A sterling performance…it’s the Friday Blog!

Published on: 19th July 2019

The good news just keeps on coming. This week, sterling fell to its lowest level against the dollar since April 2017. It currently languishes just below $1.24, down 6% since May alone. The pound is now officially the worst performing major currency in the world over the past month, the past three months and the past year. Just what UK toy suppliers needed!

The recent decline has exacerbated an already challenging trading climate: terms will have been agreed with retail customers months ago, but unless orders were placed and paid for earlier in the year, the impact of a 6% drift over the past three months could be significant. Some suppliers have told me that they foresaw that this would happen and forward-bought currency last year, but I suspect that most of those reserves have now run dry. And lest we forget, all this is happening months before the dreaded no-deal Brexit scenario could become a reality. Come November, what price parity between the pound and the Euro…or even the pound and the dollar?? That may sound extreme, but before the 2016 referendum, the Euro stood at 1.43 and it is now below 1.10. A 20% currency swing takes an awful lot of margin out of the equation for all parties, and a further decline in the value of sterling ahead of next year’s selection process would certainly make for some lively negotiations in January. Knowing how retailers are inclined to request price reductions when sterling strengthens, I am sure they will be reasonable and accommodating if sterling plummets…

Elsewhere, the news that Sanrio had been fined a whopping 6.2m Euros by the European Commission for restricting cross-border sales of Hello Kitty has sent shock waves reverberating through the licensing community. If the fine seems harsh (which some suggested), remember that it covers an 11 year period where the illegal practices were reportedly in place, and that the fine would have been £10m had Sanrio not co-operated with the investigation. Also, as one prominent licensing person commented: “Licensors are quick to use audit findings to punish licensees, this is getting their just desserts.”

Speaking to several licensors and their legal counsels, some interesting feedback emerged. One licensor admitted that licensees frequently push them to address cross-border sales, and I have certainly spoken to licensees who would love to see what they perceive as a loophole closed. In addition, there is considerable doubt as to what constitutes active and passive behaviour in regards to restrictions, while some have suggested that there is a risk that some US or Asian lawyers overseeing contracts may not fully appreciate EU laws. It’s worth noting too that the ruling clarifies that language can’t be used to restrict territory, a practice which has often been employed as a stealth tactic by licensors looking to control territorial supply lines.

It is also true that complacency may have played a part: these rules have actually been in place for many years but haven’t been enforced until recently. However, the law is the law and Nike has already been fined 12.5m Euros for similar violations. One other major licensor is said to be currently under investigation, and I suspect that a lot of licensors and licensees will have been checking their licensing agreements to ensure they too aren’t overstepping the mark. When the fine can be up to 10% of global parent company revenues, it could be a very costly oversight. As to how Brexit would potentially affect this situation in future, that’s a whole other complex question for another day.

On the subject of licensing, BLE will no doubt have pleased those people who like to get organised by announcing its dates for the next five years, from 2020 through to 2024. You can see the full list here. The dates do vary from year to year (ranging from the third week in September to the second week in October), but crucially each show will avoid any clash with the Jewish holidays, a situation which has caused a few challenges in the past. For the avoidance of doubt, the announcement also confirms that the show will reside at Excel for the full duration of this period.

In last week’s Blog, I mentioned the new M&S giveaway, and I was interested to see that the promotion has come under fire this week from environmentally-conscious customers, who see the initiative as adding to the mountain of “needless plastic waste.” This is another subject which needs far more space to properly discuss than the Blog allows. Like many, I saw the recent Hugh Fearnley-Whittingstall programme and was suitably appalled (especially at the inefficiency and duplicity of some recycling companies, which makes a mockery of us all feeling we are ‘doing our bit’ by diligently sorting our recycling each week). However, I do think that perspective is important, and obviously I am not going to call for an outright ban on plastic toys that would potentially put many toy shops out of business and result in hundreds of thousands of jobs being lost across the global toy market. It’s great to see companies like MGA and Zuru actively working on recycling initiatives, but let’s be frank – the food and drink industry is by far the worst offender in this area. Most plastic toys are not in any way ‘single use’, as they are kept, played with repeatedly, then often handed down or sold on. For sure, there is a lot more that we can do as an industry (especially on the packaging front), but I see fast-food free toy giveaways and promotions like the M&S initiative as significantly more problematic, and would happily see a blanket ban on these sort of products. As, I am sure, would most in the toy community.

The big news this week was the merger of Jumbo and Galt. We’ll bring you more details on what this means for the two companies as soon as we have them. There are a couple of other major announcements to follow over the next few weeks, some involving companies and others involving significant personnel changes. It may be summer, but there is still plenty going on below the surface in the toy world – the days of taking the summer off to play golf are long gone!