The elephant in the Zoom…. it’s the Friday Blog (on a Thursday)!

Published on: 7th May 2020

I took part in a webinar this week, which set out to explore how the toy industry is faring during the pandemic. Apart from complete failure on my part to load the appropriate Zoom background correctly (I will admit that I didn’t like it, but it wasn’t an act of sabotage on my part…honestly!), it was interesting to talk about where we are and, more importantly, where we might be heading – might being the operative word, as we are all like Elsa, heading ‘into the unknown’ right now.

The webinar started on a contentious point; the fact that certain recent headlines may have given some people the impression that the toy industry is sailing through the crisis with flying colours. As ever, context is everything: as has been widely reported, Q1 may have seen a slight upturn in toy sales across the globe, but it’s important to bear in mind that shops were open in the UK, US and other key territories until the final few weeks of that quarter.

Even with the reported increase in toy sales, there are some major caveats. Let’s look at some retailers which logic dictates are faring better than others. Take Amazon for example: it reported profits of over £7500 a SECOND in Q1. Pause for a minute to take in the enormity of that performance. Then pause again when you realise that despite this, Amazon’s results came with the warning that it would make its first quarterly loss in five years because of a spike in virus-related costs. As Amazon was given large tax credits by European governments last year as a result of trading ‘losses’, presumably this means even larger tax credits for the coming year…?

We all thought that grocers were going to be among the major winners through the crisis – yet Sainsbury’s recently warned of a potential £500m hit to its profits this year, with general merchandise sales down by 22%. It turns out that grocers don’t make their huge profits from tins of chopped tomatoes, value rice and flour…. who knew?!

So, the elephant in the Zoom is that Q1 was not quite all it has been painted to be in some quarters. And of course, what happens in Q2 is going to be a whole other ball game – we’ll find out just how much of a dip toy sales have taken in a few months’ time. The saving grace is that the first half of the year is not where the toy game is metaphorically won or lost – historically, everything can change in the second half of the year. Getting it right over the next six months will be more important than ever.

So, what will ‘getting it right’ entail? For retailers, it means yet more adaptation and flexibility. I have been so impressed with the way so many retailers have pivoted their businesses to react to prevailing conditions. We featured a selection of independent retailers talking about the changes they have made in our May issue, which you can read here – their spirit and resourcefulness is admirable. Our regular contributor Toy Barnhaus also wrote in the May edition about dipping a toe into online waters for the first time – a fascinating piece which you can read here. While it may seem surprising that such a switched-on retail operation hadn’t felt it necessary to join the online fray before, Toy Barnhaus was clearly successful enough to prosper without it. But everything has changed, and like many other indies, the Barnhaus boys have wasted no time reacting to prevailing conditions. This is a major advantage that smaller operators have over some larger players; they may not have their cash reserves, shareholders and loan facilities, but they are nimble and can turn on the proverbial dime. We are currently talking to more indies for our June issue, and one enterprising retailer has come to an arrangement with his neighbouring grocer to operate a small concession in his store. Now that’s what I call thinking ‘outside the box’.

To be fair, I guess we are all going to have to think outside the box for a while yet. For me personally, it feels like pressing the rewind button and going back to when we first started Toy World, just under nine years ago. In some respects, it’s like starting from scratch and building the business up all over again – although we’re grateful that we still have a healthy and viable business which can be rebuilt. Not everyone will be that fortunate. One thing is for sure; we are all learning a lot about our individual businesses, our customers (and our relationships with them) and even ourselves.

In the coming weeks, there will be some big decisions to take; as we report today, the Chancellor will be winding down the current furlough arrangements over the coming weeks. While it appears that he may yet yield to pressure not to make the end of June an abrupt cliff edge, it is inevitable that financial support needs to be scaled back. Credit where credit is due, the UK’s furlough arrangements have been incredibly generous and will have saved many companies from closing for good; but soon, companies will have to plan for life without them. In all, it is estimated that a quarter of UK employees have been furloughed; how many will be brought back immediately, how many will be integrated back into businesses over time and how many may never return? Like I say, big decisions…

Planning is far from straightforward: when will people feel happy going to the cinema again? What about attending a trade show? When will they feel comfortable flying or going on holiday? When will I next see Watford play? I don’t think anyone can answer these questions with any great degree of certainty. We have become accustomed to making decisions day-to-day, week-to-week, and in some cases month-by-month. Very soon we will have to start making decisions for the longer term: the key is to avoid 2020 becoming a gap year – fine for students, not so fine for a business.

Some calls will be easy, like not asking your employees to work when they are furloughed (as Sports Direct was caught doing this week). And it’s goodbye to hot desking, something I must confess I would have hated – I don’t even like it when someone parks in my usual parking space at work…and there are dozens of free parking spaces at our office! But some decisions will be far less clear cut. Right now, life is a ‘coronacoaster’ – as Ronan Keating once said, “you’ve just got to ride it.”