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.
The annual toy industry migration from Hong Kong to London to Germany finally reached its inevitable end at The New York International Toy Fair. All reports were that the outlook for the industry in 2019 gathered optimism and enthusiasm as the trade show season moved along.
The New York International Toy Fair opened with the TOTY Awards. A terrific event, as always, which was this year again held at the venerable Ziegfeld Ballroom. There was a big, buzzy crowd in attendance as companies vied for various Toy of the Year Awards.
One highlight was the Doll of the Year Award which went, unsurprisingly, to L.O.L. Surprise! The award was accepted by Isaac Larian of MGA who approached the podium and said – the least he ever has. It was a comically gracious moment…only to be later ruined when he climbed the stage out of turn and out of line to display his usual boorish behavior. That said, let’s give credit where credit is due – both under the byzantine TOTY process and by popular acclaim L.O.L. Surprise! garnered three TOTY’s and was the overall Toy of the Year. Mattel and Lego also had good nights as they each came home with three TOTYs.
I always enjoy seeing smaller and up and coming companies win these awards so it was good to see wins by Zing and Tastemakers. The Rookie of the Year Award went to Victury Sports. This startup makes the OllyBall which can be played with indoors without breaking lamps, mirrors, and cherished family heirlooms. Just think about how much trouble we wouldn’t have gotten into as kids! Do Play Ball in the House!
Amongst the three new members inducted into the Toy Industry Hall of Fame was Joe Mendelsohn, former president of Kenner Products. In the 1970’s and 80’s, Kenner Products was The company. They had a fun Ideation and Product Development Group, professional Marketers, the toy industry’s best Engineering team and a rogue’s gallery of affable Sales talent. They came up with new and exciting product year after year after year. When the crowd gave Joe Mendelsohn a long standing ovation I took it to be a standing ovation for the entire Kenner Products team.
On Saturday, we moved on to the Toy Fair proper and the much dreaded Javits Center floors (hardest floors on the planet). In contrast to last year, day one was high energy and crowded. Strong attendance as well as optimism and excitement continued through the show’s end. Kudos to Steve Pasierb and his team and to the TIA Board for putting on a strong and productive show as well as the top notch TOTY event.
On Sunday night, anybody and everybody could be found at the Wonder Women in Toys Awards. I don’t know the official numbers but is it possible that this event was even more well attended than the TOTYs? Genna Rosenberg and her team did their usual exquisite job planning and pulling this thing off. The entire group of ladies making this show work do it while seeming so serene although I suspect they must be paddling like crazy underneath.
A shout out to Marian Bossard of the Toy Industry Association for winning the Wonder Women of Sales Award. Marian is one of the key people making all of the toy industry’s tradeshows and events go as smoothly as possible for the rest of us. Congratulations to all of the Wonder Women. As an employment expert, I suggest regularly wearing your pink capes to the office around salary review time!
One of the few negative undercurrents of the show was the question of “what’s going on with Toys ‘R’ Us?” As best as I can tell, they are going to continue on as an asset light IP company. In other parts of the world, they have licensed out their name to retail operators who will open and manage stores. They are looking to initiate the same type of arrangement in the U.S. They will also have an online retail entity which they will presumably either run themselves or partner on with their bricks and mortar licensee. TRU is also of the opinion that they have valuable product IP which they can sell to other retailers. Personally, I don’t think that the world is exactly clamoring for FastLane or Animal Alley. I suppose that they will sell in (saddle with) that merchandise to their retail partner.
After being so badly burned, will manufacturers actually do business with TRU? After all, Toys ‘R’ Us has the same ownership and largely the same management. Many have told me that it has been beyond difficult to see Richard Barry swanning around at Toy Industry events. Will they be able to just clean the slate of retail leases and then like a gang of deadbeats stiff their suppliers? To make matters worse, they then went out and sold their suppliers unpaid for merchandise at a discount, hindering said suppliers from selling their own goods elsewhere. Trust has been completely broken. It will not be repaired easily – perhaps ever.
I’ve heard many in the toy industry say that they won’t do business with Toys ‘R’ Us. That said, while I don’t know how many stores will be opened, I can’t see many toy companies not wanting to sell in to 50, 100, 200 doors. Perhaps one toy industry exec put it best when he told me: “I’ll be happy to do business with them depending on who their retail partners are and whether they have deep enough pockets to pay their bills.” Even so, I expect that they’ll be kept on a tight leash with short payable terms and little acceptance for chargebacks and the games they used to play in the warehouse.
