When the ship hits the fan…it’s the Friday Blog!

I make no apologies for returning to the thorny subject of shipping this week: unsurprisingly, this ongoing issue is dominating most toy conversations at the moment. One of the few positives about the situation is that just about everyone is in the same boat…literally.

This week has seen container rates spiraling once more, with prices on the Asia to Europe route reported to be edging towards $20,000 for a 40ft container. As a result, it seems that some retailers are postponing or cancelling orders, seemingly in the belief that this will all blow over in the coming weeks / months and they’ll be able to reinstate their orders at a lower rate. Now, about that…

After we posted the original story on LinkedIn, we had numerous replies confirming that many buyers across the globe are indeed in a quandary about what to do, with some pushing the pause button on deliveries. One respondent based in the Far East said: “We have one retailer with 14 containers waiting to be shipped, because they are waiting for cheaper prices. The same retailer is putting pressure on us to confirm an order for August shipment and all Q4 shipment orders. What to do?” Someone from Israel posted: “I had companies here delaying when the cost was $8000, and now its $17000. There is no choice but to take the products as soon as they are produced. No stock=no sales.”

In a nutshell, this is pretty much spot on – I bet the company which postponed orders when the container price was $8000 was kicking itself when it doubled. And here’s the news I doubt any of you want to hear; I spoke to someone who works in sea freight sales for the world’s largest shipping company this week, and it is his considered opinion that prices have not peaked yet. He sees August as the likely pricing nadir and believes that…wait for it…rates could hit $25,000-$30,000 over the late summer period, as festive stock starts to flood in. And as I have suggested previously, while prices will eventually correct, it is his belief that this is unlikely to happen for a good while yet – certainly not this year, and maybe not even in ’22.

The general feeling seems to be that conditions are not likely to change dramatically until the new vessels that have been ordered by carriers are ready to launch, which will help to relieve the current capacity issues – and that is widely believed to be 2023.

I am sorry to be the bearer of bad news. Of course, this is just one person’s prediction – but in fairness, he is well-positioned to know what he is talking about. I pondered over whether to share what he said, but decided it is better to put it out there, so people can at least do some further investigation with their own service providers and also factor this potential outcome into their planning.

To add insult to injury for our UK-based readers, it also appears that despite the sky-high container rates, UK business is not particularly attractive to some container lines. Apparently, the imbalance of trade – with a ratio of four import containers for just one export – is causing certain carriers to favour other routes with a better balance between import and export, to help make sure that containers are in the right place. Industry sources suggest that UK ports are the first to be omitted on an ad-hoc basis when carriers want to reboot their networks, while some of the Asia-North Europe alliance lines are even rumoured to be in favour of the UK being served permanently via feeder services from Antwerp or Rotterdam.

So, what is the upshot of the ongoing disruption in China and absurd shipping price rises…could it all lead to product shortages, price rises or non-deliveries (or all three)? Very possibly. On the other hand, if you are a toy company with stock already on the ground or on its way, you could be in a strong position. If last year saw the toy community encouraging consumers to shop early for Christmas to avoid disappointment, this year may well see that message needing to be repeated…on steroids. Apart from the occasional story – most of which almost downplay the gravity of the situation – the mainstream media has yet to pick up on these developments in any meaningful way, so in the main, the public remains blissfully unaware of what may lie ahead over the coming months.

Away from shipping lanes, there has been plenty of other news this week: hearty congratulations to all those who participated in the Toy Trust’s Around the World in 80 Hours event over the past week, which has so far raised over £20,000 for its charity partners, and to Andrew Laughton who has just completed a mammoth 110km trek in aid of both the Toy Trust and the Fence Club, which you can read more about here. We also wish all the best to Casdon’s Roger Howard, who has retired after spending an incredible 45 years with the company – from starting as an office junior at the age of 16, he must have seen so many changes, both at Casdon and in the wider toy market, over his illustrious career. Elsewhere, I understand that Jacqueline Taylor-Foo has parted company with Melissa and Doug, while Julia Cake will be leaving Magic Box for pastures new today. Her replacement will be unveiled soon, while there are a couple of other impending announcements about high profile appointments which we look forward to bringing you shortly.

Finally, I wanted to bring you some news to cheer you up after the relentless barrage of challenges business is currently facing. So how about this: it turns out that China didn’t have a leak at a nuclear power plant in Guangdong this week after all. No, it turns out that reports of a leak just around the corner from where a very large percentage of the world’s toys are made were exaggerated. Admittedly, five fuel rods broke in the reactor, and while I am not a nuclear scientist, I am guessing that probably wasn’t ideal. However, the rise in radiation was apparently contained and contrary to reports on CNN, there was no leakage into the environment. So that’s good news – after the year we’re having, a nuclear incident in the heart of global toy production would have been the icing on the cake. So thankfully it’s as you were, nothing to see here – just the small matter of meltdown in the global logistics chain to deal with after all. Phew.

China crisis…it’s the Friday Blog!

Worry not, the Friday Blog hasn’t taken a leftfield turn into covering obscure 80s bands for which even Barry Hughes or Phil Ratcliffe would struggle to name more than one song they recorded. No, this week’s headline is far more literal – as any suppliers and retailers dealing directly with China will know only too well, this year has seen a steady stream of challenges, which have gradually turned from being a short-term inconvenience into something potentially far more problematic.

For anyone who has been asleep (or on furlough) since the turn of the year, a very rough summary goes thus: major fuel and raw material price increases, along with increased lead times exacerbated by severe container shortages and rising shipping costs, have put huge pressure on suppliers to increase prices to mitigate their spiralling costs. This week has seen further complications thrown into the mix, in the form of power shortages and rumours of fresh Covid outbreaks in China. First, let’s look at the power situation: several cities in Guangdong (where many toy factories are located) have apparently asked factories to curb power usage by suspending operations for hours or even days at a time, as a combination of high factory activity and hot weather have placed considerable strain on the region’s power system. Apparently, a combination of strong global demand and extra air conditioning required in sweltering heat has pushed the local grid to its limits, not only resulting in power shortages, but also causing short-term electricity prices to surge.

