COVID-19 wreaked havoc on the best-laid plans of everyone this year — and that includes the toy industry.
“It’s been a challenging nine months,” said Aaron Muderick, founder of Crazy Aaron’s Thinking Putty in Norristown, Pa. On a positive note, harried parents coping with quarantined kids fueled strong growth in puzzles, games, and arts and crafts.
“No one expected that sales were going to skyrocket,” said James Zahn, senior editor at trade publication The Toy Book. Store closures and mandated social-distancing rules accelerated a yearslong migration to e-commerce.
Meanwhile, the industry is still experiencing disruptions that began with the shutdown of Chinese factories in January.
“The whole supply chain right now is in kinks,” said longtime industry observer Richard Gottlieb of New York’s Global Toy Experts. And the travel lockdown sent shudders though an industry so dependent on face-to-face meetings and cast a shadow of the trade show business.
Like everyone else, the industry had little idea of what lay in store in March, when the U.S. lockdowns began in earnest.
“What’s performing well now is very, very different from what I expected in January,” said Mark Carson, co-founder and president of Elkhorn, Neb.-based Fat Brain Toys Inc.
Publicly traded companies like Toronto-based Spin Master Corp. and Everett, Wash.-based Funko Inc. withdrew their 2020 financial outlooks in mid-March, just weeks after rolling them out.
Subsequent sales were strong, but with some laggards. Port Washington, N.Y.-based NPD Group Inc. reported U.S. toy sales surged a hefty 19.1 percent to $13.7 billion in the first nine months of the year, compared with the year-before period.
The biggest jumps were in such time-eating categories as building sets, up 30 percent; outdoor and sports toys, up 31 percent; and games and puzzles, up 42 percent.
Dolls also did well, Gottlieb said.
Barbie’s third-quarter sales leaped 29 percent in the third quarter from the previous year, helping whipsaw El Segundo, Calif-based Mattel Inc. out of a COVID-induced year-to-year second-quarter trough of gross sales (down 15 percent to $815 million) to a 10 percent third-quarter rise to $1.82 billion.
“There’s a tendency to go back to the familiar in times of uncertainty,” said Keith Meggs, founder and CEO of El Segundo, Calif.-based Far Out Toys.
Low-tech offerings were boffo with kids and parents suffering from screen fatigue.
“There’s a point at which I don’t want to watch TV because I’ve been looking at a computer screen all day,” said Sue Warfield, interim president of Chicago-based trade group American Specialty Toy Retailing Association.
Sales of action figures were off 6 percent as movie theaters shut down, putting on hold a year’s worth of licenses based on tent-pole movies.
“If you’re heavy into action figures, you’re struggling this year,” Gottlieb said.
Licensees were also hurt by the nationwide cancellation of the wildly popular Comic-Con shows. Collectible figure specialist Funko, whose business leans heavily on show exclusives, saw its third-quarter net sales tumble 14 percent to $191.2 million, compared with the third quarter of 2019.
“There’s a lot of product that gets moved at those shows,” The Toy Book’s Zahn said. “That whole summer business just vaporized.”
Sales of plush toys dipped 5 percent for the first three quarters, according to NPD.
“Kids couldn’t touch them. Retailers had to put them out of reach. That makes a huge difference,” ASTRA’s Warfield said.
China’s January nationwide lockdown kicked off a year of living dangerously for the global toy business.
“Up and down the supply chain, from booking containers from China to the ships on the water to getting through port to getting product on rail, just about everything has either been bottlenecked or delayed,” said Carson. “Numerous containers that should have arrived two weeks ago are probably going to miss the holiday window.”
Costs are up: On the all-important East Asian to North American West Coast routes, spot prices on containers have nearly tripled from $1,371 in January to $3,874 in December, according to the industry-standard Freightos Baltic Index.
Longer-than-usual wait times at West Coast ports and a shortage of truck drivers have added to the holiday blues, Gottlieb said.
‘I think there’s going to be some disappointed kids on Christmas morning,” Gottlieb said. ” We could certainly make the case this year for 12 days of Christmas.”
Zahn struck an optimistic note.
“Most of the retailers are pretty well stocked right now,” he told Plastics News. “I think we will get through the season pretty well.”
But distributors and retailers who get product too late for Christmas will have to warehouse it, Zahn said.
“If stuff doesn’t have a place to go, you have to pay rent until sometime next year,” he said.
The domestic supply chain has been stressed, too.
Aurora, Colo.-based Froggy’s Lair makes aquarium kits for African dwarf frogs. But the lockdown spurred a run on pet products at big-box retailers. That compelled the company’s U.S. supplier of 1-gallon octagon acrylic tanks to increase its minimum order and boost prices 30 percent, said Ryp Walters, founder and president of Froggy’s Lair.
“That just completely torqued our finances,” said Walters.
“In 2021, we’re announcing a new tank. I’m literally paying for my own mold. And I’m using my own injection molder here in Denver to actually produce it,” Walters said.
“Omnichannel,” the seamless blending of bricks and mortar with online shopping, has been a buzzword this year, Zahn said.
