Wow, what a roller coaster of a year, and if we are lucky we are coming out of the corkscrew and into some level of stability. I went back to look at my earlier blogs about this year to see if I had made any sense in a world of nonsense.
In some cases yes, and some cases no. In the end, no one has a crystal ball…just hopefully educated insight and instincts. In January before the inauguration of Trump, I suggested the year would be stable (unless tariffs come). Well, they came! I predicted in early January the rate for China would be 10% and maybe even lower if toys got excluded again.
Well, for about six weeks I was right, and then I was very wrong when the rate went from 10% in January to 20% to 54% to 145% in the matter of about nine weeks. Then, for a couple of months the China rate remained at 145%. We all knew this was not sustainable, and by June it settled at 30%, which by the way is a horrifically high rate for China, but when you are starring at 145% you find a way to make 30% work.
I’ve been saying for a very long time that China is the prime manufacturing hub for toys, and moving out might not be a very good idea for most toy importers. I think that is proving to be true. Vietnam is at 20% (plus 40% on China components), India is 25%, and who knows could be going higher, Mexico is at least 25%, and Indonesia is 19%. All of these alternative markets are more expensive to operate in because of the cost of getting components there, investment to set up, lower productivity, higher costs, less reliable transportation, and more. So basically, at best ,it’s a wash and more likely would cost more to make most toys outside of China. Also to consider is safety and quality reliability where China also has a big advantage on top of a complete one-stop-shop supply support chain.
On March 1st during NY Toy Fair, the rate increased from 10% to 20%. We lost our minds that week, and the talk at the show was all about tariffs which frankly made sense. If we’d only known then where things would go over the following five weeks, we all would have jumped off the George Washington Bridge together at the mention of 145%! At that time, I advocated for us all (including retailers) to “pass it on.” I remain committed to that statement, as clearly there is not enough margin for any of us to absorb 20% or 30%. In April after “liberation day,” things were really looking grim for US China relations, and I suggested if you were in Vietnam, India, or Indonesia, you were lucky at least for 90 days and to ship, ship, ship which people did. However, as I said for a long time about this tariff regime, “you can run but you can’t hide from this policy,” and we can now see that’s true. Trump has a vision, some might say a fantasy, about tariffs. However, until the consumer and the “accepted” statistics show prices going up, unemployment going up, and consumer sentiment going down; we are going to have to live with this policy at least for the next 3 years. For sure, at least 10% across the board unless we can get an exemption for toys, which by the way is a discussion point in the White House, according to the folks at the TA. Of course, don’t hold your breath for that, but it could happen. Plan on 30%, hope for 10% and pray for zero!
The administration now clearly understands the symbiotic relationship between the US and China (think rare earth) and it’s near and long-term importance to our economy and global trade stability. There is still a big deal looming between the two “big men,” and my bet is that it’s much more likely that tariffs on China will go down rather than up in the coming weeks and months.
For now, we are pegging 30% for the balance of the year and for setting pricing for 2026. If the rate goes down we will adjust downwards. I still urge caution around Vietnam, and I believe inflation in production costs will continue to escalate to a point that almost all manufacturing there will be less than viable over the next few years, if not sooner. I am pegging Indonesia as the next best emerging market for toy manufacturing but that is a few years away and at a significant cost for makers setting up there,. With a big learning curve and a less than convenient place to travel to, I’m still “all in” with China.
From a lobbying perspective, the TA led by Greg Ahearn and Katherine Belliveau along with a handful of members doing media have been pushing our industries issues. First and foremost was that “tariffs are a tax on businesses and consumers” and are not paid by the export country. That’s now clearly understood and agreed upon, even by key members of the administration.
The second issues we pushed was that while we will try to bring some production back to the USA, for the most part it’s not practical or even possible. The administration also has agreed on this, with even Trump saying directly “we don’t need to make things like textiles and tennis shoes here.’ The next big issue we’ve been driving and need to keep driving is that these tariffs are killing our industry and costing our member companies many millions in lost profits, which are already costing jobs, profits, market caps, and sales volume for the year–not to mention debt restructuring and/or closing of many companies. We are also stressing the unique nature of our industry and the value we bring to families and children. So, the fight goes on. We are great marketers and have turned toys into the poster child for tariffs and hopefully that will help us in the long run.
At Basic Fun, we had a record high sales year in 2024 and going into 2025 forecasted being up at least 10%. Well, that’s out the window given the loss of six weeks of shipping and all the uncertainty and interruptions with listings and shipping plans. Frankly speaking, we’ll be lucky to be flat and could even be off 10% or more. I suspect a lot of companies will be in the same place and possibly worse off.
You can’t imagine consumer sentiments will be high in the fourth quarter, you can’t assume retailers will be leaning in on inventory this year, and if sales are up, it’s likely to be be because of the increase in the price of the goods because of tariffs. On the bright side, the “kidults” are buying, collectables are hot, and toys always tend to be resilient to economic downturns. So, it’s another one of those crazy years we’ve been experiencing since Toys “R” Us went out of business in the US. Let’s all keep our heads down, ship the balance of the year, get ready to preview our fall lines, pass it on, and hope that for the best for 2026.
A final note, two weeks ago I attended the funeral of a true legend and icon of our industry, Alan Hassenfeld, former CEO of Hasbro who passed away last month at 76. Alan was a great toy man, a great friend, and a great humanitarian. He left a lasting positive impact on our business and the world and all that were lucky enough to know him. I was proud to call him a friend, and he was a mentor to me over the breadth of my career. He will be dearly missed. May he rest in peace and his memory be a blessing.
