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#52 New York Toy Fair Update: Toy Fair Is Back

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I’m just back in the office after the North American International Toy Fair (aka New York Toy Fair). The show occupies the vast Jacob Javits Convention Centre on the west side of Manhattan. There has been some controversy about this iconic show since Covid disrupted the show circuit and the timings of key shows, especially with the emergence of the LA Previews as the alternative to the Dallas previews event. The thing with this type of speculation and gossip is that every person and company has a different perspective, so we’ll all reach our own conclusions. In the end, the proof of purpose for a trade show like this is enough exhibitors selling enough product to want to come back next time…by which measure the show clearly has a purpose and a strong ‘raison d’etre’ since it has been going since 1903!

I was buzzing throughout the show and am still buzzing now 2 days after the show closed. I love gatherings of like-minded people where we can talk business, catch up, gossip and find out how other people and companies are doing and discuss the key trends of the moment (more on those later on). The sheer scale of the opportunity at this show, which is largely focused on a single massive market primarily, with the Canadian market opportunity added in as a bonus.

Aside from anything else, to get to visit New York City is an incredible opportunity. This time round was my quarter of a century anniversary of attending the show. The first time I attended, I was specifically warned by my boss to be wary of ‘street crazies’ on the streets of Manhattan and was told not to go on the Subway as it was “dangerous and unsafe”. Nowadays, between the gentrification and economic uplift the city has seen, and the apparent pacifying effect of the legalisation of cannabis, NYC seems like a much less aggressive place than it once was, and as an out of towner, I took as much pleasure in strolling the streets and avenues as I did from talking and doing Toy business.

The show this year was clearly not quite as big as it was pre-Covid, so let’s be real about that from the start. But there were still somewhere in the vicinity of 900-1000 exhibitors and literally hundreds and hundreds of Buyers, so the scale of the show is still very large and still represents a massive opportunity. One observation or comment which some exhibitors make always really annoys me: “Oh it seems quieter this year”…this constant moaning about subjective observations of footfall annoys me because a). Footfall doesn’t often decline at these shows, so people often have a rosy memory of incredible footfall of years gone by b). This is not retail – footfall is not a relevant measure of success. If you are an exhibitor the effectiveness of a trade show should be measured by number, quality and depth of buyer interactions, and that is not the same as having your booth over run by industry hangers on (like myself). Although we all like to have fun at these shows, it’s not about entertaining your staff, it’s about building and nurturing Buyer relationships. No doubt it is soul destroying for your staff or even for the owner of the company if you have lots of dead time on the booth, I have been there and done that, but that should not be the measure of success – the true measure is what will you sell coming out of the show and have you spent more quality time with your Buyers than you would have done without the show?

Costs to attend a show like this are not insignificant. If you are a small exhibitor you may have total costs inc. travel, couriers for samples and show exhibition costs of c. $10-15k. Bigger exhibitors can easily spend ten times that, but bearing in mind the scale of business you can do in the U.S. market, you would have to be quiet a weak operation to not be able to easily recoup the costs involved.

I don’t tend to meet with Retailers these days (in fact I largely avoid them), but from the list of registered buyers on the show website, and from conversations I had with people who were meeting with retailers, there were many, many buyers at this show. If you didn’t meet them, that’s probably about the effectiveness of your sales team, the attractiveness of your product line to buyers and/or it’s a reflection of your early stage of development if you are a newer company.

The next point I want to make relates to purpose and objectives of this show. There are some major Toy Cos who were, and who normally are, notably absent from this show. Frankly, I would argue that’s a good thing. If all you care about is your Walmart & Target listings, then the New York show is not likely to be a productive investment for you. That’s not because buyers from those retail juggernauts aren’t present – in fact I had confirmation from people I spoke to that these Buyers were definitely at the show. The issue is that their sales cycle is nearly entirely done by the time of the NYC show. So, if you plan to go to the Manhattan show to achieve this year sales to Walmart & Target, you would be wasting your time and money – that’s what the LA previews are for.

Instead, the New York Toy Fair is an opportunity to meet with mid-tier, specialty and other miscellaneous buyers. It’s also an opportunity to spend more time with those retailers and reps whose markets are East Coast based. I don’t believe that all retailers based on the East Coast want to fly all the way to LA to see new product lines in one geographical area 4 or 5 months before they are ready to look at the next year’s product lines.