According to well-placed sources, the situation has been compounded by local outbreaks of Covid, which have resulted in some factories being forced to shut down entirely. I have this on relatively good authority – both from people on the ground and also people in the UK and US talking to local factory owners. However, officially, there are no Covid outbreaks – at least, not according to Chinese media or government sources, who are maintaining their stance that China has the Covid situation firmly under control. Indeed, it doesn’t even want to open the local borders and let people from Hong Kong into China, lest they bring the disease with them (allegedly). This column would be filled with eye-roll emojis if the formatting allowed it…

All of these seemingly endless complications are certainly not helping to bring the shipping situation under control – one supplier was complaining to me this week that he had been forced to pay $16,000 for a container, while there are online reports of auction rates for short-term container slots exceeding $20,000. And for those people who had hoped this was just going to be a short-term issue lasting only a couple of months, that hope is perhaps looking a tad optimistic…

Someone even went so far as to post on my LinkedIn feed: “Trump was right – time to move production back to the US & Europe.” Indeed, at first glance, there may be some logic to ‘reshoring’, or at very least looking at alternative production options closer to home, such as Turkey or other European facilities. That said, there would also be many potential challenges in pursuing that strategy – not least the question of whether the manufacturing capacity / infrastructure is quite there if everyone looked to move away from China simultaneously. However, the whole question of supply chain diversification definitely justifies further investigation. I just have difficulty with the phrase ‘Trump was right’ – albeit even a broken watch is right twice a day.

To be fair, with all the challenges China is currently facing, there is little doubt that the surge in global demand for consumer goods is a major factor behind many of them, making it a better class of problem in many respects. NPD released the sales data for the US toy market between January – April this week: I thought the UK was doing well, but driven by generous stimulus cheques, the US market has absolutely exploded in Q1. Sales increased by 27%, equating to a whopping $1.5b additional sales. With further handouts – in the form of child tax credits – due to put extra cash into parents’ hands every month from July to December, it would appear that the US toy market’s stellar performance is set to continue throughout 2021.

We’re seeing evidence that the UK market is well on the road to recovery too: in addition to Hornby’s strong set of results, stories this week have included new marketing campaigns being launched, new funding secured, and new distribution and licensing deals being signed. I also know of a couple of senior people taking on new roles that we will be able to announce shortly, while our recruitment section has literally never looked so healthy – we had to find a way to extend it this week, in order to fit on all the companies who wanted to advertise new vacancies.

Of course, it’s not all plain sailing: I heard of a certain online retailer (go on, take a guess…. yes, that’s the one) which placed a large order with a UK toy supplier for a line which the company has never stocked. Naturally, the company didn’t – couldn’t – deliver it. So, the online platform deducted a hefty sum from the company’s account for non-delivery… of an item it physically couldn’t supply. Despite subsequently admitting fault, the online platform still hasn’t recompensed the supplier, despite this unfortunate error occurring quite a while back. As they say, at least Dick Turpin wore a mask…

Thankfully, the toy company in question is large enough for this unfortunate incident not to have crippled its cash flow, but there is no doubt it could have completely pole-axed a smaller supplier. And yet, if the ‘revolutionary’ G7 global minimum tax initiative does actually go ahead as planned, it appears that the online retailer in question is unlikely to be affected, because the new regulations will only apply to companies which have a 10%+ profit margin – which this company insists it does not. No, sorry, I’m all out of eye-roll emojis.

Finally, as the Toy Trust’s Around the World in 80 Hours event starts today, we wish the participating companies all the best – and I just hope they find it a whole lot easier to get ‘around the world’ than their containers are at the moment.

 

 

My ship isn’t coming in…. it’s the Friday Blog!

A week ago, I wasn’t aware of Yantian Port in Shenzen. I have subsequently found out that it is the largest single container terminal in the world, responsible for handling around 25% of China’s trade with the USA, as well as being an important staging post for China to Europe shipping. The reason I now know so much about Yantian is because it was forced to close last weekend after a Covid outbreak was detected. The port partially re-opened earlier this week, but it was certainly not back to full capacity straight away, and a backlog had already built up while it was shut. In a year when there have already been shipping delays and prices rising steeply, it was the last thing anyone needed – it never rains, it pours.

It does, however, serve to remind us that we are not quite out of the woods yet when it comes to Covid. China, Hong Kong and much of Asia seemed to have got the problem largely under control, but inevitably there will be flare ups like this for a while yet – illustrating that even the smallest of ripples in China can reverberate around the world.

Staying in the Far East for a moment, talk has recently turned to potential trade shows and buying trips for the autumn period. Eolo’s Alex Prieto recently conducted a survey on LinkedIn, asking people where they were planning to visit in September and October. The fact that Hong Kong came out on top (closely followed by Distoy, LA and Dallas in that order) surprised me, not least because my understanding is that Hong Kong is likely to remain off limits to international travellers for a while, unless they are prepared to submit to the reputedly hideous ordeal of 21-day quarantine. I would caveat that statement by saying that there is no official confirmation that the quarantine requirement will not be lifted by the autumn.

However, there are a few things to keep an eye on (courtesy of a couple of well-positioned local sources): if quarantine is lifted, it may be gradual, with countries that have a high vaccination rate given priority. A Hong Kong trip for buyers from UK, the US and Israel isn’t quite the usual October demographic. Second, much depends on Hong Kong’s own vaccination programme improving: a few weeks ago, it was announced that the territory was on the verge of discarding three million unused doses of the vaccine, due to poor take-up from locals. They have even launched a competition for people who have been vaccinated, with the prize of a £1m apartment, to encourage more people to take it up (this is not a joke). You might have thought that the opportunity to avoid a most unpleasant illness (or worse…) might have been sufficient incentive, but given the dismal progress so far, apparently not.

