The Virus Calls the Tune
It’s been two years since the last toy industry trade show, and we were all looking forward to finally getting together in New York. Unfortunately, the Toy Association decided to cancel. I, for one, (not that anyone cares) think they have made the right decision. The Omicron variant will be peaking in the U.S. over the next few weeks and holding an international trade show in the midst of that is a recipe for bad outcomes. Pre-emptive push back to objections: the word “peak” doesn’t mean “over” and the phrase “just past the peak” doesn’t mean “over” either.
Several major and mid-tier toy manufacturer’s had already pulled out of the show. More importantly major retailers like Wal-Mart, Target and Amazon had pulled out as well. A game of chicken was beginning to develop between toy manufacturers and the Toy Association of “who keeps the money-who will cancel first.” Pulling the plug kept the Toy Association aligned with its membership, which is as it should be. Ultimately, if the buyers weren’t going, there was little reason for manufacturers to go. Whatever was left would have been both expensive AND unfruitful.
The one thing I heard over and over again was that the February timing really isn’t right for doing business. Most people seem to think that a larger and more cohesive October show would be better. Rather than a mad scramble from LA to Dallas to Hong Kong, let’s focus everybody’s energies on one location. Hong Kong has largely imploded so that’s one less whistle stop we have to worry about. There has always been the danger that, if a big October Toy Show was scheduled for LA that the large Southern California toy manufactures would simply change their dates. They don’t want buyers to be “distracted” by their smaller, nimbler competitors. Perhaps a two week show could be set up to accommodate everyone. Two weeks in one location is certainly better than three or four weeks in three locations. Retailers could be called on to pressure their suppliers into condensing their calendar as tightly as possible. Everybody is willing to kowtow to the wishes of the buyers. Right?
We have always heard the excuse that there is no possible venue in all of Southern California in which to hold a trade show. That has always been more than a little bit hard to believe. But- good news- the weather in October is good, pretty much everywhere. So, if it’s two weeks- two locations that should be very doable. I suggest somewhere in the middle of the country in order to make it equally accessible for everybody- Dallas? Chicago? Kansas City? There should be plenty of places.
image via kcparent.com
On the employment front the craziness continues. It has even earned a name- The Great Resignation. What is this Resignation and why is it happening? There are always a certain percentage of people willing to change jobs and that remains constant. After two years of Covid a lot of the stable workforce is looking inward. These are people who weren’t really that unhappy but weren’t exactly overjoyed with their jobs or their workplaces. A job was a job and work was work and they just got on with it. They weren’t overjoyed with their jobs, but they didn’t expect to be, and they weren’t unhappy enough to leave. Two years of Covid has led them to wonder “is this really what I want to do with the rest of my life?” Many of them are deciding to change jobs and some of them are deciding to change their careers radically. And let us remember that with a lot of people working from home, it has become easy to change jobs without even leaving the house. As people change jobs there is a multiplier effect as their jobs need to be filled by people whose jobs need to be refilled in turn…. and on and on and on. Add the normal amount of job changes to the (for the lack of a better term) newly enlightened to the multiplier effect and suddenly there are a whole lot of job openings out there.
What’s a company to do? Shorten your hiring process. I’m not saying don’t be as diligent but rather tighten up the calendar. Stop hemming and hawing. Stop foot dragging. Make hiring a priority that doesn’t keep falling to the bottom of the hot list. Yes, I understand that you may have more urgent problems today but the person you hire will solve twenty problems tomorrow. Be aware that all of your competitors are also looking to hire and that the best candidates have more than one job offer. Beat competitors to the punch. Git-R-Done.
I’m seeing mistakes made on the candidate side too. The abundance of jobs has led to sloppy thinking. An example of one type of mistake I see is upon receiving a job offer, this currently unemployed candidate asked for $40,000 dollars more than they knew the company had in their budget. The company immediately pulled the job offer and wouldn’t even speak to the candidate when she offered to take less. If she asked for the top of the range or even 10% more than the budget, she would have gotten it, but she was perfect for this hard to fill job and decided to hold a gun to the employer’s head. Six months later she is still unemployed. A job offer is not a winning lottery ticket. Candidates currently have a stronger negotiating position but be reasonable. Nobody likes to be ripped off.