Bearing in mind the Toy Association in conjunction with Circana estimate the total U.S. Toy market value to have been c. $42 billion in 2024, it seems ridiculous to debate whether the gigantic market the U.S. represents can justify two locations for retail sell in shows. The size of opportunity very clearly justifies both previewing in LA and in NYC as long as we are clear on the (different) purpose and focus for each show.

Moreover, according to a Linked In post by industry legend Jeremy Padawer, 95% of exhibitors at the New York show have revenues of under $25m. This mighty show gives them the opportunity to access retail markets and buyers they would otherwise struggle to meet. In many industries this would not seem like that big a point, but bear in mind that the Top 10 companies in the Toy business represent approximately 35-40% of the total market (that number is my guesstimate), and you begin to understand the true value in our industry of smaller companies. On my own travels round the show I met half a dozen people running companies of $5m or more with just one or two employees, I genuinely don’t think American people appreciate just how rare this is outside the USA! If you were running the same business in a smaller European country, you might have revenues of c. $100-200k in the same circumstance. The NY show gives these small up and coming companies access to this gigantic market, which in turn keeps the whole Toy market fresh, and often leads to acquisitions by the bigger Toy companies.

Subjectively, my feeling from the 2025 show is that the NYC show is back in nearly the right time slot for what it is, what it does and who it is for. The 2026 and beyond shows are back at the more traditional mid-February timeslot. From a Buyers perspective, I can’t imagine how you can see everything there is to see on a product level in 4 days, and I certainly did not run out of things to do and people to meet with in my time at the show.

2025 U.S. Toy Market Update

We’ll keep this section brief, as I already wrote about the global outlook for 2025 around the Nuremberg show, but here’s some quick points. The U.S. is not unaffected by the dropping birth rates round the world. Most major U.S. Toy companies have significant revenues from international sales. The U.S. situation is not quite as drastic as in some other countries, going from 4.1m babies born in 1990 to c. 3.7m in 2022.

The U.S. has been impacted by inflation/cost of living difficulties for consumers. The impending tariffs are likely to be price inflationary, which could well reduce sales volumes in the Toy business, but more on that in next week’s article dedicated to that topic.

Product newness – retail has been bemoaning the lack of ‘New news’ and new trends for a couple of years. And it’s true that we are definitely over due a massive hit new Toy trend. The paucity of the movie slate in 2024 seems to have fired up focus on developing cool new standalone Toy I.P.’s, and much of this was on show in New York.

The movie slate itself is much stronger for this year, as was very evident from the movie related product lines all across the Javits Center this time round.

My prediction for the U.S. Toy market in 2025 is single digit growth…could be mid-single digit if the movies hit and some of the fresh IP resonates with kids this year – fingers crossed on that!

TOY FAIR UNIVERSITY

Next, we’re going to look at the highlight of the show (or lowlight depending on your perspective) – that being my presentation at the Toy Fair University sessions. The topic was Managing Sourcing & Manufacturing In A Turbulent World. We had a fairly full house for this presentation, around 150 people watched, which I guess is not surprising bearing in mind all the recent tariff activity (more on tariffs in my next article publishing next week).

I can’t yet share the presentation I gave, but here is a similar presentation from my last talk at the NYC show on the same topic in case you are interested:

https://www.youtube.com/watch?v=ZzvMbGfGE00

Thanks to the Toy Association, and key team members Anne McConnell and Kelsey Woodford for the opportunity to speak on a very well organised platform.

Aside from my own presentation, I watched a couple of other sessions and frankly, I’m not sure you will find a better resource for industry insiders discussing in depth the latest trends and methods of operating in the Toy business across key functions. I enjoyed a session on influencer marketing and another on Dynamic Illustrations by Carlos Mendoza. Next time round I recommend carving out some time to watch some of these sessions if you want to stay fresh and get new ideas.

GREAT PEOPLE ARE YOUR BIGGEST ADVANTAGE

The area of our work I have referenced and promoted the least is Recruitment Consultancy, this has become one our most in demand services and our primary mission is servicing the needs of Toy & Games companies. We have a social and own media platform which allows us to directly access c. 25k people in the world of Toys & Games from across the planet, aside from which after 25 years I know many people in this business.