Part of the reticence has been attributed to local people seeing little evidence of Covid as they go about their daily lives. This will also potentially make it harder for Hong Kong to open up its borders: case numbers are so low that any increase could be seen as a failure. Oh, and one more thing: the Winter Olympics is being held in Beijing in February ’22 – one person has suggested to me that if Hong Kong borders have not opened by late summer, it may be the case that they stay shut until after the Olympics. That is just his considered opinion, but it is worth keeping an eye on the situation over the coming weeks.

Of course, it has been 15 months since the last trade fair / buying trip, and thankfully the toy community has proved remarkably adept at coming up with ‘workarounds’ to keep the wheels turning in the absence of events. I suspect that when events are able start up again (hopefully very soon, and certainly for Toy Fair Season ‘22), it may be the more entrepreneurial, privately-owned retailers and suppliers that will be the most enthusiastic, seeking as ever to gain that crucial competitive advantage – I wonder if it may take the more corporate organisations just that little bit longer to return to the fold? And could we also see a slightly rationalized calendar of events? As ever, I have no doubt that the strongest will survive, and maybe even find themselves strengthened as a result…

Speaking of ‘survival of the fittest’, B&M unsurprisingly posted a stellar set of financial results for the past year, with sales and profits climbing, no doubt aided by its stores being able to stay open during all the lockdowns. Higher general merchandise sales helped improve gross margins too – a timely reminder of the value of non-food sales to multi-channel retailers.

Elsewhere, there have been plenty of other ‘good news’ stories across the toy community: Toytown opened its largest store to date in Merry Hill; Goliath has been on the acquisition trail again, bringing Fun Promotion into its growing portfolio, while Will Abigail has set up a new sales agency – WA Agencies. Our online recruitment section continues to add numerous new vacancies on a weekly basis, and with our first client visit in over a year under our belts, it somehow feels as though a semblance of normality is returning – slowly, but surely.

Finally, next week sees the start of the Toy Trust’s latest fundraising event – Around the World in 80 Hours. It’s a fantastic initiative, raising money for two very worthwhile charities – myAFK and Handicapped Children’s Action Group – which provide essential mobility to children who would otherwise not have access due to long NHS waiting lists. Funds will provide specialised trikes, bikes, wheelchairs and walking aids as well as other important mobility apparatus for deserving children. Good luck to all those taking part, and I hope everyone across the toy community will get behind it so that it raises as much money as possible.

ICYMI: Getting away with it …it’s the Friday Blog!

In case you missed it last week, due to the bank holiday, here’s the latest Friday Blog.

We were speaking to a prominent retail owner this week, for a very special article you’ll be able to read in our July issue about a milestone anniversary the retailer is celebrating this year. After much enjoyable reminiscing – we started out in the industry within a year of each other, so we share many great memories – talk turned to the current trading conditions, especially the issues around pricing. I know all too well what suppliers think about the situation, but I was curious to hear first-hand what a major retailer had to say on the subject.

As far as I am concerned, any retailer who point blank refuses to even discuss price rises is – as Orwell would say – “rejecting the evidence of your eyes and ears.” Facts are facts: this year has seen massive increases in freight costs and the price of raw materials – the retailer we were interviewing described them as “unprecedented” (yes, that word is back again – I thought we might have heard the last of it after significant over-use last year, but apparently not). Even when inflation was running at double digits, it apparently didn’t have the seismic impact on pricing that this year’s perfect storm of factors has produced.

But of course, just because retailers should listen to reason doesn’t mean they are. So, I was pleased to hear that our interviewee was prepared to accept price increases – as he admitted, some store racking had gone up in price by 17% since he initially placed the order six weeks ago, plus he has a direct import programme, so he knows that suppliers aren’t crying wolf. In his own words: “We need our suppliers to be successful. Give and take is important in a partnership. We all have the same objective – to sell more toys and earn a living.”

However, he did have one very important caveat: that suppliers need to apply increases consistently across ALL accounts. The message was abundantly clear: woe betide anyone who forces an increase on him but doesn’t do exactly the same to all of his competitors, giving them a competitive pricing advantage. So, potentially, it just takes one brick in the wall to make the whole thing crumble…

Just like last year, I think the key to navigating these ongoing supply chain challenges will be open and honest communication, and a partnership-driven mentality. To be fair, the toy community pulled together superbly last year to ensure we coped admirably with the prevailing conditions. Hopefully more of the same will have a similar effect this year.

We saw at first hand just how close knit the toy community is with the response to a couple of stories we ran this week. One was a nice story: toy industry stalwart Malcolm Cook will be retiring next month, and it was lovely to see so many people wishing him well on our social media feeds, with many others getting in touch to ask for his contact details to contact him personally. Both retailers and suppliers queued up to send him best wishes…it’s good that Malcolm’s customers thought so highly of him, but also noticeable that others on the supply side (essentially competitors) were equally fulsome in their praise. The toy community really can be a lovely place to work sometimes.

However, the second story showed the not-so-good side of the toy market. Some of you may have traded with an online retailer called Squizzas. Some may have had problems getting paid. It happens. We highlighted the operation’s demise to keep people in the loop, but things took a further twist when the story prompted several toy companies to get in touch to let us know that the people behind Squizzas are apparently attempting to start up all over again under a new name. So, it was time for Toy World to go all ‘Rogue Traders’ and do some digging: we turned up some very interesting information, which we were happy to share, just to make sure the toy community has the full facts and can consider their next moves accordingly. It’s disappointing that this sort of behaviour still goes on, but as the UK toy community is a relatively small place, at least it is just that bit harder to get away with it.

Over the past few weeks, it has been good to see normal life gradually creeping back – I have my first in-person ’22 Preview next week, the first time I have visited a client’s office in over a year. Speaking to another supplier this week, he told me he was in the process of booking flights and hotels for Toy Fair Season ’22. No doubt it’s a subject we’ll be covering in more depth over the coming weeks – there are a few shows still hopeful of taking place in the second half of this year, and it won’t be long before we all need to start thinking about our plans for next year’s events. There is still some uncertainty over international travel and more than a few grey areas that need to be clarified (not least the quarantine situation, both here in the UK and in international territories). However, I get the sense that with the UK vaccination programme proceeding apace, we might be slightly more welcome across the globe than visitors from certain other countries.