The other candidate mistake I see is one of recency bias and coming to believe that everyone is going to work from home forever. I know the TV and the radio tell you so but the business of the media is to gather the largest possible audience so they can sell more advertising and at a higher rate. They do this by pandering to chosen demographics. There are a lot more employees than employers out there. While many employees may want to work from home- employees aren’t going to be making that decision- employers are. So, before you decide to move to Charleston (where the only jobs are waiting tables), please realize, that employers will do what they have to do for as long as they have to do it. In about two years after Covid most people are going to be heading back to the office. Big changes may have taken place during the pandemic, but when it’s all over the changes that stick will be incremental. I do foresee more 4-day work weeks in the office and more one day from home. Look back to the financial crisis and use that as your guide.
As far as the toy industry goes, hiring was gangbusters for the second half of 2021 and that has continued thus far into 2022. Holiday sales were growing quickly in the fourth quarter with bricks and mortar even adding 8.1% compared to 2020. However, there was a sharp drop about a week before Christmas. This was largely due to the Omicron surge but also people got the message and shopped early due to the supply chain woes. By the last week of holiday shopping, the cupboards were pretty bare. It’s hard to make sales when you have nothing to sell.
It’s looking like the pandemic will peter out and become endemic beginning in May or June but there’s no telling what kind of wild card Covid may throw at us. I’m hearing widely divergent opinions about when the supply chain will straighten out. Estimates range from this summer to two years from now. I’m not smart enough to know the answer. My plan is to forge ahead with cautious optimism. I hope that everyone will stay safe.
All The Best,
Tom Keoughan
Nothing to See Here, Move Along
There are so many changes taking place so fast these days that it almost feels like nothing is happening at all. Covid leads to economic shutdown leads to supply chain issues leads to inflation and all of it is made worse by bad policies based on either politics or ignorance by many governments all over the world. It feels like getting repeatedly smacked in the face during a particularly long and intense game of close quarters dodgeball.
My load was lightened last week by a sudden episode of comic relief. From out of the blue, it was announced that Toys ‘R’ Us was teaming up with The Great White Elephant of the N.J. Meadowlands.
Both entities have rolled through one or more bankruptcies and have highly uncertain futures. It’s like Toys ‘R’ Us recognized itself from five years ago and decided to partner with a place that was once called Xanadu.
I know – “tell us what you really think, Tom.”
Despite this wacky world, toy industry hiring continues to be robust. At Toyjobs we just keep running in fast motion and continue to produce results for our clients. We are getting a little tired…and a little cranky. I know that at this time of the year everybody in the toy industry is feeling the same way, but we can make it through another two weeks and hopefully get a little time off during the holidays.
Typically, in January and February, toy hiring slows to a trickle as toy executives travel the globe to display their wares at way more trade shows than are necessary. That may or may not happen this year. I’m not ready to make a prediction but I think it’s uncertain that this winter’s trade shows are going to happen.
Oops! It seems there is yet another White Elephant in the room.
May you live in interesting times,
Tom Keoughan
News From The Front
Far be it from me to prattle on about supply chains to all of you on the front lines fighting the battle every day. From out here it looks like an old car which keeps getting driven after the thingamabob goes bad until the next thingbreaks, then it starts making a horrible racket, so you just turn the stereo up which fixes it for a while until the whole engine seizes up.
Keeping ports open sounds a lot like cranking a Best of BTO 8-Track.
It feels good but it’s not going to fix the problem.