So if you have key senior roles to fill or if you just can’t find someone qualified for a key role you need to fill, just drop me a DM and I’ll explain how we work/can help…

Job Seekers Friday – as part of this work in helping to place good people, I’m going to try (as far as time and workload allows) to promote a new jobseeker every Friday going forward. If you are a job seeker with at least 5 years’ experience in The Toy/Game business and you want me to promote you to my audience of c. 25,000 industry people, please send me a DM & I’ll explain how it works (no cost to jobseekers).

FACTORIES WE REPRESENT

We represent the following factories both in and outside of China. All of these factories have the necessary certifications, have capacity, have a history of successfully supplying other Toy & Game companies:

Games factory in India – supplying major Toy & Game companies with cardboard & plastic games.

Games factory in Vietnam – supplying cardboard, wood & plastic Games, all sourced from Vietnam and Thailand, not reliant on China for supply chain.

Plastic & Electronic Toy Factory in India – major supplier, having supplied 4 out of 5 of the world’s biggest Toy Cos.

Plush factory in India - leading Plush factory with strong R&D skills.

Plastic Toy Factory in China (managed from Hong Kong) – strong track record of decades of supplying Toy companies around the world.

Board Games supplier in China – I have worked with this vendor for 20 years, they have supplied dozens of major & minor customers of mine.

If you would like more information on any of these factories or if you need help with a strategic approach to Sourcing or want to find specific factory types, please feel free to drop me a message.

TOY & GAME BUSINESS CONSULTANCY

In the nearly 15 years we have been in business for, we have advised hundreds of companies, set up distribution into most major markets and helped to accelerate our client’s growth. For more information on how we can help, check out our services here: www.KidsBrandInsight.com/services

Full Year 2024 Results Are In: What Does This Reveal About The Strength of the Toy & Game market?

THE BACKDROP

The post pandemic performance of the Toy & Game business has been somewhat of a roller coaster: Supply chain/shipping disruption, cost of living driving a rare (virtually unprecedented in living memory) downturn in consumer demand and a broader geopolitical climate which has created a great degree of uncertainty.

As a career long market researcher, one of my frustrations with the Toy business is the paucity of data. So much of what people think in our industry is driven by subjective gossipy conversations from people who work for small and medium sized companies which do not always have strong corporate disciplines and data collection (even if they do have great people and great product development). Aside from the excellent timeless service of paid for data by Circana (NPD as was), formal published, public domain data is limited in our business.

And so, when the big stock market listed companies publish their results, it can give us significant insights into what is really happening with these companies, but also with the broader market. And we’re now at that time of the year where full year results for 2024 have been released, so let’s take a look at each set of results in turn and then draw some conclusions.

HASBRO:

Hasbro have had an interesting few years. Under the much loved and hugely successful previous CEO Brian Goldner, Hasbro seemed to have reached the zenith of their ‘Brand Blueprint’ strategy, which saw them embrace Hollywood and content production, and which drove them to record financials. I was in one meeting with Brian just before I left Hasbro, in which he outlined his thoughts about Hasbro’s future direction, from which it was clear to see at that stage that Hasbro needed to own/control more of their own content output in order to be more consistently successful versus only using other people’s platforms and other people’s brands in the Toy aisles.

The key insight into why Hasbro changed strategy so radically under current CEO Chris Cocks is in focusing on where the growth is. Under Goldner’s strategy, Hasbro focused on Toys, Games and entertainment content focused on kids and families. The issue with that strategy in terms of looking for future growth from where we are now is demographics. The birth rate is low and further dropping in most developed major Toy & Game markets. We’re not going into detail on that point here, but if you want to see the (somewhat depressing!) data on this, I wrote about this extensively in this article you can read here:

https://www.linkedin.com/pulse/5-biggest-threats-facing-toy-industry-part-3-trends-steve-reece/

So, if you are the CEO of a major Toy, Game and entertainment company like Hasbro, and you have a relatively mature market position, the question is how do you find the future growth which the stock market will demand…? And the answer is you will struggle to find it in selling Toys for kids, because there will be fewer and fewer kids each year, so unless you find a way to sell more Toys per child than your competitors, revenues are likely to soften as the demographics worsen. Hasbro’s insight into this has led them to the clear shift in strategy towards older demographics which aren’t currently shrinking.

