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