Happy New Year, once again from Hong Kong!
It’s pretty clear that we should all be ready for another rocky year in 2023. The industry is experiencing a significant inventory imbalance, affecting both retailers, manufacturers and the factories that produce the toys. There is no doubt it’s going to take some time to unwind this situation. The big question is whether or not it’s a one-quarter, two-quarter, or full-year event.
There is also a noticeable reset of consumer demand that affected Q4 2022 and seemingly will continue into the first half of 2023 if not longer that increases in prices can’t overcome. This goes not only for the U.S. market situation but affects the global toy and consumer goods markets and manufacturing. This is the hangover from the effects of Covid and the supply chain crisis of the past three years. So, hold on tight this year and prepare for rough times but be ready for the rebound when it comes.
The good news is that the rebound always comes…always! Historically, the U.S. is the first to experience a rebound. We are, therefore, the quickest to emerge from hard times. That will likely happen here, and the rest of the world will follow.
Here on the ground in Hong Kong and just a few miles from the border, people and in China are ready to get out of the house. They want to spend, entertain, be entertained, and travel.
The Chinese and Hong Kong people are feeling how the rest of the world felt when we emerged from masking and quarantining in late 2021 and early 2022. With 1.4 billion people getting ready to return to the world, once they shake off the shock of reopening, it will help kick-start a global recovery.
By being on the ground here, I am able to the reopening taking place. When I was here in October, it felt almost post-9/11, with an empty city and folks staying very close to home. Now that the Government has lifted Covid restrictions, Chinese consumers are out and spending heavily. It’s a pleasure to hear people getting excited about Christmas, New Year, and Chinese New Year. The malls, restaurants, and public spaces are packed here in Hong Kong.
The big question here is what is going to happen in the near term as China rips off the Band-Aid and opens up fully which they are now doing? I have to say it was a bit of a shock to me they would go so quickly and not a bit more staged. That says that the economic and social disruption is more concerning to the leadership than the consequences of opening quickly.
Time will tell if this was the right strategy or not in the big picture. As the man said “one death is a tragedy, one million is a statistic” that seems like it was true in the US as we surpassed 1m deaths from Covid and it will be true in China.
For us, the big question is, will we, as an industry, travel to Hong Kong and China close to the levels we’ve done in the past? Surely the answer is “No” for the foreseeable future. Retail buyers have seen that they can be effective previewing via zoom and in person just a couple of times of year in the U.S. in places like London and Nuremberg.
Typically on January 3rd, my office would have a handful of our team from the U.S. here in H.K. ready to meet with buyers. This year I’m the only one on hand, not to see buyers but to work with the team to move 2023 lines forward.
We’d typically have 150+ scheduled meetings and often end up with over 200 guests through our showrooms during the first two weeks of the year. So far, we’ve got only four appointments!
The local toy show is going forward in Wanchai, but many Chinese companies need visas to come into town, and only a few foreign buyers are expected. I usually stay until January 15th, but I leave on the 8th.
We have two showroom spaces in our building, the China Chem plaza, which is as close to a toy center as the industry has. Sadly I’m going to give up one of the rooms, which is 50% of our showroom space. There is no way to predict when folks will come back in force, so we’ll squeeze the line into one space and make due.
It’s still important when I’m here to sit back and view the product on display and see the line laid out. It’s also crucial for the team to have more than just all the products sitting in boxes by each staff’s desk. It’s a visual business. However, having as much space as usual at this point makes little sense.
As for the local commercial real estate market in TST East, the word is that there will be plenty of space available if and when folks come back. Rents will be slightly lower, and landlords will be more flexible.
As I’ve said in the past, I don’t see the level of toy manufacturing changing much anytime soon. 80% or more of the world’s toys will still be made in China for as long as most of us are in this business.
Given that China is the hub of manufacturing, Hong Kong will continue to be the gateway to China, as it’s been for over 150 years. At some point, led by the biggest of the big box retailers, Hong Kong will come back as those big retailers will always want to find ways to get close to the source. The way to get close is to come to Hong Kong and go up to China.
The most qualified and dependable back office staff are still here in Hong Kong to support all of us. It might take a few years, but Hong Kong will be back. In the meantime, companies with offices in H.K. should plan to come back to work with t teams at least twice a year.
Hong Kong is officially open for business. Once you come back, you will remember the good times, fabulous places, and excellent work you do here, as I’ve been lucky enough to experience both in October and now being back in this great city today.
So, let’s keep our heads down, nose to the grindstone, and work together to get through what appears to be yet another challenging year in 2023, and the light will begin to appear at the end of this long tunnel. In the end, we are in the best industry in the world, making things that make children happy, and what could be wrong with that?
All the best in 2023!