The Full Year 2024 results and strategy confirmation released by Hasbro points directly and overtly towards this in the strongest communication to date of this direction.

The following are direct quotes from Chris Cocks’ management remarks from the FY 2024 press releases:

“Hasbro generates nearly 70% of our revenue in categories outside traditional toys for kids – games, digital, licensing, compounds. While we have powerhouse brands for children, over 60% of our audience is 13 or older, representing the lifetime fandom we create with consumers of all ages – whether it’s collecting your first Spidey & Friends action figure to completing your collection of super rare Mox cards for MAGIC: THE GATHERING. Our audience diversity, the lifetime nature of our fandom, and the diversification of our brand portfolio gives us conviction to invest in the future of play.”

“Hasbro has a unique advantage in Aging Up, driving play experiences for fans of all ages whether it’s thru major retail partners like Amazon, Walmart, Smyths or Target, or via our growing direct initiatives including Hasbro Pulse, Magic Secret Lair and D&D Beyond.”

Hasbro’s strategy under Cocks is clearly to focus less on the traditional heartland of Toys for kids. The extended licensing program Hasbro have adopted in the last couple of years has allowed them to reap some big licensing royalties without the costly overhead required for extensive Toy product development programs. By licensing out their Tier 2 (and below) franchises they have generated ‘easy’ cashflow and enabled their organisation to pivot to serving older audiences.

One thing that I have been shocked by as someone who has been around the industry for a long time is the demand for their Kidult targeted offerings. Whenever I look at a product offered via Hasbro’s D2C platform – Hasbro Pulse – I look at a $200 GI Joe vehicle/ship, or a $150 Transformers product and ask myself how many people are really going to buy that. The answer quite often is 20,000 people. Imagine the margin on those sales of $3-4m items sold D2C, cash flowed in advance of production. That’s great business quite frankly!

Anyway, my greater knowledge of where Hasbro has come from has led me to meander on too long without commenting on their actual financial results from 2024. 2024 FY revenues declined by a massive but self-driven 17%, down to $4.1 billion (due to sale of E-One & less topline revenue as rights are licensed out instead of being exploited in house). The key positive figure though is adjusted operating profit at $838 million, which represents 20.4% of revenues, a massive profitability ratio.

Looking forward it is clear Hasbro will continue to focus on ‘Aging Up’, with Chris Cocks also highlighting activity and development of video Games. One question for me is for how long Magic: The Gathering can keep growing revenues versus the point where the brand almost needs to be ring fenced and consolidated. Historically, certainly in my time at Hasbro going back 2 decades, the company was often prone to over pushing strong brands and sometimes accidentally slaying the ‘golden goose’ by pushing sales growth too hard versus protecting the position. If Hasbro can avoid this with Magic, then I would say the short to medium term outlook looks fairly positive.

MATTEL:

Having spent all that time on the major Toy Co I know best, now onto the one I know least in Mattel. The historic backdrop for Mattel is that they have been more focused over time on fewer bigger franchises vs Hasbro, with the ongoing strength of Barbie, Hot Wheels and Fisher Price. Entering the digital era, Mattel were a little slow to embrace that brave new world and were behind the curve in embracing Hollywood and the world of content. In the past 7 years since Ynon Kreiz became CEO, Mattel have made huge strides in this space, culminating in the release of the Barbie movie in 2023 which grossed a whopping $1.447 billion at the global box office, making it the 14th highest grossing movie of all time!

Mattel just reported FY 2024 revenues of $5.38 billion, down 1% versus 2023. Frankly that’s a remarkable result since 2023 results included all the uplift from the Barbie movie, and also taking into account that market conditions in 2024 were not easy at all! Moreover, Mattel announced EBITDA for FY 2024 at $1.058 billion, up $110m versus 2023, and the El Segundo based firm also deployed a $400m share buyback, increasing shareholder value significantly.

FY 2024 Doll sales were $2.2 billion, down 8% due to an understandable decline on Barbie sales versus the movie driven performance of 2023. Vehicle sales seem to have made up the slack with growth of 10% (constant currency basis).

Mattel’s outlook for 2025 is conservative, but still creditable if they can deliver with sales projected to grow c. 2 to 3%, and similar yoy adjusted operating income.

