Toy Industry 2021: Lots of fun — and work

Record-breaking sales vied with labor shortages and supply-chain bottlenecks, making 2021 another year of high drama for the U.S. toy market.

"This has been such a bizarre year and a weird fall in general," said James Zahn, senior editor at trade publication The Toy Book.

The year has been "OK, and then the last two or three months, very good," said owner Rob Pickering of Snapdoodle Toys, an independent Seattle retailer with five brick-and-mortar storefronts. "Our October and November have been record months, even with the supply chain issues."

U.S. toy sales leaped 19 percent to $11.0 billion in the first six months of 2021 compared with the same period last year, according to Port Washington, N.Y.-based consultancy NPD Group Inc.

Despite much fretting over inflation, the average price per toy was up only 6 percent to $10.51 over the first half of the year, while unit sales leaped a healthy 13 percent, NPD reported. Sales of plush toys — a common impulse buy — leaped 39 percent, as consumers returned to stores in droves. Meanwhile arts and crafts — a time-killer of choice when schools were closed last year — were off 1 percent.

Global toy sales rose 15 percent to $22.45 billion in the first six months of 2021 compared with the same period last year, NPD reported.

Meanwhile, labor shortages and astronomical shipping rates have challenged big manufacturers and small retailers alike.

On the all-important East Asian to North American West Coast routes, the industry-standard Freightos Baltos Index reported spot prices on containers topped $20,000 in September before declining to more than $14,000 in early December — still, up more than 300 percent from December 2020.

Not that the price matters for product-hungry retailers this late in the game.

"If your product has not been unloaded, you are not going to get it in time for Christmas," longtime industry observer Richard Gottlieb of New York's Global Toy Experts told Plastics News in late November.

Deep pockets have helped the biggest firms weather the logistics storm. Last summer, Bentonville, Ark.-based Walmart Inc. chartered its own ships to get product to market.

"Hasbro, Mattel and Lego have a very deep and broad team handling logistics," Gottlieb said. "They also have longstanding relationships with factories and carriers, so they're in a position to be first served.

"If you're a smaller company and you have always outsourced your logistics, you're going to have problems," he added.

Cases in point: Santa Monica, Calif.-based JAKKS Pacific Inc. blamed "logistics challenges" for a 2 percent year-to-year drop of net sales to $237.0 million for the quarter ending Sept. 30. But privately held Lego A/S of Billund, Denmark, reported first-half sales rose 46 percent to 23 billion Danish krone ($3.49 billion) compared with the same period in 2020.

At El Segundo, Calif.-based Mattel Inc., year-over-year sales for the same quarter climbed a healthy 8 percent to $1.76 billion. Pawtucket, R.I.-based Hasbro Inc. saw year-to-year sales for the same quarter leap 11 percent to $1.97 billion.

Hasbro's good numbers were tempered by the news of longtime CEO Brian Goldner's death Oct. 12.

None of this is making life easier for smaller players like Pickering. "In the toy business, if you buy enough, you often get free freight. Almost every company this year has either stopped it permanently or they've added a 10 or 20 percent freight surcharge," he said.

Supply will eventually catch up with demand, Gottlieb predicts. "Ships and containers are being built. We'll have a glut that will drive down prices. But this will take several years."

Supply chain challenges hardly end once that container is off-loaded. Labor shortages, including a dearth of truck drivers, have generated spot shortages even within major chains, Zahn said.

"Shipping to different parts of the country has varied. In theory, West Coast stores used to get most product, but not anymore. So containers now get to [the] East Coast before one gets delivered throughout the West Coast," Zahn said.

"I could find fully stocked Walmart and Targets near where I live in northern Illinois, while my colleagues can go to stores in the New York area and it's a totally different story," he said.

Both Global Toy Source and The Toy Book have responded to these challenges by offering online listings of manufacturers with domestic stock available and ready to ship.

"It's really in response to people who have extra shelves and need merchandise," said Gottlieb of Global Toy Source's Toy Matchmaker service.

Heading into the all-important holiday buying season, the big question has been not whether demand holds up, but whether buyers will find what they want on store shelves.

"I think the demand is huge. It's going to be a question of having inventory in place to meet demand," predicted Gottlieb.

