us humans quite a while to adapt to the point where we can consistently differentiate the accelerating blizzard of signal and noise.
Here at Toyjobs we have rebounded from two difficult years which were caused by the Toys ‘R’ Us debacle. After a strong start the only hiccup was quite recent. Search starts usually surge in early August as companies look to solidify their lineups for the next year’s sales cycle. This year as that was starting to happen, President Trump made his initial tariff call and companies pumped the brakes. We are just now finding out how companies will react to last week’s reversal. I’m optimistic but: “We’ll see what happens.”
Speaking of Toys ‘R’ US- it appears that their Zombie Walk will continue at least a while longer. The new scheme is sort of a Flea Market Model. Toys ‘R’ Us will rent store space that they will then rent to toy manufacturers at a profit and then toy manufacturers can sell their wares directly to consumers. Presumably, they will also rent space that they will then rent to you at a profit to store replenishment goods. The Flea Markets will also provide “rich data analytics”- the sort of thing that you can already got from Wal-Mart, Target, Amazon and NPD. They are currently interviewing to hire “Relationship Managers” to be front men because the company’s leadership has historically proven itself to be less than trustworthy. Pay no attention to the man behind the curtain-the man who makes the decisions.
This sounds like the strategy of a company that doesn’t have any money and doesn’t want to spend any money but is looking for a way to justify why you should pay them money. They seem to have a “Field of Dreams” mentality. If we build it, toy manufacturers will come. The equation has shifted through. I wonder if the old Toys ‘R’ Us hands have figured out that now they need you more than you need them. If I ran a toy manufacturer, I wouldn’t be so fast to jump at this “opportunity”. Let them run their store test on somebody else’s dime.
There’s not that much new to report. Toy industry hiring is slowly continuing to trend higher. This despite the fact that the largest toy companies continue to lay people off. Mattel, Hasbro, Lego, etc. used to pump so many goods through Toys ‘R’ Us that they will never make up that volume. They will still be the largest toy companies, but they will be smaller than they were for the foreseeable future.
The exception is MGA. For all of Isaac Larian’s… let’s call them idiosyncrasies, he has been able to show that product is still King. It should also be noted that while MGA is a large company by sales volume, it’s not staffed like a large company.
Many small and medium-sized companies are much nimbler. They can develop product from start to finish at a much quicker pace. Unlike the big boys, they are not bogged down by meetings, meetings, meetings. It’s easier to turn a speedboat than an aircraft carrier – and you need far less people to man it.
Small and medium companies are also adapting by putting out a greater number of product lines but “skinnying” them up in the realization that except for a “toy warehouse” no other retailer is going to stock all those iterations and add-ons. They also have a far easier time replacing lost TRU volume by gaining a couple of extra feet at a Best Buy or a Cracker Barrel or a Kohl’s. Mattel can try to do that but it’s not even going to move the needle.
Since the Hong Kong Toy Show, many small and medium toy companies have been looking to add senior executives who can affect their businesses in a meaningful way. These companies have come to realize that good things aren’t going to just happen. They have to MAKE them happen. They are adding top people who can be game changers and drive new initiatives. While companies are adding senior people, they are not yet adding a lot of people overall. This senior executive hiring isn’t happening at all companies. I would put it at about 30%. That said, it is slowly but steadily broadening out.
The toy industry has been fortunate in that if we had to lose a Toy’s ‘R’ Us it was best to do it against the backdrop of a strong economy. A few short months ago, economists were predicting a recession in 2019. No one is saying that anymore. Over the last five years, GDP numbers have been weak in the first quarter and picked up later in the year. The first quarter of 2019 saw a robust GDP of 3.2%. Will that number hold up in coming quarters? Who knows?… But the point is that the economy should continue to be strong.
The current leading candidate in the U.S.-China trade talks. The recent back chatter had been that both sides are backing down for some of their demands and looking to settle on face-saving half measures. Then Reuters reported that last Friday the Chinese sent over a copy of the trade agreement that they had marked up in a way that walked back months of negotiations. This provoked the Tweeter-in-Chief to start issuing a barrage of tariff escalation threats. We can only hope that this is mostly posturing. Both Xi and Trump are playing a dangerous game of chicken which threatens the global economy. The risk/reward ratio of this behavior is not favorable to anyone. Hopefully, everyone will just calm down and settle on a partial deal. That won’t solve things in the long run, but it’s better to dodge a bullet today as long as we’re moving in the right direction. We can only hope that cooler heads prevail.
Against this strong economic background, the toy industry will continue to have its challenges. More and more, small and medium-sized toy companies are meeting those head-on. I envision that toy industry hiring will continue to grow slowly but steadily. After a brief period of July summer doldrums, I expect that hiring will begin to gather steam as companies start to prepare for the 2020 toy sales cycle. Should a strong economy lead to a strong 2019 holiday sales season, I envision that early next year we will be approaching normalization. Let’s hope I’m not wrong.