Interestingly Mattel’s results highlight that: “Guidance includes the anticipated impact of new U.S. tariffs on China, Mexico and Canada imports announced on February 1st”

Mattel is different to the other companies included in this report in that they own and operate the factories that produce a significant portion of their products, especially on key brands i.e. Barbie/Hot Wheels. Mattel’s biggest factory is reportedly in Mexico, so there is clear risk of disruption/margin erosion there dependent on where tariffs end up, and whether they are applied across the board, or if Toys manage to miss the threatened tariffs.

The other interesting point came from Anthony DeSilvestro, Mattel’s CFO, who stated that: “in 2025, we expect China will represent less than 40% of global production for our toys and as compared to an industry average of about 80%” Clearly there is ongoing geopolitical tension between China & the USA, but Mattel seem well diversified geographically, and this partly because of their position of owning their own factories outside of China. This is important, because major retailers have been pushing suppliers hard to relocate significant chunks of production outside of China to reduce perceived risks of supply chain disruption.

SPIN MASTER:

To set the backdrop to Spin Master’s FY 2024 results, let’s do a quick review of where they are at in their development. Having been founded by 3 friends in the 1990s, they have grown over that time into one of the Top Toy & Entertainment companies in the world. Their position gives them some unique opportunities for acquisitions: they can make sense of smaller deals than Hasbro or Mattel, they are stock market listed, so accessing funds for acquisitions is relatively straightforward, and so the last ten years has seen Spin Master grow by: organic growth, launching/pushing owned or part owned franchises, diversifying into entertainment & digital gaming AND acquiring strong Toyetic brands. This culminated in the major acquisition of Melissa and Doug, an acquisition I really like because a). It’s incremental in spaces they weren’t b). Diversifies the material base away from being quite so reliant on fossil fuel based plastics as a manufacturing material (since so many M&D products are made from wood), and there is always a risk of consumer rejection of plastic derived from oil.

The FY 2024 show total revenues of $2.263 billion (USD), vs $1.904 billion in 2023, up 18.8%. Most of this growth is attributable to M&D revenues, but growth is growth whether it increased organically or via acquisition. Operating income was down - $165.5 million in 2024 vs $188.9 million the previous year.

Spin Master reported their expectation that Toy sales would increase by 4 to 5% in 2025. This is broadly in line with my projections for the overall market due to a much stronger movie slate this year.

CONCLUSIONS

In what felt like a tough trading environment in 2024, these big three stock market listed giants had comparatively good years. Aside from the fact that diversified large businesses have more options for growth vs smaller perhaps single category companies, there are some other clear takeaways from this analysis:

1). Diversification of consumer demographic is probably a good thing if you haven’t already started working on that already.

2). Toys & Entertainment - as ever the worlds of Toys, Games and Entertainment remain intertwined, despite all the media changes we have seen in our working lifetimes.

3). Brands are SO important in this industry. If you are not building and nurturing your own Brands in this industry you are destined to either have a hard to sell product range or be on the hamster wheel of new product development and licensing in brands to sell.

4). As bigger companies continue to diversify away from relying solely on Kids Toys that should leave more opportunities for those companies who are still solely focused on producing and selling Toys for kids.

GREAT PEOPLE ARE YOUR BIGGEST ADVANTAGE

The area of our Consulting promoted the least is Recruitment Consultancy, and the reasons for this lack of promotion should be fairly obvious – sorry Recruiters, but this is not where fun and glamour are at in our business. Nevertheless, this has become one our most in demand services and our primary mission is servicing the needs of Toy & Games companies. We have a social and owned media platform which allows us to directly access c. 25k people in the world of Toys & Games from across the planet, aside from which after 25 years I know many people in this business.

So when a company asks for help in finding their next key hires, it’s normally easy and quick for us to get interested applicants, but then our clients also know that applicants are screened by someone who understands the business intimately, and can spot obvious B.S. – for example, on a recent screening interview I asked a candidate to talk me through how he managed a sales meeting with retailers, and having sat in those meetings myself I assessed his responses not from what sounded good, but from what I knew would work most effectively having been grilled by the same retailers myself.

