According to data from the Bureau of Labor Statistics, the cost of toys has declined 59 % since 1977. That’s an annual decrease of 1.98% per year.
According to the report, a toy costing $20 in 1977 would cost $8.14 today. That raises the question, why are toys more affordable now than they were 45 years ago? Here are some reasons:
- China opened up as a manufacturing source in the 1970s. Their unparalleled labor costs were far below those of developed countries. As a result, manufacturing moved from China and Europe to China with extreme drops in price.
- The demise of wholesaling. Forty years ago, wholesale companies played a pivotal role in the supply chain. Toy companies had to sell through them to get their products into many of the country’s stores. However, wholesaling added an additional non-value-added cost to the supply chain, and any retailer who purchased through a wholesaler found itself dramatically underpriced by Walmart.
- WALMART. Walmart has been saying no to price increases for much of the last several decades. As such, they have played a significant role in tampering down inflation. However, they stopped saying no two years ago as they could not hold back the waves of price increases stemming from the near collapse of the supply chain.
According to a Wall Street Journal article by Sarah Nassauer and Sharon Terlep, “Walmart Is Flexing Its Muscle Again,” Walmart is back to saying no. Here is how they describe the change:
Walmart, long known for its ability to lower prices by squeezing vendors, is once again showing its muscle…Its rivals—from Target Corp.to Amazon.com Inc.—are adopting a similar posture. Large retailers are canceling orders, resisting price increases and in some cases asking suppliers to provide discounts.“Walmart Is Flexing Its Muscle Again,” Sarah Nassauer and Sharon Terlep, Wall Street journal, November 12, 2022
This will put pressure on toy companies and o.e.m. manufacturers as they look for ways to cut costs and maintain current pricing. The good news is that container rates are back to pre-Covid levels (Spot Market Ocean Freight Rates, November 10, 2022 – Shanghai to Rotterdam Down 15%, Shanghai to Los Angeles Down 4%).
The not-so-good news is that that may not be enough. Stay tuned – it’s important.