A week on from the latest in a succession of shock election results, the economic fall-out continues.
On the plus side, the pound hasn’t slid too much further, although a rise in the US interest rate may yet see the dollar strengthen and the pound weaken. Meanwhile, it has been revealed that UK retail sales fell in May for the second time in three months. The drop from April was only 1.2%, but that was still worse than the 0.8% which had been predicted.
The spectre of inflation is also beginning to loom, having risen to its highest level for four years. Interestingly, toys and hobbies were specifically mentioned as contributing to the latest rise, with the BBC reporting that toy prices have – and I quote- “shot up by 2.7%”. Frankly, if that’s all that toy prices increase by the end of the year, it will be little short of a miracle.
So, how does all this general economic data relate to the toy market? According to NPD, UK toy sales are down 1% year-to-date, although that presumably doesn’t include a significant chunk of sales generated by spinners, as a large number will have been sold by stores that are not part of NPD’s point-of-sale panel. Whatever the overall figure, there is no doubt that spinners have provided a welcome boost in what may have otherwise been a tricky few months for toy retailers. And if there are signs that spinner sales are starting to slow down (as has been suggested in some quarters this week), exacerbated no doubt by the fact that every man and his dog is now stocking them, it’s worth bearing in mind that selling 100 – 150 of anything in one toy shop on one day is still a rare occurrence. There is slowing down and there is slowing down.
I mentioned in last week’s hastily rewritten post-election Blog that I would return to the subject of FOB ordering this week. For years, it seems that the FOB budgets have largely been ring-fenced. I suggested back in one of my Hong Kong Blogs in January that this year might see a reversal of this trend, and from what I have been hearing from suppliers, I wasn’t too far wide of the mark. Many FOB orders appear to have been placed far later this year, and initial orders are said to be coming in significantly below previous levels. I remember having a conversation many years ago with then-Hasbro MD Bryan Ellis, in which he railed against what he saw was the over-reliance on FOB by certain major buyers. He acknowledged the role that FOB lines played in the overall margin mix, but felt that the balance had been lost and domestic suppliers were being unfairly punished. Of course, in those days, if cancellations were required in the autumn, FOB lines were exempt – once the order was placed, it was essentially irrevocable, so any cancellations fell on domestic lines (even if the warehouse was full of FOB stock that wasn’t shifting). FOB doesn’t seem to work quite like that anymore – the order process can be more akin to domestic ordering (little and often), but of course the retailers still want the FOB margin. It will be interesting to see how this all pans out in the fullness of time.
Another area of seemingly perpetual interest to the toy industry is Toys R Us. Its first-quarter figures, unveiled this week, were frankly disappointing. Sales continued to decline, losses widened, and while Europe’s performance was better than the US, the turnaround it was hoping for hasn’t materialised yet. With new people at the helm in both Europe and the UK, and suggestions circulating of some bold new strategies (the rumour of a ‘won’t be beaten on price’ guarantee – if true – is particularly brave…), the whole toy community is watching closely.
They’ll also be watching Smyths closely in future, now that new Irish financial regulations mean that Irish companies will be forced to file public accounts in future. All that speculation about what Smyths turns over and what profit it makes should finally be laid to rest.
Finally, I rather liked this image – wouldn’t it be great to see it on a range of back-to-school stationery in the coming months…