Why The Current Cost Inflation May Be A Good Thing For The Toy Business In The Long Run
The news is currently full of stories about how rampant inflation is, and pandemic ravaged governments seem to have caused this inflation partly by printing unprecedented amounts of money. Alongside this the variance in demand from the usual cycle caused by a world in lockdown have wreaked havoc on global supply chains and further fuelled inflation.
There is plenty of evidence of inflation, but just as one example China’s PPI (producer price index), which tracks factory cost inflation, shows that factory gate prices in Sept 2021 were more than 10% higher versus Sept 2020. Added to this of course would be exorbitant shipping costs which have seen 500%-1000% cost inflation.
So, consumers are having their savings eroded if they hold them in cash, and their purchasing power reduced, which is not normally a good thing for companies in the consumer products space because reduced ‘real’ spending capacity tends to reduce consumption. The difference though in the toy business is that we have had ridiculously low-price points for so long due to vicious price competition in retail leading to huge pressure on toy companies to hold pricing despite all the upward pressures on pricing.
By way of an anecdotal example, a basic action figure or fashion doll in the UK might retail for £9.99, and if you went back 20 or even 30 years, that toy would have been a similar price. In that same time in the UK, if you want to buy a pint of beer, the cost has gone in the same period from c. £1.50 to £2.00 a couple of decades back to £5+ today, which is a massive increase. Yet toy companies have been expected to hold the line, to find cost savings and to reduce not increase costs while all other categories increase pricing year on year.
This year’s trials and tribulations have finally allowed toy companies to increase pricing with retail support. And typically, when prices go up they never come back down unless there is some sort of crisis of demand. Hopefully all the stress and pain our industry has felt this year will be good in the long term because when variable costs like oil and shipping reduce (which they will, eventually!), the price points are unlikely to come down.
We run a Consultancy business helping toy & games companies get ahead. For more information, check out www.KidsBrandInsight.com/services
Our Managing Director, Steve Reece, works with a limited number of companies as a non-executive director, independent board director and as a board advised. If you are interested in finding out more about this, check out the link to our service above.