Finally, with a lovely bank holiday beckoning and a weather app mercifully free from that awful storm cloud which has been a permanent fixture for the past few months, you might like some quality reading matter to accompany the break. In which case, may I point you in the direction of our June issue, which will be arriving through your door any day now. It’s another absolute corker, with some cracking content, including our first-ever in-depth look at the Kidult market. We’ve only been able to consistently publish such strong issues over the past year because of the amazing support from the toy community – thankfully, the vast majority of you understand and appreciate the value of partnership, and the fact that we can all help each other through this. Stronger together indeed…

ICYMI: Here comes the rain again …it’s the Friday Blog!

First up this week, a polite request to all the Art & Craft, Puzzle and Games suppliers – could you please stop doing your rain dances? I appreciate that you have some very big numbers to anniversary from last year, but I think we’re all fed up with the incessant downpours now. As it looks like many of us won’t be heading abroad for either holiday or business this year, it would be so much easier to come to terms with if the weather was being a little kinder. Last year, Lockdown 1 was so made so much more palatable by the beautiful weather – but this being the UK, I guess that hoping to get that lucky two years in a row was always going to be a long shot.

On the subject of international business travel, there was some potentially good news for the toy community this week, as the Bavarian region of Germany – home to the Nuremberg Toy Fair – has provisionally given the green light for trade shows to run again from September. There are inevitably caveats regarding the infection rate and vaccination process continuing to go in the right direction, but it’s an encouraging first step. Of course, we have been here before, so I doubt anyone is getting too carried away yet. Indeed, the fact that IFA Berlin – a leading consumer electronics trade show – has decided to cancel its event planned for September shows that exhibitor and visitor sentiment isn’t quite there yet. Hopefully that will change by the start of next year.

However, a key component of the announcement was the fact that business travellers will be exempt from local quarantine restrictions. The idea of having to spend anything between 10-21 days in a hotel room before setting foot into the public realm is obviously one of the major barriers to visiting trade shows and events across the globe. And with the tightly-packed trade show schedule in January – when the Hong Kong, London, Nuremberg and New York Toy Fairs all take place within a six-week period – writing off two weeks stuck in a hotel room makes an international trip a non-starter for so many. With over seven months to go before Toy Fair Season ’22 starts, there are no doubt many twists and turns ahead – but this is certainly positive news for those who are looking forward to the return of trade events.

Before then, we have the little matter of the second half of the year to attend to – Q3 and especially Q4 is where the toy trade really wins or loses. 2021 has got off to a very positive start, so hopefully the business end of the year will continue in a similar vein. I have little doubt that demand for toys will remain strong, but it is going to be interesting to see what happens in terms of pricing in the coming months.

We’ve written extensively about container shortages, shipping capacity issues and the scarcity of computer chips in recent weeks – all of these factors will have a significant impact on suppliers’ profit margins. To be fair, there is rarely a year when nothing happens to affect pre-determined pricing models as the year unfolds – but this year, it really does feel like a perfect storm is brewing. In addition to the challenges we’ve already covered, you can also add the strengthening of the Chinese currency (Renminbi) and a big surge in raw material prices. Currency fluctuations are way beyond anyone’s control (except perhaps the Chinese government…sorry, too political?), but the increase in raw materials is the real killer. Oil prices have recovered sharply since last year’s plummeting rates, sending the cost of plastic through the roof, while the price of paper & cardboard and metal have also shot up.

None of this is a big secret – most large global retailers have their own direct import programmes, so they know the challenges that suppliers are facing. Has it made them more sanguine about accepting price increases? I’m hearing conflicting reports: some say retailers appreciate that price rises are inevitable, while others say retailers are pushing back and refusing to accept them.

I suspect that some retailers are more accommodating than others, while equally they may push back a little harder on some suppliers than others. Conversely, perhaps suppliers adopt a tougher line with certain retailers. It’s all a bit ‘law of the jungle’, and there are hierarchies and pecking orders on both sides – but at least if there is an ongoing dialogue and negotiations are approached in the right spirit by both parties, a solution can hopefully be found which works for both parties.

But what constitutes ‘the right spirit’? For example, I heard this week of one very large online retailer (I doubt you would be shocked to find out which one I’m referring to) which replied to a supplier two months after price rises had been suggested, refusing every single one. A textbook case of ‘computer says no’, it exemplifies the challenges which suppliers constantly face with this account: how can you explain the rationale behind such a difficult decision, or even have a conversation to explore potential compromises, when no-one is listening?

Whether or not a person is actively involved in the dialogue in question is open to debate, but the net result is abundantly clear: “We don’t care what issues your business is facing, or whether there is a good reason for you to do this… the answer is still no.” The business equivalent of sticking your fingers in your ears and saying “La, la, la…I can’t hear you” over and over until someone gives up and walks away. My personal feeling is that this isn’t the right way to conduct a negotiation – it is just about as far removed from the concept of ‘partnership’ as you can get. Perhaps I should count myself fortunate that the vast majority of our customers are fundamentally decent, understand the value of a good working relationship…and are human.

It has emerged that Amazon is being investigated by the German anti-trust watchdog over whether it has exploited its market dominance. I wish the watchdog all the best with that process – if supplier’s experience is anything to go by, Amazon will just ignore the emails for several months, then send a reply saying ‘no’. I doubt even AC12 could get them to talk…

Tldr…. it’s the Friday Blog!

This week, it emerged that Liz Truss has a habit of scribbling tldr over government documents (for those who haven’t come across the acronym before, tldr stands for ‘too long, didn’t read’). When you bear in mind that Liz is the minister in charge of international trade and the documents in question are often complex trade deals, it’s not exactly reassuring. Maybe she needs someone to curate all the key bits of information and present her with a bite-sized ‘snackable content’ round-up. I’d offer to help her out, but I’m too busy doing that for the toy community, and there is plenty to cover this week, so let’s dive right in.

