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

Published on: 30th April 2021

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.