We just placed a senior Sales guy in an international role, in a geography where good, experienced sales people are very in demand and hard to find/difficult to entice. It's a cliché, but people are your most important asset in our industry. So if you have key senior roles to fill or if you just can’t find someone qualified for a key role you need to fill, just drop me a DM and I’ll explain how we work/can help…

FACTORIES WE REPRESENT

Games factory in India – supplying major Toy & Game companies with cardboard & plastic games.

Games factory in Vietnam – supplying cardboard, wood & plastic Games, all sourced from Vietnam and Thailand, not reliant on China for supply chain.

Plastic & Electronic Toy Factory in India – major supplier, having supplied 4 out of 5 of the world’s biggest Toy Cos.

Plush factory in India - leading Plush factory with strong R&D skills.

Plastic Toy Factory in China (managed from Hong Kong) – strong track record of decades of supplying Toy companies around the world.

Board Games supplier in China – I have worked with this vendor for 20 years, they have supplied dozens of major & minor customers of mine.

If you would like more information on any of these factories or if you need help with a strategic approach to Sourcing or want to find specific factory types, please feel free to drop me a message.

TOY & GAME BUSINESS CONSULTANCY

In the nearly 15 years I have been Consulting for, we have advised hundreds of companies, set up distribution into most major markets and helped to accelerate our client’s growth. For more information on how we can help, check out our services here: www.KidsBrandInsight.com/services

Trump Administration’s Tariff Threats Turn to Reality: What Happens Next For The Toy & Game Business…?

Trump Administration’s Tariff Threats Turn to Reality: What Happens Next For The Toy & Game Business…?

THREATS OF TARIFFS BEING IMPOSED WERE MADE: HERE COMES THE REALITY

A few months back I wrote here about the threat of tariffs on trade from the incoming Trump administration. Now tariffs are a reality. President Trump announced 25% tariffs on Canada & Mexico, and 10% on China. Then following engagement between the leaders of Mexico & Canada, tariffs have been paused or postponed for now based on commitments made on various issues by those leaders to President Trump’s apparent satisfaction.

No such pause has been applied so far with regards to tariffs on China, and China has now reacted with some tariffs and commercial counter measures of their own. This topic therefore merits some analysis to understand what is happening and how it is going to affect the world of Toys & Games.

THE UNEVEN TARIFF BATTLE WITH MEXICO & CANADA

The economies of Mexico, Canada and the USA are very intertwined. Just in the automotive sector alone, car components tend to go back and forth across the borders of these 3 North American countries until they become part of a finished car. So any tariffs are going to be at least disruptive, and in all probability, have a significant inflationary effect on the U.S. economy, and therefore on the disposable spending power of U.S. consumers. This would not be good news for consumers who are still fighting their way out of a cost-of-living crisis, and it is not good news for the rest of the world to see potentially reduced spending in the world’s biggest Toy & Game market.

The hard reality of this situation though is that even though an escalating tariff war would be likely to harm U.S. consumers and the U.S. economy overall, it is not a fair fight. The U.S. is so much stronger economically, diplomatically and militarily that in the end Mexico and Canada are very likely to compromise and give President Trump at least most of what he demands, certainly enough for him to be able to declare a ‘victory’. That seems to be what has caused the delay of the tariffs on the other North American partners here. It would be better for the Toy business if these tariffs were never introduced, and hopefully if President Trump can declare a victory to his support base, these tariffs may not be go ahead.

In recent years, many North American focused Toy Cos have ramped up production in Mexico in particular – Mattel’s biggest factory is now in Mexico, Lego have a production facility there as do MGA. So tariffs would likely have a very difficult impact on the Toy business, here’s to hoping that they are not ever imposed, and that the leaders of the North American nations can find amicable solutions without the need for tariffs, and that he next 4 years of the Trump administration sees amicable relations between these closely bonded countries.

THE MAIN EVENT: TARIFFS ON CHINA & CHINA’S COUNTER MEASURES

The much thornier issue from the perspective of the Toy & Game industry is Trump’s 10% tariffs on China which have now gone into effect, triggering counter measures from China in term of tariffs on some energy imports from the USA, and the threat of greater restrictions on a few major U.S. businesses operating in China.