Holiday sales are predicted to be strong as several varieties of government stimulus have left households flush. Savings now represent 10% of consumers disposable income which is quite a way above the pre-epidemic norm. The Labor Department reports that hourly wages were up 4.6% in September. Monthly retail sales increased 13.9% from a year earlier. That said, consumer inflation – higher prices – accounted for 5.4% of that increase.
Strong top line sales figures don’t necessarily mean “Happy Days” for toy manufacturers in a year where shipping container rentals cost more than the profit of the goods inside. 2021 remains a year where most companies will be glad just to pay their bills and maintain their hard fought shelf space rather than enjoy strong bottom line profits.
Through it all, toy industry hiring has been quite strong since mid-July. Toyjobs has been running at full throttle (more car metaphors?) We’ve been filling mostly Marketing and Product Development slots. That makes me optimistic. Hopefully it means that companies are looking to do something new. Perhaps it’s a harbinger of them investing in new products, lines and categories.
Typically in August and September we see a lot of Sales searches, as companies gear up for next year’s sales cycle. This year, that hasn’t been the case and I chalk it up to retailers penchant for taking sales meetings on a remote basis. Manufacturer’s don’t need as many Sales Execs if no one is trapped at the airport and everyone just needs to stroll down to a pre-set Zoom Room.
I suspect that this too will gradually revert back over time as certain manufacturers seek to gain advantage by visiting buyers in person. Relationships are key when it comes to squeezing that one extra SKU onto the shelf or scoring a rumored private label line. Competitors will soon follow suit once that begins to work. Experience has shown me that even during times of great disruption, things gradually tend to revert toward the mean and only change permanently at the margins.
Lastly, just a short word about Brian Goldner. I didn’t know him well as Hasbro hasn’t been a Toyjobs client since the mid- eighties. I did work with him a bit back in his Bandai days. One unusual thing about him was that he was able to combine his hi-energy, hard charging way with his basic friendliness and good humor. His vision and perhaps even more importantly his execution, took Hasbro against the tide and into entertainment business which led them from being the perennial Number Two past Mattel into the leadership position of the toy industry (yeah, yeah I know Lego actually has higher sales volume). My condolences to his family and friends. I hope that it’s meaningful that he left his mark and he made a difference. He left us way too young. May his memory be a blessing.
All the best,
Tom Keoughan
Who Woulda Thunk It?
Who would have thought a global pandemic wouldn’t be the biggest challenge facing the toy industry and indeed all of world trade. With logjams affecting nearly every pinch point in the supply chain, retailers are desperately searching for product to fill shelves and manufacturers are wrestling gators to bring product in and move it across the country.
I’m not going to pretend to have anything to offer those of your who are on the front lines of this battle every day. However, I will warn about the potential for echo effects in 2022. What happens when all of those containers bobbing offshore from Ningbo to Long Beach to Rotterdam and baking in marshalling yards from Shenzen to Savannah finally do get delivered? It could create a big enough pile to create an inventory recession. Could there be so many goods stacked on store shelves, in stockrooms, and in warehouses owned by every conceivable player that nobody needs to order anything for a pretty long time?
In addition, the consumer is quite flush now, I can see a euphoria of spending once the 2021 holiday sales season hits and hopefully COVID begins to wane. Will they overshoot their budgets? You betcha! Add to that, in July, Equifax reported that consumer borrowing was at ten year highs. That’s a recipe for a big spending hangover in the new year.
Let us not forget that, with movie theaters shut down for two years, there will be a mad rush of licensable films released in 2022. It can be extremely difficult to sort out the winners from the losers. We may be able to finger the clinkers but a lot of companies will make suboptimal choices.
With this triumvirate of risk, I would suggest that companies proceed cautiously with their weight on the back foot. Then again, what do I know. I’m just the headhunter.
Regarding toy industry employment – despite outstanding toy sales in 2020 which have continued into 2021, supply chain woes have affected hiring, too. In the spring, clients were telling us: “We’re busy. We need people but there is so much uncertainty in the supply chain that we’re going to hold off for now.” That all changed in mid-July and search starts have been through the roof since then. Those should start resulting in hires during the next few weeks. The surge in search starts is continuing which is a positive indicator for everyone.
