Reality bites…it’s the Friday Blog!

Published on: 14th February 2020

We’re living in unusual – some might say unprecedented – times. The coronavirus continues to dominate headlines across the globe, and like many other industries, the toy community is monitoring developments extremely closely. This is a humanitarian crisis, and we must never forget the human cost of the outbreak; however, it is inevitable that the focus of the toy trade is on the potential impact to the global supply chain over the coming weeks and months. Chinese factories were originally due to re-open earlier this week, so how are things looking in China right now? We ran a story earlier this week which looked at the current situation, but more feedback from people on the ground is always appreciated.

One person working out in China told us that 95% of his workers had reported back for work, as most lived locally and were therefore largely unaffected by the continuing travel restrictions. However, he went on to admit that they were largely just sitting in their rooms, as the necessary material supplies had not been delivered. His gut feeling was that the end of February would be the earliest realistic starting point for a return to (relative) normality – albeit, by that stage, there will be a significant backlog to clear. However, if he is right, only three weeks disruption would be a massive bullet dodged.

Nevertheless, the situation remains in a state of flux. Not every factory is in a position to re-open. Many are missing staff or raw materials. China’s infrastructure and travel network remains patchy. Shipping lines are said to be losing up to $350m a week – they’ll surely be looking at ways to make up that shortfall in the coming months. One Chinese factory (not a toy manufacturer) rushed to re-open and immediately a coronavirus case was found. As a result, the company’s 200 employees couldn’t go home and were immediately placed under quarantine.

Another supplier told me: “None of our factories in Ningbo have received permission to re-open yet, but they are all chafing at the bit, working from home, really upset about the situation. One factory owner told me that he is running an underground situation and that if there is an emergency I should let him know.” That doesn’t surprise me – the Chinese are an enterprising bunch. I guess the key concern with workers returning is that the virus could spread further and faster without proper medical checks being in place, which presumably takes time. I think the authorities are right to insist on a delay if it results in fewer people with the virus coming into contact with large numbers of factory workers. Conversely, there is the practical issue of keeping 1.2b people locked in their homes for any length of time. Aside from the economic losses which no-one can afford, how long will people be prepared to go along with it? I appreciate it’s a delicate balance…

I am also starting to hear about certain products which have been delayed from 2020 to 2021 – I guess this was inevitable and while it is only a handful of lines at the moment, I expect more postponements in the weeks to come, especially if the situation isn’t brought under control swiftly and successfully.

Of course, the impact is being felt far beyond China. The organiser of the New York Toy Fair has issued guidelines ahead of next week’s show, including the suggestion that meetings should be conducted at least three feet apart – that rules out any whispering of gossip then. On which subject, I hear on the grapevine that Boots is the latest retailer to heavily reduce its in-store toy space – you can read more about that here. The move seems partly be down to the difficulty in generating a profit from the in-store space given to toys, and also the result of the retailer identifying an opportunity to grow its business in other categories as a result of the closure of Mothercare. It seems that Boots feels that the space given over to toys can be more profitably used on other ranges. A minimal in-store offering and an online presence will remain, but effectively, Boots has wound down its toy presence to the bare minimum. Sad, but once again, I find myself thinking that other retailers will benefit. Not that Boots’ turnover on toys has been huge in recent years, but those sales will surely have to go somewhere else…

Like many toy trade stalwarts, I remember when Boots was a major player in toys. More changes to long-held business practices are afoot; it has emerged that next year will see the introduction of UK border checks as a result of Brexit. Yes, you know that thing which Boris Johnson and his team insisted during the election campaign wasn’t going to happen? Miraculously, it turns out he wasn’t telling the truth – Project Fear turned out to be Project Reality after all. One European supplier admitted: “This will affect our business, we won’t be able to ship the majority of orders to the UK because the cost of customs processing will be too high for the order to be worth it.” And if, like me, you have seen the statistic which suggests that in Switzerland (where similar border checks are in place) 20% of customs forms are filled in incorrectly, and you have looked into the resultant issues which this causes, it looks like next year is going to be fun and games from a logistics perspective.

But it is not all doom and gloom by a long shot. Funko announced this week that it will be opening a brand new purpose-built distribution centre in Coventry to cope with the company’s rapid expansion; Hasbro’s 2019 results were generally felt to be impressive, with the company reporting growth for both Q4 and full-year. Mattel may have come in flat over the same period, but it still outperformed the declining market and exceeded its full year guidance, emerging as the number one US and global toy company, with improved operating income, cash flow and gross margin. And finally, Dominic Cummings – for our international readers, arguably the second most powerful man in British politics as the right hand man of Prime Minister Boris Johnson – has given PJ Masks the free publicity it never knew it needed. If you haven’t seen it, it is worth watching this clip to see just how surreal things really are at the moment…