The higher the price for a product, the more likely it will make it to store shelves. Expect shortages of lower priced toys.
Everyone and I mean everyone, is feeling jittery about the coming Christmas season. The worries are not over sales which, at least according to NPD, continue to look good. NPD tells us that sales were up 15% over a powerful first half in 2020 and 28% ahead of 2019.
And the worries aren’t about Covid, which is beyond our control. Toy companies are hopeful that the worst is indeed behind us but fatalistic about what comes next.
The jitters are around whether products will make it to store shelves in sufficient numbers. The container and container ship shortage continues while domestic transport, at least in the U.S., is overwhelmed by volume and a lack of drivers. Those with whom I speak worry first about securing a container, then about whether they can get a ship, and if successful, what it is going to cost them to get it from there to here.
So, what is the outlook? Here are my thoughts:
Toy companies are not sitting back
Toy companies are cutting back on SKUs and reducing packaging to fit more units on a container. In addition, they are shopping for ports, shipping earlier, closing factories, adding container ship providers, and seeking alternative sources of supply. Operations managers, once in the shadows, are now point-persons for a successful year.
The times favor bigger companies
The times favor the larger companies. Their logistics and operations resources are in-house and vast. They have leverage over shipping companies and factories due to the sheer volume they can deliver.
Larger companies are not immune to increased freight costs, but their exposure is not as great as smaller companies because they have more negotiating power. Large companies (particularly the publicly held corporations) have the deep pockets needed to manage challenges to profitability. Finally, due to their size and long-term relationships with the retail community, they can better push through price increases.
I anticipate that the major toy companies will weather the storm far better than their smaller counterparts. Their products will make it to store shelves, but I expect to see outages of hot products as we move into the holidays. I also see spot outages even for the big companies as they try to keep products flowing.
Smaller companies struggle
Smaller companies are struggling with ocean freight prices that they have neither the size, the financing, nor operational resources with which to deal. They have little negotiating power with containerized freight companies and even less leverage with their retail customers.
Smaller companies will supply, although later than they or their customers would like, the initial stock for store sets. I am, however, concerned about their ability to seamlessly restock shelves.
Out of Stocks in Lower Priced Products
If you are a company that makes products at varying price points, and you must decide which to put on a container, you will go with higher-priced products. Why, when the cost of the container is greater than the value of the goods, and space on containers is scarce, some companies will decide not to ship. Accordingly, the higher the price for a product, the more likely it will make it to store shelves. Expect shortages of lower-priced toys.