Toyjobs posted its second best year out of 23 in 2004 (the best being 2000).  During the first half of the year, there were abundant search starts but companies were reluctant to pull the trigger on hiring someone even once they had identified the candidate they wanted.  That left us at about 38% of where we like to be for the first six months.  This changed in July as we posted our best single month ever.  Both search starts and hiring accelerated through the end of the year and are likely to continue doing so in 2005.

Our long stated hypothesis has been that companies cut not only fat, but muscle and bone during the economic lean years of 2001-2003.  During 2004, the economy turned; 3.2 million new jobs were created — the strongest performance since 1999.  While toy industry recovery has been much more muted, recent estimates are that traditional toy sales fell approximately 5% industry wide owing to structural changes initially driven by Walmart’s use of toys as a loss leader — manufacturers had squeezed their staffs to the point where they just couldn’t get the work done.  This was exacerbated by retailers’ demands that toy manufacturers do an ever increasing amount of their work for them. 

Most of this hiring came from small and mid sized firms.  The big four (Mattel, Hasbro, Lego and Leapfrog) appear to be in crisis.  Some of this is due to the law of large numbers, i.e. it is very hard to add 15% sales growth annually when you are as big as they are.  For three of the aforementioned groups another problem is that they are public companies.  No matter how many times they tell Wall Street that they are steady 10-15% growing consumer brand companies, they are not (the wants and whims of children are notoriously fickle.)  The toy industry is a fashion business and neither Mattel nor Hasbro is P&G.  Large publicly traded toy companies end up being forced to make short term decisions in order to support their share price at the expense of growing their business in the long run.  There is also a strong tendency to play it safe and you don’t win in a fashion business by playing defense. 

All of this creates opportunity for small and medium companies who have good, innovative products and are nimble enough to operate the way that retailers want them to.  Unfortunately, retailers have their hand on the spigot and the word “partnership” no longer appears to be in their vocabulary.  Toy manufacturers have been telling us that despite higher costs (resin, oil, transportation, electricity in China, etc.) they are finding it very difficult to push through price increases.  Retailers are demanding that their prices to the consumer remain static and want their 55% margins as well.  One of the few solutions for manufacturers is to move production into North China, but there are some fears that this may lead to quality control problems.  Another solution is to pray that the price of oil comes down, but only after deal sheets are written. 

Toy building rumors abound.  With the sale set to close in March, management is not accepting new leases.  Only the building’s exterior and lobby are protected by their landmark status and the main scuttlebutt is that 200 5th Avenue will be converted into condos and 1107 either condos or possibly a hotel.  The big question is when?  What I’m hearing is that the toy building will continue to be the toy building through February Toy Fair 2006, but after that, all bets are off.  Also, after the deal closes, I hear that new ownership plans to slash toy show budgets and generally make the building an unattractive place to do business in an attempt to push down the prices which they will have to pay out to existing leaseholders.  How charming.

Finally, as is well known by both politicians and advertisers, if you repeat something often enough, it becomes true.  Perception becomes reality.  Just when we thought we deserved a rest after an election year of misinformation spewing out of both political parties, Walmart has stepped into the breach.  We reprint a letter below from Ray Bracy, Walmart’s VP International and Public Affairs which is sure to set your eyes a-rolling (privately, of course).  To hear Walmart tell it, they are worker friendly, union friendly, women friendly, benefits friendly, supplier friendly, and well liked by both children and animals.  Certainly we all know better than that and, I for one, have little doubt that they squeeze their employees as relentlessly as they squeeze their suppliers.  Of particular interest is their claim of “unions, we are not against them.”  Chain Store Age (January 15, 2005) reports that in Quebec, where employees of two Walmart stores have elected to unionize that Andrew Pelletier, spokesman for Walmart Canada, said “the company is reviewing all of its options including a legal challenge.”  Of course, Walmart’s low prices remain irresistible, especially to the working poor, many of whom … work at Walmart — a modern riff on “I Owe My Soul to the Company Store.”  All toy manufacturers should secretly wish for unionization to sweep Walmart, thereby putting them on a more even playing field with other retailers.  Unionization would have a particular effect on the grocery business where Walmart has the ability to undercut prices of traditional supermarkets which are unionized.  Low grocery prices have driven the average Walmart shopper to increase store visits from 1.5 times per month to about one per week.  Once in the store buying groceries, consumers buy other things as well, thereby increasing sales and decreasing the marginal cost of operations.  In the retail space anything that leads to a more multipolar world is good for everyone.  Walmart Unionization…say it again.  Walmart Unionization…say it again.  Walmart Unionization…say it again.  Walmart Unionization…

All the best,

Tom Keoughan