A Tough Year for Toys; is Wal-Mart Part of the Problem?

You know things are starting to look a little grim for this year’s toy sales when you see a headline like this one from CNBC:  “Pink slips for elves? Toy sales down after early rush.”  Toy sales were down between 5 and 6 percent through the end of the third quarter so we knew things were not faring well. Still, the 4th quarter is the industry’s power quarter and a strong end to the year could solve a lot of problems.

It’s not looking good, however, and here is how CNBC positions it:  “After an early frenzy of shoppers socking toys away for the holidays on layaway, the brief glimmer of hope for a turnaround in the beleaguered toy industry has vanished.”   It’s never good when the media characterizes you as beleaguered.

So, what’s going on?  Here is what I think:

As I have written before, there is far more play product available than there is demand.  Mobile devices and apps (many free or nearly so) have joined video games and traditional toys in the fight for people’s time and dollars.  I see this as a non-cyclical issue which is going to take a long time to shake out.

Wal-Mart is struggling.  The retailer is responsible for over 35% of industry sales and their same store sales have been off through the third quarter.  Bottom line, if the biggest toy retailer is struggling, the industry is struggling.

Consumers are trading down, particularly low income shoppers.  A  MarketWatch article, “Wal-Mart, retailers signal competitive holiday,” quotes Wal-Mart’ Chief Financial Officer Charles as stating that “…consumers are switching to chicken instead of steak to save money.”   Maybe apps look a lot better if you have less money to spend.

I spoke to one leading retailer who said that they don’t think the year is going to be that bad.  After all, Christmas is coming and there will still be a need to buy toys for children.  That may be correct, after all everyone wants to see a present under the tree and it’s hard to wrap an app. 


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