First up, one of the worst-kept ‘secrets’ in the industry is finally out…Just Play will be setting up its own subsidiary in the UK from January 1st, bringing to an end its five-year partnership with Flair. Just Play has been busy building a team of high-powered industry figures over the past year, so it has always been a question of ‘when’ rather than ‘if’ the move was on the cards. We’ll bring you more on the new Just Play operation in the coming months, and I’m sure Flair will also have plenty of new developments to share across its own portfolio too.

Big changes are also in the offing within the Sainsbury’s Argos toy buying team. I gather that Paul Kinge will be leaving the toy team to manage part of the retailer’s consumer electronics department – it’s a shame to see someone of Paul’s experience move on, but that’s very much the way of retail these days, especially the major accounts. Paul will apparently still be working with both Andrew Hartley and Juliet, who have moved to the same division. My understanding is that toys has now been combined into a bigger category which also includes nursery, books and DVDs. On the positive side, Tara Mortimer and Karen Leddy will remain in the toys team. However, it would appear that when you factor in redundancies, the move represents the removal of a big chunk of resource from the commercial team: with less resource and extra categories to manage, I suspect the new toy team is going to be pretty busy going forward.

One toy retail stalwart that is very much staying put is Yogi Parmar, who has this week been promoted to managing director of Toymaster. Congratulations to Yogi on his well-deserved new role. With the support of fellow directors Colin Farrow and Paul Reader, the Toymaster head office team is steeped in toys: all the knowledge, experience and contacts that the trio have accrued over the years will undoubtedly be hugely important in helping the buying group and its members navigate the current challenges. In a normal year, we’d all be preparing to head to Harrogate next week to meet up with the Toymaster family – and while that isn’t possible this year, I am sure we’re all looking forward to next year’s May show already.

Another toy retail operation steeped in toy experience is The Entertainer. I caught up with founder Gary Grant this week ahead of the opening of the first-ever The Entertainer branded store in Spain. The former Poly Group store in Valencia has been completely refurbished and rebranded, with a view to assessing whether adopting The Entertainer branding and its standards of merchandising, presentation and customer service results in increased sales. If the trial is successful, it could not only lead to other Poly stores being converted and rebranded, but also brand-new stores being opened with The Entertainer branding in Spain. Along with its ongoing trial to run the Asda toy departments here in the UK, The Entertainer is certainly not standing still, despite the ongoing retail disruption – and it’s exactly that kind of ‘fortune favours the bold’ approach that sees many toy suppliers and retailers continuing to post strong numbers, both here in the UK and across the globe.

Looking at the first four weeks’ trading since English stores re-opened, Gary tells me that he would categorise them respectively as “Outstanding. Average. Good. Good.” Overall, the chain beat its “cautious, conservative” forecasts quite comfortably over that period – hopefully other toy retailers will have enjoyed similar experiences. We’re not out of the woods yet (another lockdown would clearly be a major challenge), but so far, re-opening has been a success and the future looks bright.

Exactly the same could be said for printed toy magazines…yet this week, I heard of one magazine blaming the pandemic for cutting back its print issue to a meagre couple of appearances a year. Ostensibly, you might believe that view has some merit: however, it is way wide of the mark. Exhibit A for the defence: Toy World hasn’t missed a single print issue (or indeed a single daily email news bulletin) over the past year. We’ve consistently delivered the best content, resulting in some of the largest issues we have ever produced. I appreciate that not all businesses have physically been able to continue to operate through lockdowns, but that simply isn’t true of media. Just as YouTube and other consumer platforms have seen eyeballs increase in the past year, so has Toy World – more than ever, the trade has needed to keep up to date with everything that has been going on, and with many of the usual avenues temporarily closed (trade shows, previews, visits from reps / agents, meetings with industry colleagues etc.), trade press has been an invaluable source of information.

Continuing to publish Toy World last year was the second-best business decision I ever took (the best being to set Toy World up in the first place). And we’ll carry on throughout this year in the same vein – the freshest, most relevant content; the largest, most comprehensive issues; the hottest news and not being shy to express an opinion. And crucially, a fixed print schedule, not an erratic one – our readers and advertisers need reliability, so they know where they stand and can plan properly. Just as retailers have had to react, be flexible to prevailing conditions and find a way to keep doing what they do, so have media operators.

We all know that the world is changing, but just as the best physical stores are here to stay, so are the best print magazines. And whether retailer or trade magazine, if we can harness the myriad opportunities presented by the digital realm to enhance our brand and our capabilities, that’s absolutely the way forward.

Supply and demand… it’s the Friday Blog!

Good old ‘supply and demand’ – the basic premise on which so many businesses are predicated. The past year has seen so many business models flounder because either supply or demand were cut off. Thankfully, the toy market wasn’t affected on either count: demand for toys actually rose during the pandemic, while the ever creative and resilient toy community found ways to maintain supply during the most challenging of times.

Demand continues to remain high this year: as revealed in last week’s Blog, toy sales across the globe have grown rapidly in Q1, while the first week’s trading numbers after stores re-opened here in England and Wales were extremely encouraging. I took a trip into Watford on Bank Holiday Monday and was delighted to see long queues outside both The Entertainer and the Lego Store, with families eager to part with their cash. A few days later, Spin Master became the latest toy company to report stellar Q1 sales. As far as the ‘demand’ part of the equation is concerned, there is nothing to suggest it will do anything other than remain high for the rest of the year.

But what of the other part of the equation…supply? Sadly, that is a whole other story. We’ve written several articles recently about the ongoing challenges with shipping and containers. Toy companies have been banking on this being a short-term issue, but further investigation suggests it may be with us for some time. Shipping companies are making an absolute fortune – Maersk’s Q1 ‘21profits were pretty much the same as its whole year profits in ’20 – so I think we can safely assume they will continue making hay while the sun shines. Good old ‘supply and demand’, eh? As one supplier told me: “This time a year ago it was $1,900 to ship a 40ft high cube container from China to Felixstowe – today it’s $14,500 for the same journey.” The only people making a bigger killing right now are the Downing Street decorators (£200m…for that eyesore…really?).

