Although it appears that we are not technically in recession and first quarter GDP numbers were actually revised upward, caution remains the word of the day. Overall retail sales rose in April and again in May but the main beneficiaries were deep discounters like Wal-Mart and Costco while higher priced stores had a difficult time. It seems that the Bush administration’s stimulus plan has had a positive short term effect but those $600 dollar checks will be long gone by September and the beginning of the holiday sales season.
So the economy is not quite as bad as the media has been proclaiming (bad news sells) but the toy industry would be facing some very difficult challenges even if this were the best of times. Every year I hear “the retailers are ordering late, even later than last year” until I realized that in their minds the retailers are not ordering late at all. It’s simply part of their overall strategy of pushing as much risk as possible on to their suppliers. This is especially true when it comes to fashion businesses like the toy industry.
This “late ordering” has become even more of an acute problem because of delays in the manufacturing and distribution cycle. In China there is a labor shortage, electricity shortage, fuel shortage, and chip shortage. Factories are shutting down left and right. There are delays obtaining materials and components and further delays due to the stricter quality control regime. If you look at our main article US Port Law ‘will slow growth’, you will see that the US government is talking about creating even more delays by having every container headed to the US inspected before it gets here. Talk about your logistical nightmares.
All this is made even worse by continuing cost increases for fuel, resin, labor and the rise in the yuan which is now up over 16% in three years. Dow Chemical, one of the largest chemical producers in the world, has raised prices 20% across the board. This will particularly affect polyethylene and plastic stabilizers (used in toys), as well as polystyrene and polypropylene. Dow is such a huge player that this move gives every other supplier license to raise prices too.
The combination of cost increases and late ordering has the synergistic effect of slowing things down even more. If I show you a product at a certain price today and you wait three months to pull the trigger then at that time I can no longer sell you that product at the previously quoted price. The process then rolls over and begins again and the non-decision goes on and on and on. The one thing that we’re pretty sure of is that there is going to be a Christmas and they are probably not going to change the date. Perhaps some sort of scheme could be worked out so that products could be priced on a sliding scale based on oil prices, resin prices, the value of the yuan or some combination of the three. I’m not smart enough to figure out how the formula would work. Even thinking about it makes my brain hurt.
Through all this ToyJobs is still managing to have its best year ever. I completely expect that hot streak to end in July. I thought it would end in June but we some how managed to pull it off for another month. There are definitely less jobs available out there but we’ve been filling most of the searches we get pretty quickly. We have been fortunate in that several of our clients are doing pretty well and have been stocking up on talent at a time that they don’t have to compete for it. Candidates aren’t getting job offers from multiple companies the way they do during better times. We have even had two companies that liked the people that we sourced for them so much that they each hired two candidates for a single search. A third company gave us a single search and ended up hiring three people.
Many companies that I speak with tell me that they have holes in their organization that they need to fill but they have to be cautious (there’s that word again) and wait until their final retail orders come in. So demand is out there but a lot of companies are playing it careful, as they should. This seems to point to a slow summer for hiring followed by rebound in late August or September. I should add, however, that if your company is doing well and you know that it’s doing well, this is a pretty good time to upgrade your staff. There isn’t a lot of competition out there.
All the best,