Whereas Mexico & Canada are ultimately likely to capitulate to U.S. demands, China is not. China’s leadership reportedly see themselves in strategic competition with the U.S.A. to break what they see as the U.S. hegemonic hold on global power via military, diplomatic and commercial strength. To that extent, China has already massively reduced their reliance on exports to the USA and have focused on building up export business to other countries around the world, as the following diagram shows. China’s approach will be to try to compete with the U.S. directly and via grand strategy, they are far less to deal with this current trade inflagration via personality and relationships with U.S. counterparts.

At the Spielwarenmesse-Nuremberg show last week, I sat in half a dozen meetings between Toy & Game companies and their factories, and in each of these, the customer was asking for cost reductions due to downward retail pressure on pricing. 10% tariffs added to goods from China are not going to help to increase demand/drive growth in the Toy & Game aisles of retail. And much as I have been a proponent and facilitator of the growth of production capacity outside of China, the reality is that the vast majority of Toys & Games – maybe as much as 80% of global supply are still coming from China, so this will definitely have a negative impact on the Toy business overall.

RISK OF FURTHER TARIFF ESCALATION

Chinese leadership and the nation of China are culturally predisposed to avoiding ‘losing face’, in other words, they will be culturally prevented from giving in to whatever demands President Trump wants to make. In a power struggle, China cannot afford to look weak against the incumbent global power they are seeking to compete with or even usurp.

The risk then is that further tariffs will be placed by the Trump administration against goods from China, so we could be starting with 10%, but ending up much higher. This is not scaremongering, this is a risk we need to consider and potentially diminish with our actions, because the big companies that dominate mass market retail where most of the volume of sales comes from in our business, are run by accountants and risk adverse corporate executives, as such they take decisions based on measured assessments of risk, and for the next 4 years, the risk of tariffs and trade wars flying back and forth between the USA and China looks high.

And also bear in mind, that is without any conversation about perceived risk of military flare up in or across the Taiwan strait, which would have a massive impact on Sourcing for Toys & Games. If trouble flared up in the Taiwan strait, then sanctions and other strong economic counter measures would most probably come into play, and shipments would be disrupted, if not prohibited. The Toy & Game business, as well as the rest of the world, really needs peace to reign.

IMMEDIATE EFFECT ON THE TOY & GAME INDUSTRY?

There are some obvious immediate effects from the tariffs imposed and threatened so far:

1). There are numerous alternative (albeit much smaller) Toy production hubs seemingly off the radar for tariffs at this stage:

a). Vietnam

b). India

c). Indonesia

Therefore we can expect to see uplift in demand from these countries (which in fact my company has definitely seen since President Trump was elected).

2). Further cost pressure on factories in China to mitigate the impact of the 10% tariffs. This is quite likely to push the least viable factories out of business and will make others choose to diversify or completely change their product categories they are producing. In other words, the impact of these sanctions is likely to reduce capacity in China for Toy & Game production to a small degree.

3). Increased retail pressure to move production away from China. Some retailers have been particularly aggressive about this, reportedly Walmart has committed to sourcing $10bn of merchandise from India for example, and I know from my factory partners in India that Walmart is all over them currently. https://corporate.walmart.com/news/2020/12/10/walmart-commits-to-sourcing-10-billion-of-india-made-goods-each-year-by-2027

4). Retailer downward price pressure – whether it is realistic and reasonable or not, if there is cost inflation, mass market retail will pressure costs down. This will not be easy for anyone.

LONG TERM EFFECT ON THE TOY & GAME INDUSTRY?

Fundamentally, by implementing tariffs on the world’s Number one Toy & Game production hub, President Trump is accelerating the ebbing away of production from China. This is arguably a good thing for China’s economy, because with worker wages at $800 or more per month in China now, this is a nation better suited to producing high end items such as real cars versus Toy cars!

The problem is for the Toy & Game industry which is still so reliant on China’s vast expertise, experience and supply chain for Toy production. These are turbulent times and I foresee the turbulence increasing, not reducing alas.

The function of Sourcing has not been as complicated and challenging for 40 years. The ‘ostrich with head in the sand’ approach is unlikely to be a successful formula for managing the challenges.

CAN WE HELP YOU MANAGE THIS ONGOING SUPPLY CHAIN DISRUPTION?

If you would like to discuss what is going on with Sourcing right now, and explore options to address the challenges with us, we are offering free, no-obligation advisory calls for a limited period of time, just DM to set up a call.

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