Lego To Be Major Beneficiary Of Ongoing Shipping Chaos?
We knew this Q4 was going to be crazy, we knew this earlier in the year when the massive shipping cost increases and container shortages came to the fore. Now we have just begun the key selling period of the year in retail, and things are just crazy out there. We are hearing stories about toy companies having stock sat out in factories and ports without any way to get it transported to market. Air freight traffic into the USA for the first 7 months of this year was more than double of normal levels according to Reuters, but can’t offer the critical mass to provide the solution to the current crisis.
So, what does all this mean in practical terms? Well, it is already starting to mean some gaps on shelves, as consumers heed the warnings to buy early. Resupply is by no means guaranteed, and heading into 2022, many toy companies are going to be receiving shipments on products which have already launched and presumably in many cases already launched. So, we may well see stock coming in and going straight into clearance channels. Normally in business cash is king, and for this reason toy inventories are normally kept very tight to avoid leaving too much cash in stock. Now though the issue is potentially too little stock at the required time and far too much afterwards!
Looking on the bright side though, consumer demand remains very strong, and anyone who does have stock should end up pretty clean heading into 2022, even if some stock has to be marked down on arrival (!).
There could be one major beneficiary of the current chaos – Lego (along with some other companies) because they own their own factories close to market. Lego have their own production facilities in China, Mexico and 3 in Europe, which means that they are not in the same game as all the other major toy companies in shipping the vast majority of their production from Asia via scarce and overpriced container. Which means that when other hot toys start to run short this Christmas, Lego should have less issues on this front. Because of ‘near shore’ manufacturing they are also in a better position to respond to demand levels without the need for lengthy (and currently indeterminate) shipping around the world.
The reality is that toy manufacturing is changing, and China is seeing some toy manufacturing slip away to other Asian countries. What hasn’t really happened yet though is a significant uplift in ‘nearshoring’ of manufacturing. Perhaps this crazy year will push more toy companies to reconsider their Sourcing strategies and to look closer to home?
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We also run a Strategic Sourcing Consultancy advising toy & game companies around the world on their Sourcing strategies, reviewing their vendor base & suggesting improvements. To date our Sourcing services have saved our clients $tens of millions. For mor einformation on how we can help, just go to: www.ToyTeamAsia.com