What does this all mean for upcoming toy industry hiring? I am broadly optimistic. 2018 holiday sales numbers were not as bad as they could have been and the government statistics on retail sales seem to be a bit wonky. The negative government data, which was partly gathered during the partial government shutdown, looks to be at odds with strong retail sales numbers reported by Mastercard and by many individual retailers. It was also in complete disagreement with sales numbers reported by Amazon.
Much of the toy industry has made adjustments and is finding their way through a rapidly changing retail environment. After all, kids still want toys, we just have to find different ways (plural) to get those toys in front of them. The largest toy companies (Mattel, Hasbro, Lego) will not be able to readily replace the sales lost at Toys ‘R’ Us. They will now be big companies growing off a smaller base. Small fry beware! The big fish are stodgy and slow moving. It will take a couple of years but when they figure it out (and they will), they will be tenacious.
Meanwhile, this is a great year for kids movies like Frozen, Toy Story 4, Lego 2, etc. which will drive product demand. Fortnite is really only just getting started. The toy industry has pent up hiring demand. Over the last two years there have been so many lay offs that many companies are now having difficulty just getting the work done. Lastly, it looks like we have dodged the tariff bullet – at least for now. We are still waiting to see if happy talk turns into treaties, but we should be cautiously optimistic that we are going to evade a trade war.
In early January, all of these factors led me to cautiously predict that about two to three weeks after the New York Toy Fair, when companies finished crunching their numbers, that my phone would be ringing off the hook, with toy companies looking to increase staffing. That would be right about now.
What actually happened is that immediately after returning from Hong Kong, toy companies started calling. They were not only looking to fill jobs but Big Jobs. Last year, companies were occasionally looking for Project Managers/pairs of hands on the lower end of the salary continuum. This year they are looking for senior executives. This tells me that toy companies have left their defensive crouch and are now looking for opportunities to make things happen. I am broadly optimistic on toy industry prospects for 2019 – with the caveat – that we must dodge the Trump tariff bullet – which at the current time it looks like we will but…
For 2018 the big story in the toy industry hiring was the closing of Toys ‘R’ Us. Almost every toy and juvenile product manufacturer lost its second or third biggest customer. That meant that most of these companies cut their budgets while they went out in search of new channels of distribution. Reduced budgets usually means reduced headcount and nearly always means a slowdown in new hiring.
Are toy industry hiring trends poised to turn the corner? 2018 holiday sales overall were strong, rising 5.1%, excluding autos, according to Mastercard SpendingPulse. Online sales grew even more quickly at a whopping 19.1%. Of course, there were retail winners and losers. Macy’s, Kohl’s, and J.C. Penney performed poorly while Wal-Mart, Target, and Costco hit it out of the park. Wal-Mart and Target could have performed even better but they were running out of inventory during the last two weeks of the holiday shopping season, which coincided with a surge in foot traffic.
These numbers represent retail sales of ALL goods but what of the toy industry? I’ve heard all sorts of whisper numbers that US toy sales were down 7% or even 15%, but the most recent numbers that I’ve heard were that US toy sales declined 2-3%. At the same time, nearly all of the senior executives at small and medium-sized companies that I have spoken with have said that their sales either grew or that they were happy with their 2018 results. That leads me to believe that the bulk of the lost sales were suffered by the big toy companies like Mattel, Hasbro, and Lego, etc. After all, if a small toy company can add a couple of extra feet of shelf space at a Best Buy or a Cracker Barrel, that can be pretty meaningful. For a Mattel, it doesn’t even move the needle.
I see 2018 as a transition year and look for the toy industry to gain traction and move forward in 2019. We have several things going in our favor. First, the economy, although it might grow at a slower pace than last year, is still forecast to be strong. Only a few months ago, predictions were that the Fed would raise interest rates four times this year. Currently, interest rates are projected to only be raised a time or two. Employment continues to be super strong. Both factors support an economy that continues to grow.
Cautious ordering in 2018 means that retailers have little inventory carrying over going into this year. This bodes well for sales early in the year and also minimizes manufacturers being held up for mark-down money and diminishes retailers’ need to have blow out sales. In addition, we have a plethora of strong licensable kid’s movies coming out this year led by new Frozen and Toy Story films. That should mean strong sales for licensors and also translate to better sales for all as blockbuster properties drive increased shopping for kid’s products.