"If I'm packing a container, I'm going to pack it with higher-value goods," Gottlieb added. "So we could see shortages of low-priced goods.

"It's going to be a big year for gift cards," he said.

Zahn added, "What we've been seeing consistently since this late August is that brick-and-mortar actually has a much better selection than online, but that could flip-flop tomorrow. It's all so unpredictable."

Still, smaller toy stores might find themselves on the outside looking in, as manufacturers throttle back product availability.

"Lego billed our credit card today for $10,000, which is less than one-fifth of what we ordered. But this means they've shipped less than we ordered," Pickering said.

"There isn't a store in our membership that hasn't had merchandise on order for a while," lamented Sue Warfield, president of Chicago-based trade group American Specialty Toy Retailing Association (ASTRA), which is primarily made up of independent retailers and smaller manufacturers. "But our stores are very good at being flexible. When you're independent, you learn to do that."

One advantage of independent stores: selection. Each of Snapdoodle's stores typically stock 4,000-6,000 SKUs, or different items, compared with 1,200-2,000 items in the average U.S. toy store.

Adding to the challenges that could daunt even the savviest exec: rapidly changing demographics.

"I maintain there is no average American shopper anymore," Gottlieb said. "Our consumers are bifurcated. You have the $19.95 shopper, but then you have, particularly in large urban areas, a husband and wife, both in their late 30s, having children and both of them making a pile of money. Their hot price isn't $19.95; it's $69.95 or $100."

These high-end buyers are flocking to experiential stores such as those run by Camp (nine high-volume urban outlets) and F.A.O. Schwarz in Manhattan's Rockefeller Plaza, Zahn said.

When trans-Pacific per-container costs exceeded that of a new small car, smaller toy companies began cramming as much unpackaged product as possible into a shipment, then doing final packaging here. But labor costs don't make this a viable long-term strategy.

"That is something that is neither sustainable or scalable," Zahn said. "It's just a temporary fix."

Disrupted supply chains have spurred talk of reshoring production stateside. That's not going to happen anytime soon, said Gottlieb, due to China's outsized role in global toy production.

"We no longer go to China because they're the lowest-price provider. We go there simply because their infrastructure is so huge that it is not replaceable," Gottlieb said. "By now, the entire industry is oriented around manufacturing in China."

Snapdoodle's Pickering agreed: "Even the German toys are now made in China. Probably 5-8 percent are American-made."

Like everyone else, Pickering has had to cope with rising labor costs this year.

"We have lucked out. We've done well with good benefits and having good rapport with the community," he reported. "But we are having to pay more and more. Labor has gone up."

Toy trade shows look to make a comeback this winter. Spielwarenmesse 2022 in Nuremberg, Germany — which dubs itself the world's biggest toy show — will run Feb. 2-6. Toy Fair New York will run Feb. 19-22 in the Jacob K. Javits Center.

"It looks like we're up and running again," Gottlieb said. "I think after experiencing virtual trade shows, those who go to shows are grateful to be back and have human contact."

Still, Gottlieb predicts hybrid online/in-person shows in the future. "[An online show] is effective in presenting evergreen products, but it's a challenge in presenting new product," he said.

Eager vendors have already booked more than 70 percent of the floor space for ASTRA's June show in Long Beach, Calif., Warfield said.

"There comes a point at which you're trying to choose a product and you can only see it online. You can't tell, you can't touch it and see how sturdy it is," she said.

Another kind of live show is making a comeback, Zahn reported: fan conventions and company-sponsored live events, like Mattel's Hot Wheels Legends tour. Such shows are crucial to the growing legion of "kidult" collectors who "enjoy fancy packaging because they're not going to open it but keep it on their shelves."

"It's a growing market," Zahn said.

One big show that will be on hiatus for at least another year is the Hong Kong Toys & Game Fair, which was folded into the HKTDC Lifestyle Sourcing Show | Physical + Online, which ran Dec. 1-3.

In 2021 the fair, which was held every January pre-pandemic, was reduced in size and included in July's HKTDC International Sourcing Show.

A deal-killer for many would-be attendees: Hong Kong still requires 14 days compulsory quarantine for all incoming travelers.