That said, I do see Dark Clouds on the near horizon. Hopefully that’s just because I’m writing this on Hurricane Henri weekend but I don’t think so. Schools will reopen in a couple of weeks and most school districts have not prepared at all for at home or hybrid learning. Everyone wants schools to be open and children enjoy a better education when they are physically in schools – but – the powers that be seem not to realize that when it comes to the pandemic, we are not driving this tiger, we are riding it. Masks, no masks, three masks – it doesn’t matter. Everywhere you have groups of unvaccinated children spending the day sitting in classrooms together, you are going to have outbreaks. Outbreaks all over the map. Disease may not be as severe – or it may be. We don’t know. I see bad weather ahead. I wish that I didn’t. I hope that I’m wrong.
Stay safe and be well,
Tom Keoughan
Supply Chain Woes
Supply chain woes continue to dog the toy industry from chip shortages to a severely cramped supply of shipping containers and container ships. Containers can cost as much as 60-70% more than last year. Also, as imports from China have doubled, exports have remained flat. That can mean having to return empty containers to Asia which in some cases can cost companies up to $5000 dollars.
Source: Weather.com
While some observers are optimistic that there will be a “return to normalcy” in the third quarter that can leave importers gambling whether to ship now at higher rates or waiting and risking that their goods won’t get shipped on time. Compounding the risk is that if too many importers choose to play the waiting game, shipping costs could rise even further as companies become even more desperate to get their goods landed.
While some retailers are being somewhat helpful and responding to the situation as the “partners” they claim to be, others are acting solely in their own self-interest – at least thus far. Historically retailers have chosen to tighten the screws on margins up the supply chain rather than pass increased costs on to consumers. In addition, many retailers are demanding more costly June/July delivery dates and putting heavy fine systems in place for late deliveries.
Our toy sales forecast for the year is that governments are trying to reopen a little earlier than they should for political purposes and that cabin fever will lead most of the population (at least in the U.S.) to take them up on it. Whether it begins on Memorial Day or later in the summer, by September at least there will be a general reopening euphoria resulting in an enormous spending spree. While the big blowout will primarily be directed at restaurants, travel, events, etc., holiday sales will see more than their fair share of spending. Christmas comes every year and if people are in the mood to spend big that will include holiday gifts. I do suspect that the public will overspend and blow big holes in their now healthy balance sheets. That could cause problems in 2022 unless you are fortunate enough to land the right movie licenses in what will be an extremely “overmovied” year.
Source: Nytimes.com
What we’ve seen in toy industry hiring is that, during that first quarter, companies were hiring like crazy. In April, search starts slowed to a standstill, which mirrored the disappointing jobs report. They have started to rebound in May but I suspect that they will remain somewhat subdued while companies spend conservatively until they gain more clarity on the supply chain situation. I expect hiring to then pop later in the year as it becomes apparent that holiday sales are going to be quite strong. Fingers crossed.
Toyjobs would like to offer kudos and congratulations to Marian Bossard on her recently announced retirement. She has been a key driver of the success of all of our trade shows in recent years. The toy industry has been a beneficiary of her hard work and smarts and is very happy to have her watchful eye looking at the next cycle of trade events. Congratulations Marian!
All the best,
Tom Keoughan
Supply Chain Russian Roulette
Life in a seasonal fashion business, and especially in the toy industry, is always an exercise in navigating stormy seas and facing highly volatile weather patterns that change each and every year. Despite the soul crushing nature of the coronavirus pandemic, much of the toy industry spent 2020 turning lemons into lemonade. Toy industry sales shot up 16% for the year as work from home parents and home schooled kids had to try to coexist 24/7 in the same confined space. Many toy categories exploded as desperate parents moved through several stages of grief from: “keep them occupied” to “shut them up” and finally to a more enlightened “shut them up and keep them occupied with something that might be good for them.” Home improvement and “nest feathering” also skyrocketed as seen by sales gains at Home Depot, and in big inflatable pools and backyard trampolines that will probably never be used again.