That said, there are two potential problems which could disrupt growing toy sales. First, we are still early in the 2019 toy trade show season. Reports that I’m getting are that the mood in Hong Kong was buoyant although not quite jubilant. We shall see how retailers react to toy manufacturers wares at Nuremburg and in New York.
Secondly, there is still the specter of Trump tariffs on Chinese-made goods looming on the horizon. Recently most of the chatter about resolution has been trending toward positive, with the exception of the Huawei imbroglio. I would imagine that we’ll end up with face-saving half measures where all sides are able to declare victory OR further postponements which unfortunately means further uncertainty. As the big orangey fella often says, “We’ll have to wait and see.”
If we’re able to dodge a trade war then I see a strengthening toy industry investing in new talent to help drive growth. A lot of pent-up demand has developed over the last two years as toy companies have tightened their belts to the point of them becoming tourniquets. As companies come out of their defensive posture, somebody has to have the ideas and somebody has to do the work. My outlook is – as it usually is – one of cautious optimism.
Most toy industry executives are telling me that while they certainly would have preferred to still have Toys “R” Us as a viable entity, that they have mostly replaced the shelf space and think that the year will turn out alright. That said, they want to make sure that they are on firm footing before they start investing in additional staff. They would like to put behind them the uncertainty of whether new product placement equals new sell through.
The good news is that consumers still want toys. We just have to figure out how to best get those toys in front of them and make them take notice. From cell phones to video games to WhatsApp to Fortnite to over scheduling by parents: kids have a lot more things competing for and dividing their attention than the days when we would just go out and play. To complicate things further, the array of choices is changing at an increasingly rapid pace. The challenge for Marketers is how to get their wares noticed on a increasingly pixelated and changing pallete of potential diversions.
At the same time, the retail landscape is undergoing revolutionary change. E-commerce is booming but physical stores still do the bulk of consumer sales. Buy online and then get in the car and drive to the store to pick it up is also increasingly popular although for the life of me I can’t imagine why. Manufacturers have to figure out how to best operate in this changing environment. Complicating that further is that you can’t just change from A to B. The retail formula is changing constantly and more rapidly all the time. The only certainty is the ever-increasing velocity of change.
Thus far, the holiday shopping season appears to be off to a strong start. Foot traffic over the Thanksgiving weekend was down somewhat but retailers began offering deals earlier which pulled some sales forward. The Black Friday weekend is still a good indicator but consumers are broadening their shopping window so there is much less of a pronounced spike.
In the meantime, online sales have been exploding with approximate growth of 25% over the long Thanksgiving weekend plus Cyber Monday. We should expect a strong holiday sales season. The economy is humming, and the consumer is flush with lower unemployment, lower taxes, lower gas prices and as of the last few months higher wages. Event more importantly, the consumer is willing to spend. Top line numbers for retailers should be strong but profit margins for retailers of all stripes may be challenged by higher labor costs for brick and mortar locations and higher freight costs for items purchased online. Retailers may be willing to pass some of these cost increases on to consumers, but it is likely that for the larger portion they will be looking toward vendors.
While the overall holiday sales environment looks quite positive despite potential back end shearing by retailers, there is another big concern for toy manufacturers. That is a potential Trade War with China. As of now, it appears that Xi Jinping and the Trump Administration have made small concessions that permitted each other face saving gestures and agreed to a temporary cease fire.
That allows toy manufacturers to breathe a little easier for now but kicking the can down the road doesn’t alleviate uncertainty. In ninety days, when a full agreement still hasn’t been reached, tariffs on the $200 Billion of goods now set at 10% will be increased to 25%. The good news is that toys, as it stands now, still will not be affected. Unknown is what happens next. How long will the next negotiating window be? What will the consequences be if a deal is still not reached? Most likely, the next step of tariff escalation will include the toy business. Will the toy industry be able to ship goods for the holiday season of 2019 by, let’s say, June 1st? Especially, when you realize that vendors and retailers may be at cross purposes. Manufacturers will be trying to ship products as early as possible to try to beat the clock while at the same time retailers tend to try to postpone commitments to buy as long as possible.
If there is any kind of silver lining in this fog uncertainty, it is that the toy industry is more agile and better equipped to navigate uncertainty than most other manufacturers. After all, even in a year that is all blue skies and smooth sailing (and I can’t remember that ever happening) we are in a seasonal fashion business. Turbulence is our middle name. We are used to it.
My view is one of cautious optimism – but that’s pretty much my default setting. Things tend to work out… eventually. The worry is how long will it take.