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

Published on: 29th April 2022

It’s been another week dominated by figures – with some highly encouraging numbers, and some less so. Let’s dive straight in, starting with the good stuff. Mattel is the latest toy company to release its Q1 results, which chairman and CEO Ynon Kreiz described as the company’s “highest first quarter results on record.” Impressive stuff, with EMEA and the UK making major contributions: EMEA was the fast-growing region with a 29% increase, while the Mattel UK operation also had its biggest Q1 on record, adding 0.7% in market share to reach 7.8% in NPD share data, which is its best result in five years.

The results were ever so slightly tempered by speculation that Mattel has been speaking to two private equity firms about a potential sale. The Wall Street Journal broke the story, which several other US media outlets picked up and ran with. Our own FT was more guarded, describing the interest in taking Mattel over as “preliminary” and “unsolicited” and concluding that “any potential deal is in the very early stages and could still fall apart.” Very much a case of watch this space, with Mattel and the two private equity firms declining to comment further at this stage.

Sainsbury’s also released figures, although these were for the past year rather than Q1. You needed to do a bit of scratching below the surface to get the true picture, after a classic case of misdirection in the way the numbers were presented, which succeed in confusing numerous media outlets. The ‘trick’ Sainsbury’s employed was to compare general merchandise sales with FY 19/20 rather than FY 20/21: the former represented a drop of 4.6%, whereas the latter actually saw sales decline by 11.9% – quite a difference. The ‘real’ year-on-year number was almost mentioned as a throwaway comment, presumably in the hope that some journalists would just take the first figure they saw when editing the release – and it worked! Top level sh*thousery, masking numbers that will come as a concern to many in the toy community – albeit Sainsbury’s does claim that “the Argos transformation plan is on track and Argos is a more profitable business.” To be fair, I guess closing hundreds of standalone stores will have that effect on the balance sheet.

One group of companies that has no need to massage the numbers is the shipping line sector, which is apparently set to smash all previous Q1 records and on track to deliver $300b full year profits. However, there is always a ‘but’ – even though in this case, the world’s tiniest violin would be needed if anyone working in shipping was looking for sympathy. The ‘but’ on this occasion concerns potential weaker demand in the second half of the year, with some shipping lines apparently already forced to increase the number of blank sailings to mitigate the impact of current cargo shortfalls. Or as I like to call it, “deliberately manipulate the market to protect their obscene profit margins.” Allegedly.

Another company that is playing games with pricing models is our old friend Amazon, which this week announced that it would be hitting sellers on the Amazon UK platform with a 4.35% inflation and fuel levy. Yes, that’s the same Amazon which refused to allow suppliers to increase prices last year when they were trying to offset rising prices. And apparently some Amazon divisions (pan European has been given a dishonourable mention) are still digging their heels in and not accepting price increases this year either. So, if I am reading this situation correctly, it’s fine for Amazon to pass on increased costs, but not ok for its clients to do the same thing. Hmm…

Elsewhere in the retail scene, Green Swan, the owner of Toys R Us Iberia, initiated insolvency proceedings at the chain at the end of last week. Apparently stores in both Spain and Portugal will remain open and trading while the owner attempts to find a buyer or investors to keep the retailer going. Once again, the worlds of private equity and specialist toy retail show themselves to be fundamentally incompatible – it genuinely amazes me that these companies persist in trying, when so many have failed so miserably before. And if I had a £ for everyone who suggested that Smyths should take over the running of the operation, I could afford to either retire, or at least buy one shipping container. Will Smyths have the appetite for an approach…? I have no idea, but the will of the toy community certainly suggests that would be a very popular move.

May is going to be a busy month, with trade shows in Harrogate (the Toymaster Show) and London (Distoy) looming – if you would like to catch up with me or anyone from the Toy World team at either show, feel free to get in touch. There is also Licensing Expo in Vegas the following week, and looking further ahead, I may finally have some potential good news on the Hong Kong front. This week I joined several media colleagues for a meeting with Silas Chu, who heads up the HKTDC in Europe, Central Asia and Israel (last week Kazakhstan, this week London…that’s what I call a varied schedule). While there is still no firm news about the opening of the Hong Kong borders, it does seem that there may be some light at the end of the tunnel: it was announced this week that the Hong Kong Rugby 7’s will be going ahead in November, as will a major financial conference to be held in Hong Kong. As both events traditionally draw an international audience, it seems entirely plausible that Hong Kong may therefore be looking to open up towards the end of the year. Now, don’t get too excited at this stage: there is still considerable debate as to whether quarantine restrictions would be scaled back (not ideal for the January trip) or scrapped altogether (a much better idea), and the border with China will almost certainly need to open before international visitors are welcomed back in – and with recent events in Shanghai and Beijing, the situation in China is still extremely fragile. However, assuming these events go ahead as planned, it offers some encouragement for January 2023. As ever, we’ll keep you posted.

Enjoy the latest in a seemingly never-ending stream of UK Bank Holidays; we’ll be back on Tuesday with more news and the digital version of the May edition of Toy World – another absolute cracker of an issue.