Quite apart from the eye-watering shipping costs, there is the issue of container capacity – basically, there aren’t enough of them to go round, and lots of them are in the wrong places. The companies which make the containers are in no hurry to increase supply, to keep prices high on the containers they are making.

Some might feel that suppliers are exaggerating the extent of the problem, but I promise you it is very real: when the shipping cost as a proportion of the overall cost price of a toy goes from 3% to potentially over 20%, in many cases it’s just not cost effective to ship a line – and that is assuming you can get a spot and a container in the first place.

Mind you, I feel for one toy company which actually had a 40ft container stolen from a compound at the UK docks over the Bank Holiday weekend. You hear of cartons going missing or even the occasional lorry being stolen, but an entire container filled with over 8,000 cartons of toys?! That is one heck of a heist. Indeed, it may not be entirely straightforward to shift that volume of product – it’s not as easy as it used to be to re-export goods to Europe, while there aren’t exactly many car boot sales going on right now. If you’re a clearance company or even a retailer offered a large volume of branded toys at what may appear to ‘too good to be true’ prices, it might be worth stopping to consider where they may have come from.

And it’s not just shipping issues which are causing suppliers a few sleepless nights – a worldwide shortage of computer chips is also likely to result in significant delays and rising prices, affecting those toys with chips in them (which is possibly more than you might think…even basic ‘lights and sounds’ toys are chip-dependent). I’ve already heard of some toy products which have had to be modified to remove chips, after concerns over delays of anything up to 20 weeks. Unfortunately, it seems likely that toy companies will be at the back of the queue for chips, behind tech giants like Apple and Samsung and car manufacturers – partly because we can’t compete on price and partly because we lack their collective clout when it comes to securing supplies.

With the bulk of chip production concentrated in a handful of suppliers, it has been suggested that that the shortage is likely to last throughout 2021. 91% of chip manufacturing is based in Asia, mostly in Taiwan and South Korea, and expanding production capacity can take over a year of tooling up and testing. To make matters worse, I gather China is not allowing Taiwanese chips into the country for political reasons – basically, it appears they may be trying to apply pressure on Taiwan to re-join China. It’s not just the forces of supply and demand the toy industry is being buffeted by – geo-political posturing has now been thrown into the mix. Marvellous.

So, what is the upshot of all this disruption? The obvious conclusion to draw is that there is likely to be a shortage of product as the year draws on. If I were a retailer – major or independent, specialist or multi-channel – I think I would be looking to place my festive orders sooner rather than later. Some years, it feels like a game between suppliers and retailers as to who will blink first: this year, I don’t think any supplier will be crying wolf when it comes to product availability, or more pertinently the lack of it. In many cases, stocks were run down last year, both by suppliers and retailers: there may have been some residual post-Christmas stock in the market, but that should move through relatively quickly.

Looking towards Q4, stock is likely to be king – the forces of supply and demand really will kick in with a vengeance as we head into peak season. But as the old toy community adage goes, “no-one ever went bust selling everything they had in their warehouse.” Expect plenty of empty warehouses in the coming months… but as long as that’s because goods have flown out to retailers, rather than never having got there in the first place, it will all be fine.

Maybe toy manufacturers should start a side-line making their own containers – I suggested it to one supplier, whose response was: “I’ve got a shed and a screwdriver…let’s do it!” And if we brand them as well, they’d be a lot easier to spot if they were nicked. Just sayin’…

There is always a but …it’s the Friday Blog!

Over the past few Blogs, I have talked about the toy market’s performance since stores re-opened, predominantly based on anecdotal evidence from specialist toy retailers. Having spoken to NPD yesterday, I am now able to confirm that the official data reinforces the positive feedback we have been receiving from the front line.

Here in England, the first week of trading was little short of extraordinary – value growth of +6% and volume growth of a whopping +40%. Those numbers are made even more impressive by the fact that the outdoor & sports category was 20% down versus the same week last year, when it went crazy due to the perfect storm of lockdown and beautiful weather. Across the board, most of the supercategories posted massive increases – Action Figures + 168%, Plush + 181%, Vehicles + 164%, Dolls + 53%, Building Sets and Infant & Pre School both +40%.

For context, the second week’s trading inevitably ‘course-corrected’ – with kids back at school and a large chunk of saved up pocket money and Christmas / birthday money spent the previous week, value sales fell by 14%, although volume still increased by 10%. However, if you benchmark the second week’s numbers against 2019, value and volume were + 2% and + 1%. Essentially, the market is back to where it was two years ago, when the world was normal. By any metric, that’s hugely reassuring.

We’re also seeing these encouraging numbers reflected in the performance of individual companies: both Character Group and Hasbro have unveiled extremely impressive first quarter results this week, while posting on LinkedIn, MGA’s Isaac Larian talked about “the biggest Q1 sales in the company’s history.”

It’s not just the UK which has enjoyed a strong first quarter – in fact, many other territories have had an even better time of it than us Brits. US sales have been stratospheric – +41% – the result of the hugely successful stimulus cheque program. Irish retailers must be hoping a similar proposed scheme goes ahead there in the summer – it’s clearly a winner for retailers. Europe, too, is in the process of bouncing back: Germany + 23%, Italy and France + 20%, Russia + 19%, even Spain +7% are all going in the right direction. Canada at +28% and Australia at + 14% will also be delighted. Across the globe, toy markets are reviving. Collectively, we have every reason to be optimistic.

But….

Yes, there is always a but. Right now, the proverbial fly in the ointment comes in the form of a global logistics nightmare, which could potentially have a seismic impact on product availability over the coming months. There are undoubtedly other pressures on pricing – a reported shortage of workers in China, raw material and component shortages and price increases – but it is the shipping arena in which the biggest challenges lie. Ongoing capacity issues have apparently seen prices surge again in recent weeks. Extra costs can be amortized slightly easier when a container is full of thousands of small, low-priced SKUs – it’s much harder for suppliers with large, high cube items. There have also been suggestions that while capacity issues are genuinely exacerbating the problem, the real issue is that the shipping industry effectively operates in a manner which is not entirely dissimilar to the way a cartel would. I’m all for seeing an opportunity and maximizing on it – that’s just good business sense – and I fully appreciate the dynamics of supply and demand. But there is a limit.

