New York Toy Fair kicked off on Friday night with the 2018 Toy Of The Year Awards. Held at Ziegfeld Theatre, this was a fantastic event as always. The Toy Association staff led by Steve Pasierb has really got this down. I’d like to give a shout out to Marian Bossard, Kimberly Carcone, Robyn Gibbs, John Klein and the entire Toy Association staff for doing such a great job not only with the TOTY Awards but with New York Toy Fair as a whole.
Two trends seemed to emerge among the award winners that night. First, collectibles continue to be a very hot category with WowWee’s Fingerlings and MGA’s L.O.L. Surprise! sharing top honors as “Toy of the Year.” In addition, Funko’s Mystery Minis won the “People’s Choice Award” which is chosen by tallying the votes of consumers.
The other big trend was that about half of the twenty awards were won by small and medium-sized companies. These companies have to run faster and jump higher with less resources (both human and financial) backing them up. They also have to be more inventive than the typical brand behemoth. I think this bodes well for the health of the industry which for a while in the early aughts seemed to be more about slapping licenses on sippy cups. Congratulations to the entire teams of all award winners for keeping kids smiling.
Sunday night was Ladies’ Night with the always wonderful WIT Wonder Women Awards Gala. As usual, it was held at The Lighthouse at Chelsea Piers. Please don’t move it. It’s a great venue. Event Co-Chairs Genna Rosenberg, Janice Ross, Jennifer Caveza and their entire Host Committee made it look easy despite what must have been an awful lot of work above and beyond their day jobs. Congratulations to all the Award Winners and to all the wonderful women of the toy industry.
New York Toy Fair as a whole seemed well attended and very upbeat. It also seemed that international attendance was quite high. The toy executives I spoke with exuded confidence and were bustling about their business. Now if we could just do something about those Javits Center floors.
Notable Toy Fair news included the election of Bob Wann of PlayMonster to Chairman of The Toy Association. Bob has toiled for both big industry players like Fisher-Price and Hasbro as well as smaller companies like Sababa Toys and now PlayMonster. He may be just the guy to balance the very different interests of those two groups. Maybe….. maybe he can even solve the annual October multiple location Toy Show mishegoss.
In other news, Hasbro was named the global master toy licensee for Power Rangers. That might not impact the toy industry as much as Bandai losing what had been a long-time licensee. Lastly, Basic Fun announced that they had bought K’nex. K’nex has always been one of the most inventive and versatile construction toys in the pure product sense but never seemed to have been brought to market in the right way. Jay Foreman and his team should be able to change that.
Moving forward, with the exception of two monkey wrenches, both business and hiring trends look good. The toy industry only grew by 1% in 2017 but that was after three consecutive years of better than average 4-5% growth. The industry can afford to take a breather and still be able to move that trend line up and to the right. Buoying the economy is a strong labor market with unemployment holding at a 17-year low. Top-line wages are beginning to creep up AND, due to the new tax plan, take home pay is on the rise. Additionally, there is a growing wealth effect where consumers “feel” wealthier due to rapidly rising home prices and the stock market being near an all time high, despite February’s fluctuations. All this has led to skyrocketing consumer confidence, which indicates that consumers will open their wallets wider.
On the other hand, we have our two monkey wrenches. The first is Toys ‘R’ Us. During the New York Toy Fair, I asked everybody I spoke with about Toys ‘R’ Us. The venerable retailer had already announced that it would close 180 stores. That’s a lot of shelf space that won’t need to be filled. Most companies said that they had put Toys ‘R’ Us on a tighter payment schedule and had already forecast lower shipment levels to the retailer. Many said that they were done and weren’t going to sell to Toys ‘R’ Us anymore. I’m not sure that I believed all of them. Others cited that they would be moving to diversify their customer base. I’ve seen evidence of that. In the last year, Toyjobs has completed a lot of searches for Sales Execs specializing in mid-tier chains, E-commerce and the value channel.
Then on February 21st, the day after Toy Fair closed, The Wall Street Journal reported that Toys ‘R’ Us would be closing an additional 200 stores beyond the original 180. There were also rumors of laying off a quarter of the corporate staff. I’m sure that this news has sent toy executives scurrying back to their spreadsheets. Almost nobody had this baked in. Numbers will have to be crunched and decisions will have to be made. I’m guessing that many more companies will decide not to do business with Toys ‘R’ Us. Others will tighten the payment leash even further – cash on the barrelhead – a la Kmart. Competition for shelf space at other retailers will intensify. Bricks and mortar isn’t going away, just finding it more difficult to grow. Many heritage retailers had very strong 2017s. While E-commerce sales are skyrocketing, they are still less than 10% of total US retail sales. I also expect that toy manufacturers will start to really professionalize their E-commerce efforts.
The bottom line is that consumers still want toys but the way to get those toys in front of consumers is changing. It’s way above my paygrade but ultimately toy companies should think about banding together and creating their own mega E-commerce hub which will both attract consumers and keep manufacturers from getting sheared on their way to market. Think like a big media company. Content AND Distribution is far more powerful than Content or Distribution. The toy industry may be too small and fragmented for each company to do this on their own but banding together could turn out to be a “Grand Bargain.” Of course, the devil will be in the details. “Who pays for this? Who owns that?” but motivated people have a way of working things out.
As for the second monkey wrench, it goes by the name of Trump. On Thursday, March 2nd, Mr. Trump announced that he was going to institute a 25% tariff on steel and one of 10% on aluminum adding to his previously announced tariffs on solar panels and washing machines. The danger is that, if enacted, these will escalate into a full-blown trade war. Now that the economy is up and humming, this would be a very odd and counter-productive thing to do. Mr. Trump’s pronouncements aside (“trade wars are good, and easy to win”); a trade war is in nobody’s interest. It’s especially not in your interest to throw the economy into turmoil when it has been gaining strength while you have been President and you have mid-term elections quickly approaching.
The only thing consistent about Mr. Trump is that his proclamations are much more extreme than his actual actions. I suspect that last week’s news burst was his way of opening negotiations since Chinese Trade Minister Liu He was just arriving in Washington. It is interesting to note that China doesn’t really export much steel, solar panels or washing machines into the United States. Steel exports have dropped rapidly over the last few years due to China’s own internal construction boom. They do ship a fair amount of aluminum here. That lends credence to the idea that these are really shots across the bow…. negotiating tactics. Would Donald Trump enjoy an international spectacle with him at the center? Surely he relishes the idea of global players rushing to him in order to curry favor. That said, the presence of Peter Navarro and Wilbur Ross in the Administration is troubling. So are we entering a trade war? Will he or won’t he? …..only his hairdresser knows for sure.
Wrapping up, the overall terrain for business and hiring looks to be quite strong but we have two monkey wrenches coming at us fast. For Toys ‘R’ Us, toy companies can potentially ameliorate the crisis through planning, forecasting, tightening, diversifying and/or just deciding not to play. It will be a tricky navigation but presumably we should be able to come out the other side. As for Trump, there’s little to do but watch and wait to see if this is just negotiating bluster or if he has really decided to shoot himself in both feet. Hmm, I guess I’m cautiously ecstatic. Is that possible?
May you live in interesting times,
Tom Keoughan
Excellent and cogent summary of current industry state of affairs, Tom!
Keep up the great work!