A masked shopper due to the coronavirus disease (COVID-19) pandemic browses toys at a Target store in King of Prussia, Pennsylvania, November 20, 2020.
Mark Makela | Reuters
Even from the front porch of his Malibu home, toy chief Isaac Larian can’t escape the biggest business challenge of this holiday season. He sees a long line of idle container ships at the Port of Los Angeles, about 70 miles away.
Larian, CEO of MGA Entertainment, said the congested port has been continuously monitored off the California coast since at least May. When he tries to relax and watch the sunset, it’s constant. a reminder of the many toys that haven’t arrived yet.
A delay in the unloading of ships could jeopardize whether parents can buy toys in time to wrap them up and hide under the tree. If they pass up the opportunity, toys can get stuck on the shelves with stickers until winter.
“I see an ocean full of containers,” he said. “Ship by ship by ship, full of containers awaiting unloading.”
He said the company, maker of LOL Surprise, Rainbow High and Little Tikes, currently has enough inventory to meet about 65% of backorders. He said that MGA Entertainment expected 50% sales growth this year, but now expects 18-20% growth. He did not provide specific revenue figures because the company is privately held.
Larian is just one of many toy makers grappling with a serious bottleneck in the global transportation pipeline caused by the coronavirus pandemic and exacerbated by the blockade of the Suez Canal in March. Shipping containers that once cost $ 3,200 are now selling for $ 20,000, Larian said. And even when the containers are unloaded, there are not enough truckers to deliver these goods.
Power outages in China, resin shortages and higher labor costs have also limited the supply of goods and increased prices.
“This is really a very complex set of problems with a chain effect, and I am afraid that this will continue for a long time,” said Larian.
No company is insured. The larger ones do have more resources. Home Depot and Costco have gone as far as contracting specialized container ships to speed up their orders. Larger companies also have the money to place orders long before the goods are needed. Hasbro and Mattel did not respond to a request for comment on the story, but executives stressed that large toy companies are better equipped to deal with these issues.
At a Goldman Sachs conference in late September, Hasbro CEO Brian Goldner said his company “uses all kinds of tactics and techniques to ensure we have the product we want.” This includes nearly doubling the number of ports it uses in the US and adding a number of new ports in Asia, he said.
Hasbro expects some of the toys to be delayed early in the fourth quarter rather than the end of the third, but the toys will hit shelves in time for peak shopping season, he said.
“We think we will have all the products, although we might want a little more products in certain categories, but we will have a product for the holidays,” he said.
These products will be more expensive. At the same investor conference, Mattel CEO Inon Craise said his company is raising toy prices to cover higher costs, but he doesn’t expect this to reduce demand.
“We believe the toy industry as a whole will remain a strategic category for retailers,” Craise said. “The goods are not expensive. And parents will always prioritize spending money on their kids, especially when it comes to quality products and reliable brands. ”
Market researcher NPD Group estimates that total holiday spending in November and December will rise 3% over last year and 5% if the season is extended to October and early January. Meanwhile, consultants Bain and Deloitte estimate holiday sales will grow at least 7% to roughly $ 800 billion.
Less variety and concise offering
There won’t be the only holiday toy to have this year, according to industry analysts. Instead, they anticipate that consumers will gravitate towards the products they most loved during their isolation.
“There are several character-oriented [toys]”said Nikki Byrd, vice president of retail innovation at Aptos, a retail technology company.” [is] on sensory games such as kinetic sand, water toys, lego, fidget toys. And also toys that contribute to the development of exploratory play. “
Parents who typically look forward to late November and December sales will want their kids’ wishlists earlier this year.
“If your child likes something, buy it now,” said Steve Pasirb, CEO of the Toy Association. “Do not wait”.
Last year, due to the pandemic, retailers encouraged shoppers to pick up gifts in advance. Amazon, Target and Walmart, among others, kicked off holiday sales in October. Even then, the bulk of sales came in December, although a small portion still shifted forward, according to NPD.
October generated about 16% of fourth-quarter toy sales in October, up 3% from 2019, according to NPD. Toy sales rose in December and accounted for 55% of the total catch in the fourth quarter, down 3% from a year earlier.
That 3% jump means toy sales at the start of last year’s season were around $ 400 million, while toy sales reached $ 11.5 billion in the holiday quarter.
To cope with the stock shortage, Pasirba said retailers are betting heavily on fewer items. This was a strategy that was used during the school season as well, and is likely to mean fewer choices for consumers.
Game set LOL Surprise OMG House of Surprise from MGA Entertainment.
It can also be difficult to find toys that were popular during the pandemic. Neil Saunders, managing director of GlobalData Retail, said he noticed there are now no items in stock and less inventory to make the toys and toys that parents used to keep their kids entertained. He also noticed gaps with fidget toys, plush toys, and dolls.
Larian told MGA that items such as the LOL Surprise OMG House of Surprise playset, which is on Walmart’s best toys list, and the LOL Surprise Movie Magic Studios box set, which is on the Target list, will be harder to find.
“LOL House – This item costs over $ 200 and is big,” Larian said. “You can only fit 150-200 in a container. You cannot deliver it by air. “
On the other hand, he said, numerous LOL Surprise blind bags – wrapped bags with small collectible toys hidden inside – could fit inside a 40-foot container or be shipped by plane.
There will also be a shortage of the company’s fashion dolls, the production of which requires a lot of labor. Larian said the average production cost of MGA toys was up 22% from last year.
Larian said there are many dead links in the supply chain, not only in China but also in the United States. For example, he said there are not enough truckers to transport containers when they reach shore, or enough workers for in-house production facilities.
He said wages at Ohio-based MGA’s Little Tikes rose 60% as the company struggles to fill manufacturing jobs.
The ripple effect
Walmart and Target are hiring additional supply chain workers to keep goods moving during the holidays and beyond. Walmart, which employs approximately 1.6 million U.S. employees, recruiting 20,000 people for positions such as order fillers and freight carriers. Target, which has about 350,000 employees, employs 30,000 supply chain employees.
Target said it will also highlight the importance of its toy department this holiday season by roughly tripling the number of Disney stores in Target locations and partnering with FAO Schwarz on a time-limited collection.
Higher labor and transportation costs will also have an impact on buyers. Prices could rise by 20% this holiday season, according to a recent report from Salesforce.
“There will be deals, but supplies are scarce and retailers will not want to do big deals for toys,” Saunders said. “It will be a more expensive holiday.”
A new report from the NPD Group indicates that 29% of US consumers plan to spend more on holiday shopping this year than last year.
“While prices may be higher this year, they will be presented as a discount,” said Aptos’ Byrd.
“Retailers know they are competing with other retailers for a limited proportion of consumer wallets — a one-time seasonal expense,” she said. “Since retailers are competing with each other for this share of the cost, I expect promotions to be offered even with a limited supply.”
LOL surprise toys on the shelf at Target.
“If retailers don’t have the toys customers want, stores can skip sales in other product categories,” Larian said, explaining that retailers often use toys as a “loss leader” to attract customers.
“Toys are an emotional purchase,” he said. “Toys increase store traffic because as a mother or grandparent, when you go to Target, Walmart, or even Amazon to buy toys, you end up putting more stuff in the basket than just that toy.”
Larian said retailers will be hurt this holiday if items don’t hit shelves on time. Then, he said, toy companies will suffer in the coming quarters as retailers try to sell items in warehouses rather than place more orders.
“Christmas is December 25th,” Larian said. “If we don’t get the goods on the shelves before this moment, then sales will drop significantly after that. These toys have already been made. The stock hangover will last until January, February, March, April, if not longer. The warehouses will be full of goods. “