I have heard of some ranges that have been delayed, in the hope that container rates will fall, making it more viable to bring them in. Some ranges may not make it to the UK at all this year. In other cases, companies physically can’t keep up with demand for their products, while simultaneously seeing prices increase almost in real time. One MD was trying to explain what he’d had to ask his salesforce to relay to customers – from what I could gather, the message was essentially: “Get your orders in now for product we can’t supply, in case the product you can’t have is even more expensive next week.” That’s one helluva pitch…. the thing is, it’s also frighteningly accurate.

Right now, many suppliers and retailers are able to work through stock already in the country. But at the rate sales are going, that stock will be blown through pretty swiftly. By the summer, unless the shipping situation is resolved, we could see three things – 1: Price increases. 2: Product Shortages. 3: A combination of both.

My good friend Richard Gottlieb wrote a piece on Global Toy News recently, where he quoted several prominent American CEOs, who suggested that price rise in the order of 25% were inevitable. Interestingly, they claimed that US retailers understood and were accepting price rises, as all suppliers were singing from the same hymn sheet and most retailers were experiencing the same challenges with their own direct import programmes. Will that be the case in the UK? Despite a great Q1, we don’t have the advantage of stimulus cheques driving and underpinning sales. In the past, some of our retailers have been notoriously reluctant to accept any price increases, yet alone those of the magnitude being predicted. However, to even have that conversation in the first place, you need to have the product in your warehouse to supply. And don’t forget, global toy sales are through the roof, so there will be many territories fighting over the same stock.

The next few months are going to be very interesting – very interesting indeed.  We are very much in ‘better class of problem’ territory, without a doubt. The toy industry is flying across the globe – families have turned to toys to help them through the events of the past year, and we’re reaping the benefits of parents witnessing first-hand just how valuable toys and play are to their children, both physically and emotionally. Hopefully, that will still be the case across the second half of the year – there are some very big numbers to anniversary. For now, we’ve got off to a great start – but half of the race is still to be run.

Have a great bank holiday weekend – and if you are looking for a little light reading material to help pass some time, may I point you in the direction of our shiny new May issue, which has just been published. It’s another belter, with an extensive feature on the Dolls & Girl’s Collectibles category, a section dedicated to the specialist toy channel and a comprehensive round-up of the latest developments from the licensing world. Happy reading.

Bucking the trend…it’s the Friday Blog!

As England and Wales continue to bask in sunshine and toy stores feel the benefit of being open once more, it’s reassuring to know that other parts of the UK and Ireland will be catching up next week – shops will be re-opening in Scotland on Monday 26th and in Northern Ireland on Friday 30th. While it is reasonable to assume that sales will begin to level off now that kids are back at school, hopefully the initial rush back to stores will have given April sales numbers a healthy boost.

The last two weeks should also have helped stores to start moving through any residual stock which may have been left from Christmas, while anecdotally, I gather that pick-up lines are…picking up. Some categories have remained remarkably buoyant throughout lockdown, driven by digital sales, but let’s be honest, online sales of low-priced impulse and collectibles products were never going to be able to replicate what can be achieved in-store. The same could be said of ranges like plush, where the ‘aah’ factor of seeing product in the flesh makes so much difference. Hopefully suppliers in these categories are set to see a welcome upturn in business over the coming weeks.

As stock starts to turn, that should help sales reps and agents to get appointments with retailers, who will soon need to start placing new orders for summer and beyond. Slowly but surely, the industry’s natural cycle is returning. Along with renewed confidence, we’re starting to see more deals signed and new ranges unveiled – this week saw Moose Toys announce that it had signed on as master toy partner for toyetic online game Fall Guys: Ultimate Knockout; Magic Box reveal its new collectible vehicle range T-Racers, plus the tantalizing prospect of Jazwares becoming a player in the costume category, with the news that it has signed a deal for Marvel costumes for the US market.

On the retail front, it was good to see Studio confirm that now it has sold off its Findel Education arm in a management buyout, it would no longer be exploring the option of selling off the main Studio retail business – a big relief to many toy suppliers, who tell me it is a growing, successful account. Elsewhere in the retail channel, tenants of shopping centre owner Hammerson will no doubt be pleased with the news that their landlord is to offer rent cuts of up to 30% to help maintain the viability of its centres. Seems an entirely sensible decision for Hammerson to “share the pain” with those retailers who have been forced to shut for so long, and hopefully it will be a mutually beneficial strategy in the long run.

Let’s hope toy suppliers can keep stock flowing as consumer demand starts to ramp up – we’ve already had a handful of companies decline the opportunity to advertise in the next few issues of Toy World due to ‘stock issues.’. However, they’re very much in the minority: after publishing our largest-ever April edition, May will be another sizeable issue, and June is already shaping up very nicely indeed, so retailers can order with confidence from the many companies who have chosen to showcase their new ranges in Toy World and presumably have sufficient stock to back it up.

The ongoing container complications may be one reason why a few companies are having supply problems. This week, it emerged that container rates have been climbing back up after the Suez debacle, as a shortage of both ships and containers has arisen from the week-long blockage of the canal. Suppliers are caught between the proverbial rock and hard place: do they ship now and pay the higher rates, which they will almost certainly have to swallow themselves, unless they feel sufficiently brave to attempt to pass on the costs to retailers in the form of increased prices? Or do they wait a little longer and hope prices will start to fall again soon? At least one senior shipping industry figure suggested that it may take 6-8 weeks for capacity to return to its proper level which, if true, takes it perilously close to when autumn winter shipments will need to be made. No-one wants to risk potential fines from their main accounts for late product arrival, but equally some companies and ranges can ‘take the hit’ of additional shipping costs better than others.