All of this spending has caused a shipping glut. The need to ship so many goods from Asia to the U.S. and Europe for an extended period of time has caused ubiquitous delays. There is a shortage of containers, shortage of space on ships, shortage of ship port parking, shortage of unloading equipment, shortage of dock workers, shortage of trucks to take the goods across the country to a Wal-Mart near you and a shortage of drivers to drive the trucks, if there were enough trucks to drive.
The global freight shortage has second and third degree effects as well. It isn’t just finished goods that are bogged down by slow travels. Manufacturing inputs face shipping shortages in turn. Materials need to find their way to factories which means that everything from semiconductors to paints and plasticizers to widgets of every description need to be driven, flown, or floated to the factory door. Additionally, the Texas freeze temporarily shut down the numerous petrochemical mega-plants located in the region resulting in shortages of various kinds of plastic resins as well. Recent decisions by both OPEC+ and the Biden Administration have also resulted in the prices of transportation fuels like gasoline and diesel (not to mention jet and boat fuel) spiking up as well.
One thing we know about shortages is that they drive up prices as companies decide they will just pay more to have their products made and moved. This ends up being one big upward inflationary spiral. The potentially good news is that this was all put in motion by the pandemic and the pandemic may be in the early stages of coming to an end. That may depend on a race between vaccine and variants. Over the last few weeks vaccination rates in the U.S. have much improved. Also, most vaccines being used here have been shown to be effective against B117, the most widespread of the variants. However, there are more variants out there and Covid-19 is mutating into new variants all the time. A quick glance at the horizon shows potential trouble brewing. Experience has shown us that what happens in Europe happens here a few weeks later and Europe is currently in the midst of a variant onslaught.
We may outrace a coming variant storm through ramped up vaccinations or we may just somehow dodge it. If that is the case there could be other potential problems. Better problems to be sure but, problems nonetheless. Once the pandemic begins to die down many observers hypothesize that the supply chain will begin to catch up and normalize during the second half of the year. That sounds reasonable and I hope that’s the way it works out. On the other hand we’ve pumped an awfully lot of stimulus into the economy and while a lot of people are suffering, a lot of other people’s bank accounts are fuller than they’ve ever been. As we start to put COVID-19 behind us, I expect a BURST of euphoria and pent-up demand. Like most observers I expect demand to be focused on experiences like bars, restaurants, concerts, travel, theme parks and big nights out. That said, Christmas comes every year and so does holiday spending. I can certainly see a big spending spill into holiday gifts. I would look for the much talked about consumer savings to be spent and more than spent by the end of the year. That would be a high class problem. A much better problem than another round of “lockdowns” – but it would leave supply chain executives looking like the comedy scene in an old western movie – tapdancing bullets.
…..Sigh…..worst case scenario – the U.S. continues to do pretty well in vaccinating the public but come springtime, when the good weather comes, people are just done with Covid. No more masks, no more distancing. The bars and restaurants and beaches are full. So are the airports, the cities and hotels – and “suddenly” we get slammed with a Covid variant storm. I surely hope that’s not what happens but if you ask me quietly, that’s what I’m afraid of. You can already see it starting to set up.
Closer to home and on a cheerier note – record setting 2020 toy sales have continued to drive strong toy industry hiring. At Toyjobs we are rocking around the clock! I see that continuing unless we see a strong and prolonged bout in bad pandemic news. Every single person that I’ve spoken to really missed the New York Toy Fair. Few missed the whole annual odyssey from Hong Kong to Nuremburg to New York….but New York, they missed. Hopefully, everything begins to normalize and we can all gather together at various venues in October. That said, in the toy business never expect completely smooth sailing.
Fingers crossed,
Tom Keoughan