Business is full of surprises. While I often tell myself that all surprises are not bad, it seems often that most are. Each year new surprises crop up – brand new, unanticipated, never before seen unfortunate turns of events.
Last year it was labor costs skyrocketing, and they continue to rise, though at a somewhat predictable rate that both factories and toy companies can factor into their plans. Before that it was availability of electricity. And then there is the ongoing rise in the value of China’s currency.
But cotton and polyester prices have taken a historic jump in recent weeks as a result of increased demand. One factory team has reported that in the last five weeks cotton prices are up 20% and the pricing offered to the factories is spot pricing, with the material's prices changing several times a day. Toy companies are holding on orders and factories cannot accept orders without knowing what the fabrics will cost tomorrorow, or even later that same day. Cotton producing countries are cutting exports to meet their own needs first.
The price of polyester was up 70% recently, a key fabric in the skins and filling of soft toys. It has since fallen back to just 35% higher, and today the price seems to be on the rise again.
If factories can’t take orders, and toy companies won’t make orders, then there will be an inevitalble shortage of soft toys on the shelves 3-6 months down the road, and those that do hit the shelves will be another 10-20% higher in costs. That will be bad for the toy industry, but the garment industry will be hit even harder. In 3-6 months we may see garment prices up 20-50% according to the factory's estimate.
And on top of that ABS plastic prices have recently risen another 30%. Again.
If factories can't take orders, and toy companies won’t make orders, then after the Chinese New Year factories will not be able to afford to hire workers that they will need for the rest of the year. If they can’t hire in first and second quarters, then later in the year they won’t be able to get the workers they will need, at any price, to man the factories for the high season when factories are humming making goods for Christmas.
Hmmmm, not good.
I wonder what it will be next year. Global recession? Been there, got the T-shirt. Toy safety recalls and increased costs due to new safety requirements? Check. Been there, done that. Cost of materials and labor up? Yup. Survived that, too.
It makes me glad I don’t own a toy factory.
Maybe the worst is behind us and now we will have seven years of good luck and prosperity. That is my prediction. That is my story, and I am sticking to it.
I wish you all the very best in the coming new year and beyond.