It will also be interesting to see whether the pandemic has an impact on production in certain countries – the tragic situation in India, which has been all over the news this week, may yet affect those companies who were encouraged to dip a toe into manufacturing in the region. A year ago, when Covid first struck, there was a lot of talk about toy companies moving production out of China, in order to spread the risk. At the time, it probably seemed like a sensible strategy. A year on, as China has successfully subdued the outbreak and returned to almost full production capacity while other regions struggle to get the virus under control, one wonders whether some companies may be regretting the move. I just hope our customers, readers and the friends from India we’ve made at trade fairs over the years are all safe and well – as we emerge from a very challenging period, it’s easy to forget that many other countries are still in the eye of the storm. And when it comes to international travel and global trade shows, the adage ‘no-one is safe until we’re all safe’ is something we all have to bear in mind.

But for now, we can be thankful that re-opening has been a success for toy stores across England and Wales, and with any luck the rest of the UK and Ireland will have a similar experience next week. As Mattel’s impressive Q1 results show, the toy market has carried on in 2021 where it left off in 2020 – bucking the general retail trend. Long may that continue.

Beyond all expectations…it’s the Friday Blog!

It’s been a good week. The sun is shining, stores have re-opened, along with bars and restaurants, and I can finally look forward to getting my hair cut again. I will no longer look like my teenage self / a Justin Hayward tribute act – frankly, the relief is palpable. Even better, the toy retailers we have spoken to over the past few days have given re-opening week a resounding thumbs up. Of course, there was never any guarantee that this would prove to be the case: indeed, some retailers were anticipating a modest return to trading, while others seemed genuinely nervous.

But according to those who have managed to carve out the time to speak to us, there was no need to be worried: one retailer held the phone away from him so we could hear the hubbub in his store. “Do you hear that…kids, back in the store. What a great sound.” He was clearly thrilled. Another succinctly summed up the week’s proceedings in just three words: “Beyond all expectations.” All the retailers spoke of being busy, and of a positive atmosphere in-store. They told us that customers were not just browsing or window-shopping (or worse, showrooming), but spending decent sums of money on high ticket items – there does appear to be a healthy amount of cash floating around. Parents have also been happy to bring kids into stores with them, rather than shopping alone with a list – I always feel it’s better for toy shops when the family shops together. Retailers have also mentioned the support they’ve been receiving from suppliers to help with displays and generally freshening up the store, with Playmobil and Asmodee being singled out for particular praise by several happy retailers. And consumers are clearly delighted that toy stores have opened their doors once more– one retailer told us that on opening morning, some customers even turned up with flowers and chocolates to welcome them back. I bet they didn’t get that at Debenhams or Primark…

While we can’t speak to every single shop owner, I do hope other retailers have experienced a similar response. We’ve had reports of children spending pocket money which they’ve been saving up for months, as well as Christmas, birthday and Easter money and vouchers, so it’s reassuring to hear that the idea of pent-up demand was real and not just something we wanted to be true. One 3-year-old apparently turned up with a money pouch containing £40 – I bet he had fun choosing what to spend it on. You’ll be able to read more feedback from specialist toy retailers about their experience of re-opening week in the Talking Shop section of our May issue, which we’ll be putting the finishing touches to over the next couple of days. Trust me, it’s another humdinger.

A Kantar forecast suggested that almost £4b would be spent in high street stores this week, and it’s a massive relief that toy retailers have managed to get their share – I’m glad it wasn’t all spent at Primark and the Debenhams closing down sale. I’m sure the fact that many kids are still on school holiday, coupled with good weather, has helped. I recently encountered the phrase ‘backyard envy’ for the first time, but I completely understand where it comes from: although the word ‘staycation’ has evolved to refer to people taking holidays in the UK rather than simply staying at home, the reality is that plenty of kids will be spending a lot of time in their garden this year, and that could offer a nice boost to the outdoor sector. True, a lot of big outdoor items were sold last year, and you don’t buy a new trampoline or climbing frame every year – but that is hopefully where ‘backyard envy’ comes in. Kids going to play in their friends’ gardens, or just the sight of the neighbours’ kids bouncing above your garden fence every few seconds, might lead to a bit of pester power (the good kind) to encourage new customers to invest in outdoor equipment.

With physical stores now open once more, the battle with online sellers for consumer spend can begin again in earnest. In the interests of ‘know thy enemy’, physical stores may want to make a note that Amazon Prime Day looks likely to be held in June this year. While there has been no official confirmation as yet, news has leaked that 23rd April is the last day to submit deals and 6th June is the last day for shipments, leading those in the know to assume a June date is the most plausible outcome.

With normal service gradually being resumed, the job merry-go-round is also whirling back into life: I heard a few weeks ago that MGA sales director Karen Athill will be moving on, and although we can’t announce her new role until the summer, that leaves a prime position which needs to be filled, which in turn could lead to opportunities elsewhere. I also gather that Tomy’s sales director on games, Dave Howard, will be retiring at the end of the month after 34 years in the toy trade. Dave has had a long and distinguished career in the games channel, with stints at both Hasbro and Drumond Park, before joining Tomy. I am sure his customers and industry peers and colleagues will join us in wishing Dave all the best for his retirement.

I’d also like to welcome the newest member of the Toy World team – Sam Giltrow, who has joined as our new assistant editor. Sam previously edited a shipping magazine, so she must have felt at home reading about the latest developments with the stricken Suez Canal vessel Ever Given. The saga took another – almost surreal – twist this week, when Egyptian authorities impounded the vessel and said it wouldn’t be released unless the shop owner paid the eye-watering sum of $916m. Part of this sum was to cover the salvage operation, but part was apparently for ‘damage to reputation’…. yes folks, it is 2021 and canals now have reputations! I just feel for toy companies with containers on board, who may now be forced to choose between contributing to the ridiculous compensation claim, or just denying the goods are theirs and walking away from the whole fiasco. If you see a bunch of Egyptians walking round in Harry Potter Sorting Hats rather than a Fez in a few weeks’ time, you will know that has happened…