I’ve spent the past week in Hong Kong, so this week’s Blog is the first in a series of articles in which I will offer some ‘takeaways’ from the trip. Despite being on the other side of the world, it has been impossible to escape the ominous reports of retail Armageddon back in the UK. The British Retail Consortium didn’t pull any punches, describing Christmas as the “worst in a decade.” Mothercare’s continuing sales decline was perhaps unsurprising, although the 16% drop in online sales was alarming. Debenhams imminent restructuring has been on the cards for a while and the retailer claimed that its festive sales “could have been a lot worse”, but that didn’t stop the share price from falling 7% yesterday, meaning a chain with over £285m of debt is now worth a smidgeon over £60m. The resulting turmoil saw the chairman resign after being voted off the board by shareholders including Mike Ashley, while the CEO was also voted off but is staying on (for now). What a mess.
Sainsbury’s results were of far greater concern to mainstream toy suppliers, with the admission that Argos saw a double digit fall in toy sales over the festive period. One can only imagine how bad the numbers would have been without L.O.L. Surprise! and had Toys R Us still been around. The disarray that suppliers have been referring to was obviously very real and the impact tangible. When you take into consideration the fact that most people are expecting the NPD 2018 figures to show a marked decline, you could easily draw the conclusion the picture doesn’t exactly look rosy.
I reference these developments for valuable context. You might be forgiven for thinking that the mood out in Hong Kong would have reflected these reports and been on the subdued – even sombre – side. So, you may be pleasantly surprised to hear that this wasn’t the case – far from it.
I know what some of you are thinking: people tend to put a brave face on it, and some may even go so far as to brazenly lie when speaking to a member of the press. However, I have spent four decades building up a network of well- positioned contacts who know that they can be honest with me – and if they aren’t, I am going to find out anyway. Ok, I haven’t fitted anyone with a lie detector (yet), but after all this time I think I can tell when people are telling the truth.
Genuinely, the mood here has been good; almost buoyant even. One person summarised it perfectly: “I’m more pleased with the atmosphere than anything else. We’ve got a great line, but that would be irrelevant if retailers had a load of stock left and weren’t in a positive frame of mind.”
The feeling is that that the retailers which were expected to do well did so. The majority seem to have come out fairly clean in terms of carry over stock: anecdotally, after a flat November, the feeling is that December – and weeks 51 and 52 in particular – were pretty good. Few retailers over-bought, so they can approach the year afresh without the burden of last year’s residual stock.
Ok, let’s not get too carried away just yet: one person suggested that the watchword for 2019 would be ‘prudence’, and that seems eminently sensible with Parliament in even greater disarray over Brexit than Argos was last year (and that is saying something). Another suggested that the nimbler buyers are ‘eating the lunch’ of those buyers who are just sticking to seeing their tried and trusted suppliers and not responding to meeting requests from companies who have some hot lines.
I digress but trying to explain Brexit to incredulous international contacts has been an interesting challenge this week. I tried to make light of it, referencing the Boaty McBoat Face saga and suggesting that if the British public can’t be trusted to name a ship, it should have been a warning signal not to offer a referendum on such a complex subject. Nevertheless, the fact remains that a deliberate act of economic self-harm isn’t something many global business people can readily comprehend. At least the Americans can relate to our predicament, likening it to ‘the wall’ or China tariffs – both as incomprehensible from an economic standpoint as Brexit. Like us, the US toy community is grappling with factors beyond its control.
The January Hong Kong trip itself appears to have condensed into a slightly tighter time frame, with schedules being less packed than the reduction in days would perhaps have suggested. Toys R Us continues to cast a long shadow over certain territories, although everyone who visited it was massively impressed with the Toys R Us store in Harbour City. With over 60 new stores set to open in Asia this year, Jo Hall and her team are clearly doing a great job in the region – all credit to them. The demise of Top Toys also cropped up frequently in conversation, with one supplier even suggesting that it would have an even greater impact on his business than TRU, due to its overwhelming dominance in the Nordic region (both as a retailer and a distributor), and the lack of any viable alternatives.
People continue to focus on the suggestion that the TRU business has all but evaporated, but I would like to posit an alternative perspective, which I touched on earlier in the column; if TRU had somehow survived in the UK market, how would other retailers have performed? Whether a few percent up or down or simply flat, is it the case that retailers did in fact pick up business, without which they may all have been significantly worse off than they were? Did the disappearance of TRU save others from a similar fate?
I’ll leave you with that thought and welcome any feedback, whether you agree or disagree with the theory. There is plenty more to say from Hong Kong, which I’ll be covering in a couple of ‘bonus’ Hong Kong Blogs next week. The first will incorporate a few thoughts and observations on the licensing arena based on feedback I picked up during the trip, while the second will detail some of the products I am allowed to actually talk about at this stage of proceedings. And, whatever you may have heard to the contrary, there are plenty of great new innovations heading to toy aisles this year – as long as they don’t all get stuck in a ten mile queue at British customs!