Big-box retailers are “using their stores as distribution centers,” Zahn noted. A grandma in Topeka, Kan., can now order a doll that Sally’s dad can pick up at a Walmart or Target in Tallahassee, Fla.
Without the resources of the big players, the 740 independent retailers or local chains that are members of ASTRA have had to improvise, Warfield said.
“They’ve upped the game with their websites and online selling,” Warfield said. “Many are now offering online local delivery and curbside pickup.”
But some retailers will close permanently, Gottlieb predicted.
“Unfortunately, many toy stores are old school. Some don’t even have an online presence,” said Gottlieb.
Manufacturers like Froggy’s Lair are helping retailers out with custom videos and targeted pay-per-click campaigns.
“We’re coming up with some really creative ways to support our sales reps and retailers with prepackaged social media content,” Walters said.
At Fat Brain Toys, sales through the company’s website have nearly doubled this year, Carson said. Meanwhile, sales to small stores have straggled.
Including all channels, the 60-person company has annual sales topping $50 million, Carson said. The 18-year-old company specializes in low-tech preschool and STEM offerings and multigenerational games.
Far Out’s Meggs sees gold in them thar hills.
“There’s a great opportunity in all of this. At some point, people do tire of the old and I think there’s going to be quite a craving for the new,” he said. “We’re producing even more concepts and more great ideas for products.”
Founded in 2017 by a team of industry veterans, the vertically integrated company develops and manufactures its own intellectual property and products featuring such brands as NASCAR and 8-year-old YouTube superstar Ryan Kaji. Far Out also designs and manufactures house-branded toys for big retailers like Walmart, Meggs said.
The company has 600 injection molding machines at its factories in Dongguan, China, and Hanoi, Vietnam.
Far Out has had to make its way in a post-Toys R Us world. The now-bankrupt behemoth provided an unusually accepting landing spot for new products and companies, Meggs said.
“We have had to cater to the majors from the start,” he said.
In less than a week in March, the 22-year-old Crazy Aaron’s Enterprises pivoted to making the season’s must-have product: hand sanitizer.
“We have to keep people busy, keep things moving,” said Muderick, who points with pride to his 80-plus staff, including workers with special needs.
Three months later, when Pennsylvania lifted its lockdown, the company transitioned back to making silicone rubber-based putty. Lesson learned on the value of diversification, though: The company recently launched a product line of colorful foaming soaps, delivered in a plastic bottle, that encourages kids to scrub.
“We have good initial orders” for Crazy Aaron’s Clean With Color, Muderick reports.
The travel shutdown has had a big impact on the industry’s creative and marketing sides.
“The biggest limiter on our ability to do business has been the fact that none of us can travel to China. And that is very important especially as we’re creating our own products and designs,” said Far Out Toys’ Meggs.
Zoom sales are not as satisfying as the real thing, said Fat Brain’s Carson. “A lot of people are getting tired of the ‘virtualness.’ It’s been really hard to replace that in-person demo and getting hands on the product,” he said.
COVID-19 has also forced the cancellations and delays of trade shows.
The New York Toy Fair, normally in February, is tentatively scheduled to take place May 1-4, 2021, at the Javits Center, according to sponsor New York-based Toy Association.
The trade group’s cancellation of sister show Toy Fair Dallas in October disappointed smaller players.
“It’s an opportunity for a smaller fish to play in a smaller pond,” said Meggs.
ASTRA canceled its annual Marketplace & Academy, scheduled for June 7-10, 2020, in Orlando, Fla. Next year’s event has been pushed back to Aug. 5-8 in Minneapolis.
In Nuremberg, Germany, the huge Spielwarenmesse show, previously held Jan. 29 to Feb. 2, 2020, is slated for July 20-24, 2021.
Other Spielwarenmesse-affiliated shows took their COVID-19 knocks. Kids India, scheduled for October 2020 in Mumbai, was postponed; no date for 2021 has been set.
In New York and Nuremberg, fair sponsors kicked off virtual marketplaces in 2020.
The Hong Kong Toys & Games Fair, normally scheduled for early January, has been rescheduled to July 26-29. A digital fair will run March 17-31.
Gottlieb and Zahn predict smaller attendance for the delayed shows. The big toy fairs are typically very early in the year so orders can be placed and product shipped in time for the all-important holiday buying season.
But Gottlieb predicts a bounce-back in 2022.
“I personally think physical shows are very important,” he said.
Zahn foresees a sea change in the show business.
“The trade shows are going to be a little bit smaller, but they’re always going to have a digital component,” he said.
The signs are auspicious for 2021, but after the year that was, no one can say for certain.
“I expect the toy industry to have a good year next year. But that is predicated on the theaters opening up again and we getting our supply chain worked out,” Gottlieb said.
“People have learned that there are more places in their community than they realized before, so that they will continue to support their community. That local feeling will continue,” said ASTRA’s Warfield.
“I’m looking forward to the return of impulse shopping, the return of the pleasure of taking children to the toy store,” Muderick said.
This post appeared first on Plastics News.
